Georgia has always been known for exceptional music talent with home-grown artists like James Brown, REM, Jermaine Dupri, Usher, Ludacris, the Allman Brothers and Alan Jackson. Now Georgia is set to become an even bigger venue for music with its new musical tax credit.
The Georgia Music Investment Act allows a credit for the production of live musical or theatrical performances, or recorded musical performances. The credit amount is 15% of expenditures plus an additional 5% if the expenditures are made in Tier 1 or 2 counties. (Georgia’s county Tier rankings are based on per capita income and the unemployment rate.)
The new credit is available to Georgia musicians and music producers who spend at least $500,000 in Georgia during a tax year. If recordings are produced for a movie or TV show, the credit is allowed for a lower spending level, $250,000. Small productions can get a credit if they spend at least $100,000 on recorded musical performances.
The credit is only available if the musical or theatrical operation spends 10 days or has a production site for at least 10 days in Georgia. Under new regulations proposed by the Department of Revenue, “production site” means:
(1) For a musical or theatrical performance, the site or sites where the production is developed, prepared, planned, rehearsed, or performed.
(2) For a recorded musical performance, the site or sites where the production is prepared, planned, or recorded.
Not Transferable, but Refundable Against Withholding
The credits may not be sold or transferred, unlike the other Georgia entertainment credits. If the credits generated exceed a production company’s Georgia income tax liability, the excess will not be refunded, but instead can be taken against the company’s employer withholding liability.
Qualified Production Expenditures
“Qualified production expenditures” include production expenditures incurred in Georgia involving the following activities:
● set construction and operation
● wardrobe, make-up, accessories, and related services
● costs associated with photography and sound synchronization, expenditures incurred with Georgia companies for sound recordings and musical compositions, lighting, and related services and materials
● editing and related services
● rental of facilities and equipment
● leasing of vehicles
● costs of food and lodging
● total aggregate payroll
● talent and producer fees, technical fees and crew fees
● per diem costs paid to employees
● airfare, if purchased through a Georgia travel agency or travel company
● insurance costs and bonding, if purchased through a Georgia insurance agency
● other direct costs of producing the project in accordance with generally accepted entertainment industry practices
● payments to a loan-out company
Preapprovals, Carryforwards and Passthroughs
Companies can get pre-approval for their credits by filing Form IT-MC-AP. Unused credits may be carried forward for five years. For passthrough entities, such as LLCs, partnerships and S Corporations, the musical tax credit will pass to members, shareholders, or partners based on their year ending profit/loss percentage.
Productions Spanning More than One Year
A musical or theatrical performance or recorded musical performance which occurs over two or more years is considered a single project. A production company should request preapproval for the year the spending threshold is met.
Example: A production company has $700,000 in qualified production expenditures during two years (they spend $300,000 in Year 1 and $400,000 in Year 2) producing one musical or theatrical performance. The production company may aggregate their expenditures over the two years for this single project to achieve the $500,000 spending threshold. The production company must request preapproval in Year 2 for $700,000 (the year the $500,000 spending threshold is met), and if preapproved, claim the credit on their Year 2 Georgia income tax return.
Like film credits, the State has budgeted a limited amount for the credits each year. In 2018, the program is capped at $5 million. The cap increases to $10 million in 2019 and $15 million per year from 2020 through 2022. After 2022, the musical tax credit expires. No one taxpayer can receive more than 20% of the total aggregate statewide credit cap in a given year.
The musical tax credit put music productions on par with film productions in the State of Georgia’s credits and incentives program. Georgia continues to aggressively pursue economic development with these tax breaks and continues to outpace other states in attracting the entertainment industry.