New York State (NYS) offers incentives to film and television producers in the form of a refundable tax credit. The NYS Film Tax Credit program is designed to attract film and television production and post-production to the State, to support the growth of the film industry in New York State, to help create and maintain NYS film industry jobs, to encourage the use of NYS production facilities and to provide an overall positive impact on the State’s economy. The Program provides tax credit incentives to qualified productions companies that produce feature films, television series, relocated television series, television pilots and films for television, and/or incur post‐production costs associated with the original creation of these productions.
The NYS Tax Credit program enables production companies to recover up to 30% of qualified production and post-production costs back from the State. Additional credits, over and above the 30% threshold, are available to companies that do their production and post-production work in any of a large number of counties in Upstate New York. An additional 5% credit may be available in the State’s Post-Production Program for costs incurred in Upstate NY. For the period 2015-2019, productions with budgets over $500,000 can receive an additional 10% credit (up to a maximum of $5 million per year) on qualified labor expenses incurred in certain counties Upstate.
Qualified production costs are for tangible property or services used or performed within New York State directly and predominantly in the production of a qualified film. Qualified costs generally include most below-the-line items associated with production such as set construction, crew, camera equipment, film processing, grip equipment, sound recording, lighting, props, meals, makeup, wardrobe, non‐speaking background extras, etc. Post-production costs such as film editing, sound design and effects, and visual effects may be qualified production costs for purposes of the film production credit.
Qualified productions must use New York crew, New York vendors, and use New York production facilities and suppliers.
Non-qualified production costs are not eligible for the tax credit. Non-qualified production costs include most above-the-line costs, such as story and script costs (intellectual property rights), and wages for writers, directors, producers and actors. Those below-the-line costs which do not qualify include costs for entertainment and for travel for out-of-town labor. In addition, documentaries, news programs, reality TV shows, sporting events, commercials and music videos are not eligible for the NYS tax credit.
Filmmakers may not be able to claim any reimbursements where qualified production costs are combined with non-qualified production costs. Production companies must ensure that, in their contract drafting and accounting, they spell out exactly how much is being paid for qualified production and post-production services, rather than combining those activities with intellectual property rights or above-the-line costs that are not eligible for tax credits.
Eligibility requirements vary based on the type of film production company and the budget. This ranges from at least 75% percent of the principal photography days must be shot on location in NYS, to at least 10% of the total principal photography shooting days must be at a qualified production facility (QPF) in NYS. There is a separate post-production credit that is available where the project was filmed predominantly outside of NYS and the film production company contracts their post-production work to companies in NYS specializing in post-production work.
There are three stages of the tax credit application process: submission of the initial application, submission of the final application, and audit of the final application. The initial application is submitted prior to start of principal photography. The final application is submitted within 60 days of completing post production. The tax credit application is reviewed by the State, which calculates the amount of the credit.
Taxpayers can only claim the credit after the production company has received a Tax Credit Certificate, which is generally issued within 30 to 60 days of submitting the final application. The credit is reported to the production company. Since most films are produced via a pass-through entity, such as a LLC or partnership, the credit would be reported as a pass-through to the LLC members or partners, who claim the credit as a refund on their personal tax returns. The taxpayer then claims the credit on the annual tax return for the year in which the project is completed. The refundable amount is offset against an individual’s tax liability. Thus, a taxpayer can claim a refund on their unused tax credits.
In most cases, the tax return claiming the credit is filed in December following the year in which production is completed. If the credits are less than $1 million, they can be claimed in a single taxable year. If the credits are between $1 million and $5 million, they are claimed over two years (50% each year). If the credits are $5 million or more, they are claimed over three years (33% each year).
Tax credits in New York are not transferable. Transferability allows for the recipient of the tax credit to sell the credit to another taxpayer, usually for less than a dollar per dollar of tax credit. Transaction costs associated with transferring a tax credit include fees to accountants, lawyers, and brokers. In addition, the money received from the sale of a tax credit is taxable as income, which further reduces the taxpayer’s economic benefit. In contrast, in New York, the taxpayer-film-producer-investor does not need to find a purchaser for the tax credit, thereby decreasing transaction costs and increasing the economic benefit (the filmmaker gets a dollar for every dollar of tax credit). On the other hand, it may take up to three years for the filmmaker to be fully refunded.