Are Georgia Credits RIght For You?
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Georgia offers entertainment tax credits to incentivize film, television, music video, and video game production in the state, which has significantly increased qualified investments from $262 million in 2007 to an estimated $770 million in 2009. These tax credits can be purchased by Georgia taxpayers at a discounted rate, providing an immediate dollar-for-dollar reduction in their state income tax liability and yielding an estimated 11.1% return. While there is a risk of credit recapture on audit, producers are required to confirm qualified expenses and the state has realized economic benefits from job creation and tourism that outweigh the costs of the program.
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Are Georgia Credits RIght For You?
- 1. Georgia Entertainment TaxGeorgia Entertainment Tax CreditsCredits Are they right for you and your clients?
- 2. U.S. Entertainment Tax CreditsU.S. Entertainment Tax Credits • Introduced in U.S. by Louisiana and New Mexico in 2002 • Designed to Compete with International Production Incentives and Currency Exchange Variables • The Original State Supported Economic Stimulus Packages • Stems Runaway Production and Creates Jobs
- 3. Georgia Entertainment IndustryGeorgia Entertainment Industry Investment ActInvestment Act Originally Created and Passed by the Georgia General Assembly in 2005 with a Multi-Tiered Incentive Structure Totaling 17% Reorganized and Simplified in 2008, then Passed by the Georgia General Assembly with a More Competitive 20% Base Benefit and 30% Maximum Benefit
- 4. Georgia Entertainment IndustryGeorgia Entertainment Industry Investment ActInvestment Act The Act Incentivizes Four Major Entertainment Segments: 1) Film & TV Projects 2) Commercials 3) Music Videos 4) Interactive Gaming
- 5. Georgia Entertainment Industry ActGeorgia Entertainment Industry Act Results: Gross Qualified Investments* 2007 = $262.1M 2008 = $294.7M 2009 = $770.2M 2010 = Estimated to Exceed 2009 * Figures Provided by Georgia Film, Music & Digital Entertainment Office, a Division of the Georgia Department of Economic Development
- 6. Georgia Entertainment Industry ActGeorgia Entertainment Industry Act 2009 GA Production Snapshot: Film & TV Production $716.7M Commercial Production $23.8M Music Video Production $1.6M Video Game Development $28M Total Qualified Investment $770.2M Total Economic Impact $1.37B
- 7. Georgia Entertainment Industry ActGeorgia Entertainment Industry Act 2009 GA Projects Included: 14 Major Studio Feature Films 12 Independent Feature Films 36 TV Movies or Series 251 TV Commercials 28 Music Videos 7 Major Video Game Projects
- 8. Why should a Georgia taxpayer considerWhy should a Georgia taxpayer consider buying Entertainment Tax Credits?buying Entertainment Tax Credits? Tax credits are a smart way to reduce tax liability by purchasing at a discounted rate. • Purchasers get a direct dollar-for-dollar offset against Georgia income taxes which can be carried forward five years to be applied against future Georgia income taxes. • The available credits may be purchased by single or multiple buyers.
- 9. Why should a Georgia taxpayer considerWhy should a Georgia taxpayer consider buying Entertainment Tax Credits?buying Entertainment Tax Credits? Other Tax Credits: Low Income Housing Tax Credits (LIHTC) Environmental Tax Credits Energy Tax Credits Education Tax Credits
- 10. Why should a Georgia taxpayer considerWhy should a Georgia taxpayer consider buying Entertainment Tax Credits?buying Entertainment Tax Credits? LIHTC: Complex 15-year Recapture Window Must be Partner Best for AMT Filers
- 11. Why should a Georgia taxpayer considerWhy should a Georgia taxpayer consider buying Entertainment Tax Credits?buying Entertainment Tax Credits? Tax Credits Sold at Discount from Face Amount Example (Assumes 10% discount): • Taxpayer has $5M in Georgia Income Tax Liability • Same Taxpayer Would Pay only $4.5M to Offset $5M Georgia Income Tax Liability • Tax Savings = $500,000 = 11.1% Immediate Return on the Taxpayers’ $500,000 Investment in the Tax Credits • If Tax Credits are Purchased 60 Days Before Needed, Buyer Gains 66.6% Annualized ROI
- 12. Entertainment Tax Credit UpsideEntertainment Tax Credit Upside The taxpayer does not buy any interest in the production itself and, therefore, is not affected by the outcome of the production or liabilities created by the production. These credits are simple and easy to apply with predictable delivery dates.
- 13. Entertainment Tax Credit DownsideEntertainment Tax Credit Downside • One-Time, Simultaneous Transfer of All Tax Credits From the Producer • There is a possibility of “recapture” if the Georgia DOR disallows any of the claimed expenses upon audit. • 3-Year Recapture Window (15-Year LIHTC Recapture Window)
- 14. Protection Against RecaptureProtection Against Recapture • Taxpayer Needs Indemnification/Guaranty to Pay Any Assessed Taxes Related to the Credits • Credit Status of the Guarantor is Critical • Price of Tax Credits Will Vary Depending on Credit Worthiness of Guarantor
- 15. Protection Against RecaptureProtection Against Recapture Georgia CPA Firm Performs “Agreed Upon Procedure” to Confirm Producer’s Proper Amount of Credits • To Date, No DOR Audits Have Resulted in Recapture • Recapture Rules are Much Less Complicated Than Other Tax Credits
- 16. Does Georgia Benefit fromDoes Georgia Benefit from Entertainment Tax Credits?Entertainment Tax Credits? Yes. The 20% base credit result in an economic breakeven point for the state taking into account the items below, based on a Georgia State University Department of Economics evaluation. This includes affects of: Direct Spending Indirect pending Induced Spending Job Creation & Long-Term Infrastructure Growth
- 17. Does Georgia Benefit fromDoes Georgia Benefit from Entertainment Tax Credits?Entertainment Tax Credits? The additional 10% benefit is exchanged for in-kind Georgia branding that is distributed nationally and internationally with every Georgia-produced film, television program, music video and gaming product, which results in a profit for the state. This includes: 1-to-1 ROI in Year One 5-to-1 Regular Long-Term (5-Year) ROI 25-to-1 Legacy (20+ Years) ROI Increased Tourism & Trade
- 19. Georgia Entertainment Tax CreditsGeorgia Entertainment Tax Credits Good for Georgia The Credits Spur Economic Growth Good for Georgia Tax Credit Purchasers The Credits Decrease the Actual Amount Paid for State Income Tax Liability, with an Immediate Return on the Taxpayer’s Investment in the Tax Credits