FILM PRODUCTION ACTIVITY TAX CREDIT
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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 with revisions to the statute effective July 1, 2015 here.
In order to generate the mandated Report on Tax Credits due to the Governor on July 1, 2016, the Maryland Film Office will begin accepting Applications for Initial Tax Credit Certification on a first come, first served basis starting at 9:00am on Tuesday, March 1, 2016 and continuing through 5:00pm on Thursday, March 31, 2016. These applications will be for tax credits that may become available in FY2018 (July 1, 2017 - June 30, 2018) and any previously committed tax credits that may revert back to the program. There is no guarantee of tax credits becoming available. Applications will not be accepted via email.
An Initial Tax Credit Certificate(s) for 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 Commerce ("the Department") has reviewed all required closing documentation, including completion of the Agreed Upon Procedures process.
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. An Initial Tax Credit Certificate or Letter of Intent will be issued based upon the film production entity’s total estimated qualified expenditures in Maryland. A film production entity will not receive more credit than the amount specified on its Initial Tax Credit Certificate or Letter of Intent from the Department.
Timing of Applications & Additional Forms:
- BEFORE beginning any film production activity in the State, an Application for Initial Tax Credit Certification MUST be submitted to the Department along with ALL required attachments, including the Application Addendum.
- BEFORE the start of principal photography in the State, a Form for Additional Documentation & Information MUST be submitted to the Department along with ALL required attachments.
- BEFORE the start of principal photography in the State, the Department must approve the draft engagement letter for the independent, 3rd party CPA outlining sample sizes and percentages for the Agreed Upon Procedures. The Department will determine sample sizes and percentages.
- WITHIN 180 days after the production wrap date (date the local production office closes), an Application for Final Tax Credit Certification MUST be submitted to the Department along with ALL required final documentation.
Each applicant must meet all of the following criteria to be eligible to receive an Initial Tax Credit Certificate or Letter of Intent:
- All statutory requirements must be met.
- The submitted Application for Initial 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 Initial Tax Credit Certificate or Letter of Intent from the Department, which may be extended by the department 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.
Complete and submit the Application for Initial 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 Commerce
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 30 days of receiving a complete application, the Department will issue an acknowledgement of receipt of the application. The notification will state the applicant’s position in the queue for future tax credits and the maximum amount of tax credits for which the applicant may be eligible for this film production activity. Or, the notification will state that the film production entity is ineligible for a tax credit.
Any decision made by the Department during the application process is considered final.
Final Certification Process
Upon completion of the film production activity in the State and within 180 days of the wrap date (date the local production office closes), 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:
A draft engagement letter outlining sample sizes and percentages must be approved by the Department prior to the commencement of principal photography of the film production activity in the State. The Department 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, the department 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 Initial Tax Credit Certificate(s) or original Letter of Intent.
General Tax Credit Rules:
Initial 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 Initial Tax Credit Certificate or Letter of Intent from the Department, which may be extended by the Department 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 (date the local production office closes) specified in the Application for Initial 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 the department 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. "Other compensation " includes employer fringes and payments made directly to the employee (i.e., per diem, housing allowance, travel allowance, meal allowance, car allowance, cell phone allowance, kit/box rental, relocation fees, etc.). Salary, wages and "other compensation " are included in calculating the $500,000 threshold. If that $500,000 threshold is reached, then no costs, including the "other compensation, " qualify. In addition, the $500,000 in salary, wages or "other compensation " is for the length of the production activity (prep, pre-production, principal, post ); not just for time in Maryland.
- 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.
- The total direct costs may not include costs associated with filming outside of Maryland borders, including Washington, D.C. Costs paid in a lump sum for activities occurring both in and out of the state must be PRO-RATED for the time and costs allocable to the time in Maryland only.
- 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 the NET cost of the goods or services, i.e., security deposits must be netted out, etc.
- 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.
- Taxes and fees paid to other jurisdictions, including the Federal Government, are not qualified.
- Penalties, fines, overages or similar costs 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, the Department 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 Credits and Acknowledgements:
A feature film project shall contain a 5 second long static or animated logo that promotes the State in the end credits before the below-the-line crew crawl for the life of the project and a link to the State’s website on the project’s website.
A television series project shall contain an embedded 5 second long static or animated logo that promotes the State during each broadcast worldwide for the life of the project and a link to the State’s website on the project’s website.
For any other project, the State logo at the end of each project and in online promotions.
In lieu of including a State logo as required, the qualified film production entity may offer alternative marketing opportunities to be evaluated by the Department to ensure that those opportunities offer equal or greater promotional value to the State.
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 the Department 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 the Department along with Form 500CR, Maryland Business Income Tax Credits. Information regarding filing can be found on the Comptroller of Maryland’s website.
For further details, please contact our office: Maryland Film Office