A film production entity may be entitled to a refundable tax credit against the State of Maryland (State) income tax for certain costs incurred in the State that are necessary to carry out a film production activity in the State.  The text of the authorizing statute can be found here.

Tax credits from the next two fiscal years – FY2013 (July 1, 2012 – June 30, 2013) and FY2014 (July 1, 2013 – June 30, 2014) – can now be reserved for qualified productions meeting the requirements below.  $7.5 million in tax credits are available for each fiscal year.  A Preliminary Tax Credit Certificate for these credits cannot be issued until July 1st of the fiscal year from which the credits will be drawn.  The Final Tax Credit Certificate(s) will be issued after the Department of Business and Economic Development (DBED) has reviewed all required closing documentation, including completion of the Agreed Upon Procedures process.

An episodic series that is presently shooting in Maryland and anticipates returning to shoot an additional season in Maryland may submit a letter of intent for the additional season after 50% of principal photography has been completed on the current season.  The letter must include the anticipated number of episodes, anticipated budget, anticipated qualified spend and projected filming dates.  Based upon the letter, the Department will reserve future tax credits. The film production entity must show proof that an additional season has been ordered and submit a completed application within 150 days of the date of the Department’s Letter of Intent to reserve the tax credits.  Production on the additional season must begin within 120 days after the earlier of the date that the company receives a Preliminary Tax Credit Certificate or receives a Letter of Intent from the Department reserving tax credits for the additional season. 

Calculating the Tax Credit:

A film production entity may receive a refundable income tax credit of up to 25% of qualified direct costs of a film production activity.  A television series may receive a credit of up to 27% of qualified direct costs.  The aggregate total of tax credits issued in a fiscal year cannot exceed $7.5 million. A Preliminary Tax Credit Certificate or Letter of Intent will be issued based upon the film production entity’s total estimated qualified expenditures in Maryland.  If a film production entity is eligible for more than $7.5 million or their tax credits cross fiscal years, the Department will issue a Letter of Intent specifying the total amount of tax credits and from which fiscal year the credits will be drawn.  The Department will then issue a Preliminary Tax Credit Certificate on July 1 of the fiscal year in which the funds become available which may coincide with the issuance of the Final Tax Credit Certificate.  A film production entity will not receive more credit than the amount specified on its Preliminary Tax Credit Certificate or Letter of Intent.

 

Timing of Applications & Additional Forms:

1. BEFORE beginning any film production activity in the State, an Application  for Preliminary Tax Credit Certification MUST be submitted to DBED along with ALL required attachments, including the Application Addendum.
   
   
2. BEFORE the start of principal photography in the State, a Form for Additional Documentation & Information MUST be submitted to DBED along with ALL required attachments.

3. BEFORE the start of principal photography in the State, DBED must approve the draft engagement letter for the independent, 3rd party CPA outlining sample sizes and percentages for the Agreed Upon Procedures. DBED will determine sample sizes and percentages.

4. WITHIN 180 days after the production wrap date, an Application for Final Tax Credit Certification MUST be submitted to DBED along with ALL required final documentation.

Qualification Criteria:

Each applicant must meet all of the following criteria to be eligible to receive a Preliminary Tax Credit Certificate of Letter of Intent:

• All statutory requirements must be met.
• The submitted Application for Preliminary Tax Credit Certification must be complete and signed.
• The film production entity must be able to demonstrate complete financing.
• The film production entity must be able to show acceptable evidence of national distribution.
• The total qualified direct costs projected to be incurred in the State must exceed $500,000.
• 50% of principal photography must occur in the State.
• Principal photography must be scheduled to begin within 120 days of receiving the Preliminary Tax Credit Certificate or Letter of Intent from the Department, which may be extended by DBED for up to 90 days at the discretion of the Department based on facts and circumstances beyond the control of the qualified film production entity.

Application Process:

Complete and submit the Application for Preliminary Tax Credit Certification along with all the required attachments, including the Application Addendum, before beginning any film production activity in the State, to:

              Maryland Film Office
              Maryland Department of Business & Economic Development
              401 East Pratt Street, 14th Floor
              Baltimore, MD  21202

Applications will be reviewed and approved in the order that complete applications are received.  Incomplete applications are not considered received and will not be reviewed.

Within 45 days of receiving a complete application or letter of intent, DBED will issue either a Preliminary Tax Credit Certificate or a Letter of Intent specifying the amount of the tax credit for which the film production entity is eligible and from which fiscal year the funds will be drawn or a notice that the film production entity in ineligible for a tax credit.   The amount specified on the Preliminary Tax Credit Certificate or in the Letter of Intent is the maximum amount of tax credit for which the applicant is eligible for this film production activity.

Any decision made by DBED during the application process is considered final.

Deficiency of Funds:

Once all funds available through June 30, 2014, are committed, DBED will no longer accept any applications.  If at any time funds become available for any reason, DBED will re-open the application process with a notice on this website.

Final Certification Process

Upon completion of the film production activity in the State and within 180 days of the wrap date, the film production entity shall submit the Application for Final Tax Credit Certification along with all of the required final documentation.  Included with this submission must be a copy of an independent, third party auditor’s report which must meet the following minimum criteria:

              Guidelines for Agreed Upon Procedures

A draft engagement letter outlining sample sizes and percentages must be approved by DBED prior to the commencement of principal photography of the film production activity in the State.  DBED will determine sample sizes and percentages.

The Maryland Film Office will review the Application for Final Tax Credit Certification, all closing documentation, and the independent auditor’s report for completeness, amount of qualified total direct costs and accuracy.  Based on the actual qualified total direct costs and the Auditor’s report, DBED will issue a Final Tax Credit Certificate (s) to the film production entity which will not exceed the amount of tax credits specified in the Preliminary Tax Credit Certificate(s) or original Letter of Intent.

General Tax Credit Rules:

Preliminary Tax Credit Certificates are subject to rescission for failure to meet any deadline or requirement of the program.

Principal photography must begin within 120 days after the issuance of the Preliminary Tax Credit Certificate or Letter of Intent, which may be extended by DBED for up to 90 days at the discretion of the Department based on facts and circumstances beyond the control of the qualified film production entity.

Principal photography must be complete within 45 days after the wrap date specified in the Application for Preliminary Tax Credit Certification. 

In order to qualify, direct costs must be “incurred while in Maryland” which means for time or use in Maryland.  Expenditures that are eligible as direct costs are outlined in the Qualified Expenditure List.  This list is provided for guidance and is subject to interpretation and change by DBED at any time.  Additional guidelines regarding qualified direct costs are:

• The total direct costs incurred in the State must exceed $500,000.

• The total direct costs may not include ANY salary, wages or other compensation of an individual who receives more than $500,000 for personal services in connection with the film production activity.

• The total direct costs must be reasonable and negotiated at arms-length.

• Only direct costs directly incurred by the film production entity will qualify.

• Direct costs may only be attributed to the film production activity once.

• Direct costs must be PRO-RATED based upon the time personnel or materials were IN Maryland and working or used in connection with the film production activity.  Insurance premiums, and the like, will be considered as direct costs for the portion allocable to the time spent in Maryland.

 

• For all materials or goods with an initial cost greater than $1,000, the direct cost will be the initial cost of the material or good less its value, or resale, upon the completion of the film production activity in the State.

• Direct costs do not include costs for any materials, goods or services that have been recouped by any insurance policies.

• The purchase of vehicles, or other items, which are used primarily for personal use are not qualified.

Please note that as part of the Application for Final Tax Credit Certification, the film production entity must certify that there are no amounts owed to any person or entity which provided goods or services in connection with the film production activity.  If amounts are outstanding, DBED will not issue the Final Tax Credit Certificate.  The Final Tax Credit Certificate will not be issued until the Maryland Film Office receives confirmation that all outstanding amounts have been paid.

Closing Credit:

 

All final versions of the film production activity shall contain a closing credit to “Maryland Film Office, Maryland Department of Business & Economic Development.”

 

Cast & Crew Screening:

 

All film production entities shall work with the Maryland Film Office to secure a cast & crew screening of the film production activity in Maryland before the general release of the project.

 

Compliance with Maryland Law:

 

The film production company must comply with all applicable Maryland laws, rules, and regulations.  In addition, all loan out and personal services companies are subject to Maryland laws, rules, and regulations, including all applicable withholding requirements.  Each film production company will be required, as part of the Application for Final Tax Credit Certification, to provide DBED with a list of all loan out and personal services companies paid in connection with the film production activity.

 

Claiming the Tax Credits:

 

The film production entity may claim a credit against the State income tax in an amount equal to the amount stated in the Final Tax Credit Certificate.  If the tax credit allowed in any taxable year exceeds the total tax otherwise payable by the qualified film production entity for that taxable year, the qualified film production entity may a claim a refund in the amount of excess.  In order to claim the credit, the film production entity must file the applicable Maryland state income tax return, and must attach a copy of the final certificate issued by DBED along with Form 500CR, Maryland Business Income Tax Credits.  Information regarding filing can be found on the Comptroller of Maryland’s website.

 

Additional Resources:

Application for Preliminary Tax Credit Certification

Application Addendum

Additional Documentation & Information Form

Application for Final Tax Credit Certification

Statute

Agreed Upon Procedures

Qualified Expenditures Master List

For further details, please contact our office:   Maryland Film Office
                                                                         1-800-333-6632