Wisconsin’s Film Tax Credits – More on the Film Production Company Investment Credit.

Returning to the series on Wisconsin's Film Tax Credits, below I describe in more detail additional aspects of the Film Production Company Investment Credit. This credit can be claimed for certain expenditures by Film Production Companies subject to the following limitations:

(1) The credit for 15% of the purchase price of depreciable, tangible personal property can only be claimed if the tangible personal property is purchased after December 31, 2007 and is used for at least 50 percent of its use in the claimant’s business as a film production company.

(2) The credit for 15% of the cost to acquire, construct, rehabilitate, remodel or repair real property can be claimed if the physical work to do so occurs after December 31, 2007 or the completed project is placed in service after December 31, 2007.

(3) To claim the credit, the property must not be property previously owned by the claimant and the property must have been acquired or placed in service after December 31, 2007.

(4) Importantly, the credits can only be claimed if the Department of Commerce certifies, in writing, that the credits claimed are for expenses related to establishing a film production company in Wisconsin.

Wisconsin’s Film Tax Credits – What is Not Eligible.

If a production company plans to apply for accreditation of a production from the Wisconsin Department of Commerce, it should first consider whether the credits are available for the project. The Wisconsin film tax credits are available to accredited productions. Certain types of productions are specifically excluded from being eligible for the credits. Under the Wisconsin Statutes, accredited productions do not include:

(1) news, current events, or public programming or a program that includes weather or market reports (ex. Fox News, CNN, Weather Channel, etc.)

(2) talk shows (ex. Oprah, Tyra Banks)

(3) questionnaire or contest shows (ex. Deal or No Deal, American Gladiators)

(4) sports events or activities (ex. Packers vs. Giants, The Highland Games)

(5) gala presentations or awards shows (ex. Golden Globes, Emmys, Oscars)

(6) productions that solicits funds (ex. PBS fundraisers)

(7) “a production for which the production company is required under 18 USC 2257 to maintain records with respect to a performer portrayed in a single media or multimedia program,” the statutory reference applies to the adult film industry. (Presumably the Wisconsin legislature did not want to be viewed as making tax benefits available to adult filmmakers.)

(8) a production produced primarily for industrial, corporate or institutional purposes. (ex. Training videos)

Wisconsin’s Film Tax Credits – More About the Credits.

In continuation of last week's dicussion on the Wisconsin Film Tax Credits, I address some additional facts about claiming the credits.

To claim the Film Production Services Credit, the Film Production Expenditures Credit or the Sales and Use Tax Credit, the Film Production Company must be creating an accredited production. An accredited production means a film, video, electronic game, broadcast advertisement, or television production as approved by the Department of Commerce. Additionally, to claim the credits the aggregate salary and wages associated with the production must equal $100,000 for a production 30 minutes or longer and $50,000 if the production is shorter than 30 minutes. These salary and wage expenses must be incurred within 12 months of the date on which principal filming began.

To claim the credits, a film production company must file an application for accreditation with the Wisconsin Department of Commerce and must file a copy of the approved application with its tax return.

Wisconsin’s Film Tax Credits - Four Types of Credits

The January 23 post gave an introduction to the Wisconsin film tax credits that are now available to productions accredited by the Wisconsin Department of Commerce. In more detail, these credits are:

1) Film Production Services Credit. The Film Production Services Credit is equal to 25% of salary or wages paid for services rendered in Wisconsin to produce an accredited production and paid to Wisconsin employees. The credit for salary or wages paid must not exceed an amount equal to the first $25,000 of salary or wages paid to each employee, not including the salary or wages paid to the two highest paid employees.

2) Film Production Expenditures Credit. The Film Production Expenditures Credit is equal to 25% of qualifying production expenditures incurred in the state. Qualifying expenditures include: set construction, wardrobe and makeup, photography, sound recording and mixing, lighting, editing and processing, special effects, rental or lease of facilities and equipment, food, lodging and more. Expenditures not eligible include those for distribution and marketing. Music by a resident of the state, or published or distributed by an entity headquartered in the state, air travel purchased by a travel agency headquartered in the state, and insurance purchased from a company headquartered in the state are also eligible. Expenditures not eligible include those for distribution and marketing.

3) Sales and Use Tax Credit. The Sales and Use Tax Credit is equal to the amount of sales and use taxes paid in the taxable year on the purchase of tangible personal property and taxable services that are used directly in producing an accredited production in Wisconsin, including all stages from the final script stage to the distribution of the finished production.

4) Film Production Company Investment Credit. The Film Production Company Investment Credit allows a credit for the first three taxable years that the claimant is doing business in Wisconsin as a film production company. The credit is equal to 15% of the purchase price of depreciable, tangible personal property and the amount expended to acquire, construct, rehabilitate, remodel or repair real property. For purposes of this credit, a film production company means an entity that creates films, videos, electronic games, broadcast advertisement, or television productions (but not those explicitly excluded from an accredited production).

The Film Production Expenditures Credit is a refundable credit that may be taken even if the amount of the credit exceeds the tax due. That is, you can get a refund in connection with this credit even if you haven’t actually paid any tax. The other credits are non refundable, however, they may be carried over to offset tax due for a period of up to 15 years.

Wisconsin’s Film Tax Credits – It is Time to Start.

Effective January 1, 2008 the State of Wisconsin’s film tax credits went into effect. These credits were created to encourage the film, television and video game industries to produce their projects in Wisconsin. A few weeks later, on January 22, the Milwaukee Journal Sentinel reported that several productions were planning to take advantage of Wisconsin’s new film tax credits. The newspaper reported that the film “Blue World” will be filmed in Milwaukee and “The Violinist” will be filmed in Green Bay. Additionally, producers of the film “Public Enemies” (expected to star Johnny Depp) have applied to the Wisconsin Department of Commerce to qualify for the tax credits. Film production companies, those that will provide the industry with essential infrastructure, are also getting into the act.

The tax credits are anticipated to encourage these film, television, video, video game and broadcast advertisement producers to spend large amounts of their production budgets in Wisconsin. In return, the state will give them some of their money back. Hopefully this will pump a substantial amount of money into the Wisconsin economy, grow Wisconsin’s reputation as a film friendly state and reward those who produce qualifying productions.

The Wisconsin Statutes provide four types of tax credits:
1) The Film Production Services Credit.
2) The Film Production Expenditures Credit.
3) The Sales and Use Tax Credit.
4) The Film Production Company Investment Credit.

Certain productions are specifically excluded from qualification, such as, news or sports programs and talk shows but for the large number of productions that do qualify, the credits may be claimed if certain statutory requirements are satisfied. When a production meets the requirements, the tax credits may be claimed by individuals, insurance companies or corporations (partnerships, some LLCs and S corporations cannot claim the credits directly, however, the credits may be passed through to the owners in proportion to their ownership interests).

The next several posts to this blog will address some of the technical aspects of these tax credits and some of the procedures for obtaining the credits.

Wisconsin’s Film Tax Credits.

On January 1, 2008, several tax credits for the film industry became effective in Wisconsin. These tax credits include the:

1) Film Production Services Credit.

2) Film Production Expenditures Credit.

3) Sales and Use Tax Credit.

4) Film Production Company Investment Credit.

These tax credits are being hailed as some of the best film tax credits in the United States. As the Wisconsin film production industry continues to grow, these tax credits should provide tremendous benefits to both film production companies and the Wisconsin economy. On May 16, 2007, I recorded a more detailed discussion of the Wisconsin Film Tax Credits in a podcast that can be found at http://www.wbb-law.com/podcast/#722

For information on how to obtain the tax credits and making movies in Wisconsin, see the Film Wisconsin Website: http://www.filmwisconsin.net/

For an article on the early success of the Wisconsin Film Tax Credits, see the article in the Wisconsin Journal Sentinel: http://www.jsonline.com/story/index.aspx?id=702482