By Tina Chunn and Jess Johannesen, Aprio
The Georgia film and digital entertainment industry has provided significant growth to Georgia’s economy with the help of Georgia’s Film, Television, and Digital Entertainment Tax Credit. On April 25, 2017, Governor Deal signed House Bill 199 (the “Bill”), which makes a couple of positive changes to the interactive entertainment (i.e., gaming) tax credit and adds a new tax credit for post-production companies and make the interactive entertainment credit available for more gaming companies to qualify. The Bill becomes effective on July 1, 2017, and is applicable for tax years beginning on or after January 1, 2018.
Changes to the Tax Credit for Gaming Companies
The Bill makes several changes to the credit allowable for qualified interactive entertainment production companies (referred to herein as “gaming” companies). First, the Bill removes the sunset provisions applicable to gaming companies. Currently, the tax credit available to gaming companies was set expire for tax years beginning or after January 1, 2019. The Bill removes that provision and provides an aggregate $12.5 million cap (the same cap that has been in place since January 1, 2014) that does not expire.
Second, as a bit of a trade-off for the elimination of the sunset provision, the Bill limits the credit for qualifying “pre-released interactive game production” to three years. A “pre-released interactive game” means any of the following that are in the developmental stages of production: a new game, the offering of an existing game on a new platform, or a game sequel.
Finally, the Bill reduces the qualifying payroll and base investment thresholds. Previously, in order to claim the credit, gaming companies were required to have $500,000 of Georgia payroll in the preceding year and $500,000 of base investment in qualifying gaming production activities. Under the Bill, the requirement is changed to $250,000 of Georgia payroll in the year the credit is claimed and the threshold base investment is lowered to $250,000 (the threshold remains at $500,000 for traditional film productions).
Overall, these changes should allow more companies to claim the credit and for Georgia to attract more companies in the industry into the state, particularly with the sunset removal and the lowering of the payroll and base investment.
New Post-Production Tax Credit
Under current law, post-production expenses will only qualify if the original production was filmed in Georgia and the expenses are incurred by a production company. However, House Bill 199 add a new tax credit section, called the “Georgia Entertainment Industry Postproduction Investment Act” (the “Act”). This new credit is available for tax years beginning on or after January 1, 2018, and provides that post-production companies with at least $250,000 in Georgia payroll and a total of $500,000 in expenses during a taxable year are eligible for a 20 percent tax credit. If the original production is created exclusively in Georgia, the credit will increase to 30 percent. An additional 5 percent is available for qualified production expenditures incurred in tier 1 and tier 2 counties (i.e., those counties ranked with higher unemployment, lower per capita income, and higher percentage of residents below the poverty level). Further, any qualified post-production expenses claimed by a production company for the Georgia film credit will not be eligible for the post-production credit.
There is an aggregate cap for the total credits awarded for post-production companies of $10 million for each tax year from 2018 to 2022 (this tax credit currently expires beginning in 2023). Any unused amounts of credits available to be claimed from a given year can be rolled forward to the succeeding year until it is fully claimed. Additionally, similar to the credit for qualified interactive entertainment production companies, the tax credit allowed in one year cannot exceed the current year’s total Georgia payroll. A company is further limited to receiving no more than 20 percent of the total aggregate statewide credit cap available in a given year.
The Bill further allows smaller post-production companies with payroll of at least $100,000 but less than $500,000 (and qualified expenses of at least $100,000 but less than $500,000) a credit of 20% of qualified expenditures. The credit awarded under this provision for smaller post-production companies will not exceed $1 million per year. This cap amount is not included in the annual $10 million aggregate cap provided for the all other post-production companies.
Procedurally, similar to the gaming credit, post-production companies will need to be approved by the Department of Revenue to receive this credit, and allocation of the aggregate cap will be made on a first-come, first-served basis. Post-production tax credits claimed but not used against the post-production company’s Georgia income tax liability may be carried forward for five years or taken as a credit against withholding. In addition, claimed but unused tax credits may be sold to another Georgia taxpayer. Finally, the Bill requires certain information to be filed with the post-production company’s Georgia income tax return and with the Department of Economic Development.
If you have any questions about HB 199 or believe that your company may qualify for these credits, please do not hesitate to reach out to Tina and Jess. Tina can be reached at [email protected] (or 770-353-5334) and Jess at [email protected] (or 770-353-2817).