Senate Bill 165: Transferable Tax Credits for Film Industry

by Snell & Wilmer
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The film industry is a very exciting business and requires the involvement of many individuals and entities to complete a production. Bringing a commercial or full-feature film to millions of viewers is dependent upon the coordination of locations, support crews, actors and governmental permitting requirements.

Film production is an important sector of economic development in Nevada. Many productions are filmed in Nevada with the help of the Nevada Film Office that assists producers in identifying locations and acquiring the correct permits. Since 2001, Nevada’s film industry has declined by over 40 percent. Producers brought their own crews rather than hiring local labor. During the 2013 Legislative Session, to encourage producers to film in our State, the Legislature passed and the Governor signed Senate Bill 165 that allows the Governor’s Office of Economic Development to approve transferable tax credits for qualifying productions.

Forty other states have adopted film incentives in the form of tax credits, rebates and exemptions. A few states offer incentives for hiring in-state residents. In drafting the bill, the tax credit programs in the other states were carefully reviewed, and the best features of each were selected.

The bill creates a pilot program of transferable tax credits for film producers of productions that meet specific criteria. The program is administered by the Office of Economic Development. Producers can apply for a certificate of transferable tax credits beginning January 1, 2014, and ending December 31, 2017. Qualifying productions must meet certain basic requirements, which are: the production must be in the economic interest of the State; at least 60 percent of the total qualified expenditures and production costs will be incurred in the State; and the production costs exceed $500,000.

Film budgets include “above-the-line” fixed costs, which are actors, producers, writers and directors, and “below-the-line” variable costs, which are crew members such as grips, camera operators, stylists, make-up artists and film editors.

For determining the tax credit, qualified productions are defined and include preproduction, production and postproduction stages for productions such as television pilots, commercials, music videos and documentary films, among others. A qualified production must provide an itemized report from an audit performed by an independent certified public accountant in the State approved by the Office of Economic Development. The bill lists specific purchases of tangible personal property or services from a Nevada business that may be used as a basis for qualified expenditures and production costs. Within 14 days of receiving the report, the Office of Economic Development will make a final determination if a certificate of transferable tax credits will be issued. Approved credits can be applied against taxes imposed on financial institutions, for the modified business tax, gaming license fees or insurance premium taxes.

The amount of transferable tax credits issued to an eligible producer must equal 15 percent of the cumulative qualified expenditures and production costs with separate calculations for wages and salaries. Additional credits are allowed if more than 50 percent of the below-the-line personnel hired are Nevada residents; and if more than 50 percent of the filming days occur in a county in which qualified productions incurred less than $10 million of direct expenditures in each of the two years immediately preceding the date of application. The total amount of credits for a single production is capped at $6 million and the amount of credits in a single fiscal year is capped at $20 million. Any credits issued expire four years from the date on which they are issued.

Economic development at the local level is also important. One of the lawyers on the firm’s team has a very unique perspective into the legislation — Aaron Ford, who co-authored and sponsored the bill. Co-sponsored by 18 other Nevada state legislators, it contains provisions for allowing the governing body of a city or county to abate any percentage of the amount of permitting fees they are authorized to impose. However, the governing body must first provide by ordinance for a pilot project for granting abatements to qualified productions.

Encouraging economic development and increasing the types of industries in Nevada is important to the State of Nevada. Providing incentives with specific parameters to film production companies can help improve employment opportunities for citizens and put people to work. Nevada can offer film producers a willing work force, local talent, distinctive landmarks and scenery, and other advantages that are unique to our State. This measure can help bring back the economic benefits of the film industry to Nevada and create a long-term job market that helps citizens and local businesses.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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