Greater Phoenix Tea Party Patriots

Patriot Groups throughout the Maricopa and North Pinal County area.

To all my fellow Tea Party members in Arizona,

I could use the parties help! This bill might hit the floor for a vote tomorrow!
SB1199 the multimedia production tax credit bill, allows movie studios to film in Arizona. Currently filmmakers are opting to New Mexico and Colorado, who have similiar bills.
Arizona lost over $80,000,000 (thats $80 million) in revenue last year because of no tax incentive contract with the state.
This does not count the jobs and local business that a production company on location can create.
The movie "Piranha" was filmed at Lake Havasu 2 years ago and produced almost $4 million to the local economy.
This is not a subsidy. the Movie Studio must submit expenses after the filming is done, and the State must agree with their analysis of costs before reimbursing. For example, If the Studio makes $100 million in revenue for the state, (which it must prove first) the State must repay 30% of the movies cost back to the Studio. This could be in the form of a tax credit. So Arizona would get $70 million, and the studio would get a tax break up to $30 million. Thats $70 million more than we would have had without this bill.
Please ask the Tea Party Members to contact the AZ Legislature and tell them to vote yes on SB1159.
We need the revenue and the jobs!
Guy Phillips
Disclaimer: I am friends with a film company owner who told me about this bill.

below is the bill:



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Assigned to EDJC FOR COMMITTEE






ARIZONA STATE SENATE
Fiftieth Legislature, First Regular Session

FACT SHEET FOR S.B. 1159

multimedia production tax credits

Purpose

An emergency measure that creates individual and corporate tax credits for qualified production expenditures for motion picture production costs. Repeals the tax credits on January 1, 2041.

Background

The Motion Picture Tax Incentives Program (Program) was enacted and expanded by the Legislature in 2005, 2006 and 2007 to provide economic and tax incentives to attract the motion picture industry to Arizona. The Program expired at the end of TY 2010. The Program offered the following two categories of income tax credits: production and infrastructure.

Motion Picture Production Income Tax Credits

For tax years 2006 through 2010, Motion Picture Production Income Tax Credits allow individual and corporate income tax credits equal to 20 percent or 30 percent of the investment in qualifying production costs expended in Arizona. The amount of the tax credit is based on the following scale:

Production Costs Credit
$250,000 - $1 million 20 percent
Greater than $1 million 30 percent

These tax credits may be used to offset Arizona tax liability. The tax credits may be used, sold or transferred. Unused credit amounts may be carried forward for up to five taxable years. To qualify for the tax credit, the motion picture production company is required to:
a) employ the statutorily required percentage of full time Arizona workers;
b) acknowledge in the production credits of the film that the production was filmed in Arizona; and
c) receive preapproval and post-approval from the Arizona Department of Commerce (ADOC).

The total amount of corporate and individual tax credits are preapproved by ADOC and capped at the following levels. Any unused credit from the cap at the end of the year may be reallocated to the following year, increasing the following year’s cap.



Calendar Year Maximum Tax Credit Amount
2006 $30 million
2007 $40 million
2008 $50 million
2009 $60 million
2010 $70 million

S.B. 1159 repeals existing statute for the expired tax credits and inserts new language creating new corporate and individual motion picture production income tax credits. The credits would terminate on January 1, 2041.

Motion Picture Infrastructure Project Income Tax Credits

For tax years 2008 through 2010, the Program offers the following individual and corporate Motion Picture Infrastructure Income Tax Credits, subject to the total income tax credit cap listed above for the given year:
a) $5 million for soundstage projects in 2008;
b) $5 million for soundstage projects and $7 million for associated support and augmentation facilities in 2009;
c) $5 million for soundstage projects and $9 million for associated support and augmentation facilities in 2010; and
d) $3 million for support and augmentation facilities.

The amount of the credit is 15 percent of the total base investment in the project during the taxable year. These tax credits may be used to offset Arizona tax liability. The tax credits may be used, sold or transferred. Unused credit amounts can be carried forward for up to five taxable years.

A qualified company can receive the nonrefundable infrastructure tax credit only after receiving preapproval and post-approval from ADOC. Credits are authorized on a first come, first served basis. The applicant must construct, own and operate the eligible infrastructure project and submit a report to ADOC upon the project’s completion. Arizona project expenditures for soundstages must be at least:
a) $250,000 within 90 days of preapproval;
b) $1 million within 12 months of preapproval; and
c) $5 million within 36 months of preapproval.

For support and augmentation facilities, Arizona project expenditures must be at least:
a) $250,000 within 90 days of preapproval; and
b) $1 million within 36 months of preapproval.

S.B. 1159 amends existing language for corporate and individual motion picture infrastructure income tax credits and terminates the credits on January 1, 2041.




Fiscal Impact

Motion Picture Production and Infrastructure Projects

Tax Year/ClassificationNumber of ClaimsCredit AvailableCredit UsedCarry Forward
2006
Corporate*2//////////////////////////////////////////////
Individual0000
2007
Corporate7$6,802,746$1,189,442$5,613,304
Individual4$153,184$128,165$25,019
2008
Corporate14$3,326,571$1,392,989$1,933,582
Individual9$273,567$267,771$5,796
2009
CorporateNo dataNo dataNo dataNo data
Individual5$81,932$77,267$4,665

















Source: Arizona Department of Revenue
*Bars in cells indicate release of information would violate confidentiality laws
Italics indicate preliminary numbers


According to the DOR, 23 motion picture tax credits have been sold or transferred to other taxpayers. Furthermore, 12 of the 23 tax credits were then resold to 34 other individual or corporate taxpayers.

According to the ADOC Motion Picture Production Tax Incentives Program Annual Report, Calendar Year 2008, although the amount of spending in Arizona by production companies more than doubled, the fiscal impact did not cover the cost to the General Fund of the incentives.
CY 2007CY 2008
Estimated Tax Revenues Generated$1,111,979$2,317,566
Total Arizona Tax Incentives Post-approved$2,813,478$8,641,589
Net Cost to the GF($1,701,499)($6,324,023)








Source: ADOC Motion Picture Production Tax Incentives Program Annual Report 2008
www.azcommerce.com

As this legislation changes the tax credit amounts, the fiscal impact to the state General Fund is unknown at this time.


Provisions

Motion Picture Production Tax Credits

1. Repeals out-of-date statute relating to motion picture production tax credits.

2. Creates, retroactive to January 1, 2011, individual and corporate tax credits for qualified production expenditures by a motion picture production company. Repeals the credits on January 1, 2041.

3. Stipulates that the credit is based on the qualified production expenditures (QPE) that are submitted to and approved by the DOR.

4. Specifies that the amount of the credit for an individual production is:
a) 20 percent of the amount of QPE exceeding $250,000; plus
b) an additional 5 percent of the amount of QPE if the production company uses a privately funded production facility that meets certain requirements (see provision 5) for at least 50 percent of the production.

5. For tax credit purposes, specifies that a privately funded production facility used for a production must:
a) employ Arizona residents for at least 50 percent of its full-time employment positions within the state;
b) have certified infrastructure investment with a value of at least $50 million. Outlines steps to determine if a privately funded production facility has the infrastructure investment amount.

6. Prohibits the credit from exceeding $15 million for any individual production by a qualified production company.

7. Stipulates that an approved credit offsets tax liability for the taxable year for which the credit was originally allocated.

8. Requires the credits be claimed on a timely filed original income tax return, including extensions.

9. Prohibits the DOR from allowing a credit to a taxpayer who has a delinquent tax balance.

10. Requires, in order to qualify for a credit, a production company to:
a) have QPE of at least $250,000;
b) exclude property that requires records be maintained as required by the United States Child Protection and Obscenity Enforcement Act (18 U.S. Code Section 2257);
c) enter into a written managed review agreement with the Director that establishes the requirements of a managed review to be conducted at the production company’s expense. Outlines statutory requirements for the managed review;
d) include an acknowledgment that the production was filmed in Arizona in the end credits; and
e) receive preapproval and post-approval certification of the production from the DOR.

Preapproval

11. Requires a motion picture production company that is initially applying for qualification to report, on a form and in a manner prescribed by the DOR, the following information to the DOR:
a) the name, address, telephone number and website of the production company;
b) the name and address of the individual who will maintain records of expenditures in Arizona;
c) the projected first preproduction date and last production date in Arizona;
d) the production office’s address and telephone number in Arizona;
e) the estimated total budget of the production;
f) the estimated total expenditures in Arizona;
g) the estimated total number of days in preproduction, production and post-production taking place in Arizona;
h) the estimated level of employment of Arizona residents in the cast and crew;
i) a script, including a synopsis, the proposed director and a preliminary list of the cast and producer. For a television series, other than a pilot production, the applicant must include a synopsis of the general nature of the series, a description of the characters, the intended nature of their interaction with each other, the locations, the sets and the intended distribution or broadcast medium with specific television networks, if known;
j) an affirmation signed by a principal of the production company who will be credited on screen and that the production company agrees to furnish records of expenditures in Arizona to the DOR on request.

12. Requires the DOR to:
a) establish the process by which the DOR qualifies and preapproves a production company for a credit; and
b) review all complete applications within 30 days after submission to determine whether the production company satisfies all of the criteria necessary to qualify for a credit.

13. Allows the DOR to conduct a site visit to verify that production has begun.

14. Specifies that preapproval of a production lapses, the application is void and the amount of the preapproved credit does not apply against the dollar limit (see provision 15) if, within 90 days after the DOR preapproves the production, the production company fails to provide documentation of either:
a) its expenditure in Arizona the lesser of ten percent of the estimated total state budget of the production or $250,000; or
b) a completion bond, equal to the estimated total budget of the preapproved production. Defines completion bond.

15. Prohibits the DOR from preapproving income tax credits that exceed $70 million for a single year. Specifies that, of that amount, $10 million each year is reserved for infrastructure credits and $4 million is reserved for commercial advertisements and music video production.
16. Applies the preapproved amount against the dollar limit for the year in which the application was submitted, regardless of whether the initial preapproval period extends into the following year or years. Allows a production company to voluntarily relinquish unused credit amounts before the expiration of the initial preapproval or requalification period.

17. Requires the DOR to allocate the income tax credits based on priority placement established by the date the production company files its application. Provides for exemptions.

18. Requires the DOR to reallocate the amount of credits that are voluntarily relinquished or that lapse. Specifies that the credits be reallocated to other motion picture production companies that applied in the original credit year, based on priority placement. Stipulates that the amount of the reallocated credits continues to apply against the dollar limit of the original credit year regardless of the year in which the reallocation occurs.

19. Prescribes that for any year an unused balance occurs in the credits authorized under the dollar limit, the following applies:
a) requires the balance to be allocated to production companies that successfully appeal the denial of approval. Stipulates that any amount of tax credits due to successful appeals that are not paid from an unused balance in any year be paid against the dollar limit in the following year;
b) requires any remaining unused balance be reallocated in the following year.

20. Requires, if the DOR has preapproved the maximum calendar year tax credit amount, the DOR to accept initial applications for the next calendar year on November 1 of each year. Specifies that the preapproval of any application is not effective before the first business day of the following calendar year.

Post-Approval

21. Requires a motion picture production company, on completion of a prequalified motion picture production, to:
a) apply to the DOR in writing for post-approval of income tax credits;
b) submit a viewable copy of the motion picture. Provides an exemption;
c) certify the total amount of actual eligible production costs associated with the project.

22. Requires the DOR, within 90 days after the motion picture production company’s application for post-approval, to either:
a) provide post-approval if the production company has met the eligibility requirements. Specifies DOR action after providing post-approval;
b) request additional information necessary for a determination of eligibility. Specifies DOR action when requesting additional information;
c) issue a denial of post-approval with written findings supporting the denial. Requires the DOR to deny an application for post-approval if:
i. the production company fails to meet all of the established criteria;
ii. the DOR determines that, regardless of the production medium, the production would constitute an obscene motion picture or obscene pictorial publication, depicts obscene sexual activity or would constitute sexual exploitation of a minor or commercial sexual exploitation of a minor.

Commercial Advertisements and Music Videos

23. Requires the DOR to accept initial applications with respect to commercial advertisement and music video production only during the calendar year in which the credits would be allocated.

24. Allows a commercial advertisement or music video production to:
a) aggregate production costs for multiple productions for the purposes of reaching the minimum expenditure threshold requirements; and
b) apply for qualification before the production company reaches the minimum expenditure threshold.

25. Requires a commercial advertisement or music video production applicant to submit a synopsis or storyboard, in lieu of a script, that:
a) for a commercial advertisement, identifies the product, service, person or event, or for a music video, identifies the artist and song;
b) describes the general content or message to be conveyed;
c) describes the location or locations;
d) describes the sets; and
e) describes the intended distribution or medium and specific channels, if known.

26. Requires the DOR to review the completed application within 15 business days.

27. Prohibits expenses incurred before the date of the submission of a completed application from qualifying as production costs.

28. Requires the DOR to allocate the credit incentives based on priority placement established by the date that the production company files its application and based on the percentage of estimated total expenditures allowed.

29. Requires the production company that is preapproved for a specific commercial advertisement or music video production to provide the DOR documentation of expenditures of the total amount of eligible production costs associated with the production within 60 days.

30. Prohibits a production company from being eligible for a credit until the production company’s eligible production expenditures reach $250,000 in a period of 12 consecutive months. Allows the production company to apply to the DOR for post-approval when the production company reaches that threshold.

31. Requires the DOR to adopt separate rules and prescribe forms and procedures as necessary.



General Provisions

32. Prohibits, if a preapproved production company fails to undertake production and also fails to voluntarily relinquish the unused credit amounts within the 90 day period, the production company and all persons signing the application from receiving or participating in any production company that applies for or receives tax credits for three years after the original application.

33. Allows co-owners of a production company to allocate the credit among co-owners on any basis without regard to their proportional ownership interest.

34. Prohibits the total of the credits allowed all such owners of the production company from exceeding the amount that would have been allowed for a sole owner of the company.

35. Specifies that if the allowable tax credit exceeds the taxpayer’s income tax liability or if the taxpayer has no tax liability in Arizona, the excess amount may be paid to the taxpayer as a refund. Allows, if the DOR determines that any amount refunded is incorrect or invalid, the excess credit amount to be treated as a tax deficiency.

36. Requires the DOR to:
a) adopt rules, forms and procedures as necessary to facilitate the orderly application, evaluation and approval of credits and post them on the DOR’s website; and
b) maintain annual data and other information on the total amount of monies credited.

37. Requires a privately funded production facility to maintain data on the number of productions using its facility each year and report that information to the Speaker of the House of Representatives and the President of the Senate by December 31 of each year.

38. Stipulates that any information gathered from production companies and privately funded production facilities is considered confidential taxpayer information, except that the DOR is required to post the following in its annual report:
a) the name of each production company and privately funded production facility, the number of days shooting and the number of full time equivalent employees, itemized by productions in preproduction, production and post-production stage of activity;
b) the amount of income tax credits preapproved during the taxable year; and
c) the amount of credits post-approved with respect to each production during the year.

39. Prohibits a taxpayer who claims a motion picture production tax credit from claiming a motion picture infrastructure tax credit for the same costs.

40. Stipulates that the credit is in lieu of a deduction of those expenses allowed by the Internal Revenue Code.

41. Defines infrastructure investment, motion picture production company or production company, privately funded production facility or facility, qualified production expenditure, resident, soundstage, support and augmentation facilities and television series.


Motion Picture Infrastructure Tax Credit

42. Repeals the corporate and individual motion picture infrastructure credit on January 1, 2041.

43. Shifts the requirement to approve, report, adopt rules, publish and prescribe forms regarding the infrastructure credit from ADOC to the DOR.

44. Prohibits the DOR from allowing infrastructure tax credits to exceed $10 million in total for any taxable year.

45. Removes language allowing all or part of any unclaimed amount of infrastructure tax credit to be sold or transferred.

46. Defines motion picture infrastructure project.

Motion Picture Production Education Program

47. As session law, requires certain entities to work with universities and community colleges to develop a program to encourage multimedia production companies that apply for income tax credits to offer internships and mentoring programs for qualified students who are pursuing postsecondary degrees in motion picture and multimedia production.

48. As session law, requires a report to the Governor and specific members of the Legislature on the structure and organization of the program and any necessary legislation to formalize the program.

49. As session law, requires a report to the Joint Legislative Income Tax Review Committee on the employment of residents of Arizona in full time positions in motion picture and multimedia productions that qualifies for income tax credits.

Preexisting Tax Credits

50. Specifies that this legislation does not affect the validity of income tax credits granted under prior law.

Miscellaneous

51. Contains a purpose statement.

52. Becomes effective on signature of the Governor, with retroactive provisions as noted.


Prepared by Senate Research
January 31, 2011
JT/tf




©2007 Arizona State Legislature.

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