Global Tax Insights
Film Credits Exist for Qualifying Production Companies Filming in MassachusettsJanuary 09, 2014
Many states offer film tax credits designed to attract companies and film producers to make major motion pictures there.
A number of state tax credits exist for specific industries and the film sector is no exception. Many states offer film tax credits to companies that abide to specific stipulations. The credit is designed to attract companies and film producers and encourage them to film their projects in these states.Listed below are the guidelines filmmakers must follow in order to claim the benefit of the Massachusetts film credit.
Film production companies that produce content in Massachusetts may be eligible for tax credits if their films abide by certain eligibility rules. The credit provides for a sales and use tax exemption, a transferable 25 percent payroll credit and a transferable 25 percent production expense credit.
For the purposes of the Mass film tax credit (MAFTC) defines a “film production company” as an entity that is engaged in the business of producing motion pictures, videos, television series, or commercials intended for theatrical release or for television viewing. In order to claim the benefit, however, producers must ensure the type of content they produce falls under the “eligible” production types, which are as follows:
- Feature-length film, video, or digital media project (narrative or documentary)
- TV series (not to exceed 27 episodes)
- Commercial (multiple commercials for one client may be aggregated)
It’s also important to note the types of content that are ineligible for the credit, which include but are not limited to:
- Productions featuring news, current events, weather and financial market reports, talk show, game show, sporting events, awards show, or gala events
- Productions whose sole purpose is fundraising
- Long-form production that primarily markets a product or service
- Production containing obscene material or performances
- Video games
- Corporate training and in-house corporate advertising
Those companies that meet the eligibility criteria are eligible for a sales tax exemption, payroll credit and production expense credits if they:
- Spend at least $50,000 in total production costs in Massachusetts during a consecutive 12-month period. With regard to the production expense credit, companies must abide by the $50,000 rule and one of the following stipulations:
- Production company must spend more than 50 percent of its production expenses in Massachusetts., or
- The company must shoot more than 50 percent of principal photography for the project in Massachusetts.
Additionally, the production expense credit relates to pre-production, production and post-production expenses, including set construction/operations, photography, lighting, sound, editing, wardrobe, make-up, film processing, transfer, sound mixing, special & visual effects, location fees, purchase or rental of facilities and equipment. Excluded expenses include payroll services fees, loan fees, interest expenses, completion bond expenses, rights and script fees, insurance expenses, marketing and advertising, costs and licensing fees for stock footage and archival materials and travel to and from Massachusetts.
Film production companies interested in producing eligible content in Massachusetts should work with a reputable tax firm to ensure they abide by the specific parameters outlined by the state revenue department.
Let’s look at an actual example.
We assisted one of our clients (ABC) who wanted to sell their credit, find a buyer, since they could not take advantage of the credit due to their net operating loss carryovers.
ABC produces and films several educational documentaries for third party clients of theirs and had generated approximately $200,000 of MAFTC during the production and filming of a project. They reached out to us for help finding a buyer(s) for their credits. Since we had a waiting list of clients who wanted to purchase credits, we were able to facilitate the transfer (sale) of ABC’s credits very easily.
ABC received cash for their credit and their payment was discounted based on market prices at the time. Although the buyer purchased the credits at a discount, they were able to use the entire $200,000 as a tax payment and saving around $12,000 in cash.