September 8, 2020

Important Changes to the Georgia Film Tax Credit

Many are unaware of this, but Georgia is known as the Hollywood of the South because of all the film productions which choose the state as the location of choice. In fact, according to the Georgia Department of Economic Development, there was a new record set last year with 399 productions filmed representing a $2.9B infusion to the state economy. One reason many production companies select the state is because of the robust saving opportunities available through the Georgia Film Tax Credit. In fact, in 2017 alone there were $915M in credits issued to qualifying production companies. The credit includes various income and payroll credits but recently passed legislation makes several important changes. On August 4, 2020, Georgia Governor Brian Kemp signed House Bill 1037 (HB 1037) which outlines several changes including a new application process, mandatory audits, timing of credit issuance and eligibility modifications. To help clients, prospects, and others, Wilson Lewis has provided a summary of key points below.

New Application Process

HB 1037 makes significant changes to the application process starting on January 1, 2021. As is the case now, an application must first be submitted to the Georgia Department of Economic Development for certification. Once received the following new application steps need to be completed one year from production completion.

• A description of the certified production.
• An accounting of all production activities and a list of related expenses included in the base investment for certification.
• A list of employees, names, Social Security numbers and Georgia wages when salaries are included in the base investment.
• Receipts for all tangible personal property purchased.
• Copies of contracts for goods and services.
• Completed IRS Form W-9 issued to each vendor.
• Description of the distribution status of the production and information related to the inclusion of any Georgia promotion.
• Total credit amount requested
• A statement affirming the content of the application is truthful and correct.

New Audit Requirement

Under new regulations, applicants must undergo an independent audit to ensure proper accounting and to reduce the possibility of fraud. Although the DOR can conduct the audit itself, HB 1037 outlines the criterion a Certified Public Accounting (CPA) firm must follow to be eligible to conduct the audit. For this reason, it is likely the DOR will rely on CPA firms to conducted mandated audits.  

Tax Credit Timing

The current rules state the credit can be claimed against liabilities during the year when qualifying production expenses were made.  HB 1037 changes this by not allowing credits to be used in the year expenses were incurred. Rather they are now required to wait until financial certification is complete. 

Other Important Changes

• Carryforward Period – Since the credit is transferrable many production companies elect to sell the certification as a means of generating additional revenue. To limit the amount of time a transferee has to claim the credit, the DOR has changed the carryforward period from five to three years.
• 10% Bonus “Uplift” Credit – This credit will be unavailable for productions not distributed in multiple markets. This is designed to address productions such as television pilots that were not distributed through cable, network, or streaming services from receiving the marketing credit.
• Production Expenses – There is also a change to the production expenses which qualify. Any costs for goods or services incurred outside of the state are now ineligible including story rights.

Transition Timeline

Not all productions are required to comply with the new application process starting January 1, 2021. There is a tiered system that is based on the estimated tax credit value. A final tax certification is not required before January 1, 2023, for productions seeking a $2.5M credit. A tax certification is not required before January 1, 2023, for credits of less than $1.25M. Projects certified on or after January 1, 2023, are required to have a final tax certificate in order to use or transfer the credit.

Contact Us

There are many changes designed to enhance transparency and accountability. Unfortunately, the related expenses, such as an independent audit, will fall on production companies. Given the complexity, it is important to consult with a qualified advisor to guide you through the process. If you have questions about the information outlined above or need assistance with a tax planning issue, Wilson Lewis can help. For additional information call us at 770-476-1004 or click here to contact us. We look forward to speaking with you soon.