FORMER INCENTIVES (FOR PROJECTS CERTIFIED PRIOR TO JANUARY 1, 2006)
I. INVESTOR TAX CREDIT (10-15% OF TOTAL PRODUCTION BUDGET)
Amounts
If the total Louisiana expenditure is greater than $300,000 and less than or equal to $8 million in one year, the producer shall be allowed a tax credit of 10% of the entire production budget, whether such funds are spent in Louisiana or elsewhere, even internationally.
If the total Louisiana expenditure is greater than $8 million in one year, the producer shall be allowed a tax credit of 15% of the entire production budget regardless of where such funds are spent.
Time Credit Earned
The tax credit is earned at the time the investment is made in a state-certified production, i.e., at the beginning of the production when production funds are deposited into the production account.
Time Credit Certified
Until the invested funds have been spent legitimately in connection with the production, the tax credits can be recaptured. Once evidence of valid expenditure has been filed with, and reviewed by, the State the credits become certified, and therefore not subject to recapture.
Use/Transfer of the Credit
The investor tax credits offset Louisiana income tax. However, most out-of-state production companies owe no Louisiana income taxes. The credits are therefore freely transferable. Throughout the year, Louisiana Production Capital purchases tax credits from production companies in bulk, usually acquiring all tax credits in one simple and easy transaction. We then resell the tax credits to Louisiana taxpayers during tax season.
Corporate Structure
The investor tax credits must be earned by a Louisiana taxpayer. Therefore, it is necessary for out-of-state production companies to form a Louisiana subsidiary. Such subsidiary then forms a second Louisiana subsidiary. Funds from the production company are channeled through the first subsidiary to the second, and it is the first subsidiary that is deemed to have earned the investor tax credits.
Cap
No production can earn more in investor tax credits than the amount such production spends in Louisiana in connection with the project.
Incentive Expiration
The investor tax credit program is permanent. However, during the 2005 Fiscal Session of the Louisiana Legislature, the law was amended such that the existing program will cease to apply to productions that receive their initial certification after December 31, 2005. For projects certified prior to such date, the existing incentives can be utilized for a period of twelve months from the date of such certification. For projects certified thereafter, the investor tax credits will be subject to different rules and rates, as described more fully in the next section of this summary.
II. EMPLOYMENT TAX CREDIT (10-20% OF LOUISIANA PAYROLL)
Amounts
The credit is equal to 10% of the total aggregate payroll for residents employed in connection with a production when total production costs in Louisiana equal or exceed $300,000 but are less than $1 million.
The credit is equal to 20% of the total aggregate payroll for residents employed in connection with a production when total production costs in Louisiana equal or exceed $1 million.
Note: The term "total aggregate payroll" does not include the salary of any employee whose salary is equal to or greater than $1 million. Payroll is deemed to include payments to La. residents who receive from the production company either a W-2 or Form 1099. Therefore, payments to independent contractors earn employment tax credits as well.
Time Credit Earned
The employment tax credit is earned at the time payroll expenditures are made to Louisiana residents.
Time Credit Certified
Until the producer has demonstrated to the State that all of the funds claimed as payroll expenditures were in fact paid to eligible Louisiana residents, the tax credits can be recaptured. Once such evidence has been presented to the State, however, the credits become certified, and therefore not subject to recapture.
Use/Transfer of the Credit
The employment tax credits offset Louisiana income tax and corporate franchise tax. However, most out-of-state production companies owe no Louisiana income or corporate franchise taxes. Therefore, they can be sold to Louisiana taxpayers in exchange for cash.
Corporate and Transaction Structure
In general, the credits are earned by a special purpose Louisiana production subsidiary limited liability company. Louisiana Production Capital then pays in a negotiated dollar amount for the tax credits and becomes a part owner of the company, but takes no control rights. In exchange for the capital investment, all employment tax credits are allocated to Louisiana Production Capital, while all cash and profits are allocated to the producer. We then resell the tax credits to Louisiana taxpayers in smaller increments throughout the year in the same manner.
Incentive Expiration
The employment tax credit program ends on December 31, 2005. However, productions certified prior to that date are still eligible to receive employment tax credits for up to one year from the date of initial certification, i.e. throughout calendar year 2006.
III. SALES TAX EXEMPTION (4% ON GOODS AND SERVICES)
Amounts
A production company will be granted an exemption from state sales and use tax (4%) if it reports expenditures of $250,000 or more in any consecutive 12-month period.
Recapture of Taxes
A motion picture production company that fails to expend two hundred fifty thousand dollars within a consecutive 12-month period will be liable for the sales and use taxes that would have been paid had the approval not been granted. The sales and use taxes shall be considered due as of the date that taxable expenditures were made.
Incentive Expiration
The sales and use tax exemption program ends on December 31, 2005.
IV. SPECIAL NOTE: PRODUCTION SLATES
Louisiana Production Capital has pioneered a system whereby those producers who might not independently cross the necessary spending thresholds to maximize tax credit rates can join with producers who can. Any producer, no matter how small, can buy-in to such a certification slate in order to earn tax credits at the highest possible rates. For this service, the producer who manages the slate generally takes a fee, which is often calculated as a percentage of the additional tax credits earned through the aggregation. For more information on joining a production slate, please contact our office.
