Bill Text: MS HB1686 | 2019 | Regular Session | Introduced
Bill Title: Income tax; authorize credit for certain motion picture production expenditures.
Spectrum: Partisan Bill (Democrat 3-0)
Status: (Failed) 2019-02-27 - Died In Committee [HB1686 Detail]
Download: Mississippi-2019-HB1686-Introduced.html
MISSISSIPPI LEGISLATURE
2019 Regular Session
To: Ways and Means
By: Representatives Harness, Denton, Mickens
House Bill 1686
AN ACT TO AUTHORIZE AN INCOME TAX CREDIT FOR CERTAIN EXPENDITURES MADE FOR THE PRODUCTION OF MOTION PICTURES IN THIS STATE; TO DEFINE CERTAIN TERMS FOR THE PURPOSES OF THIS ACT; TO PROVIDE ELIGIBILITY CRITERIA FOR THE TAX CREDIT; TO PROVIDE FOR THE AMOUNT OF THE TAX CREDIT; TO LIMIT THE AMOUNT OF TAX CREDITS THAT MAY BE GRANTED IN A FISCAL YEAR; AND FOR RELATED PURPOSES.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MISSISSIPPI:
SECTION 1. The primary objective of this act is to encourage development in Mississippi of a strong capital and infrastructure base for motion picture production in order to achieve an independent, self-supporting industry. This objective is divided into immediate and long-term objectives as follows:
(a) Immediate objectives are to:
(i) Attract private investment for the production of motion pictures in Mississippi.
(ii) Develop a tax and capital infrastructure which encourages private investment. This infrastructure will provide for state participation in the form of tax credits to encourage investment in state-certified productions.
(iii) Develop a tax infrastructure utilizing tax credits which encourage investments in multiple state-certified productions.
(b) Long-term objectives are to:
(i) Encourage increased employment opportunities within this sector and increased global competitiveness with other states in fully utilizing economic development options within the motion picture industry.
(ii) Encourage new education curricula in order to provide a labor force trained in all aspects of film and digital production.
SECTION 2. As used in this act, the following words and phrases shall have the meanings ascribed herein unless the context clearly requires otherwise:
(a) "Above the line salaries" or "ATL salaries" means all salary, wages, fees, and fringe benefits paid for services such as those of a producer, executive producer, coproducer, director, screenwriter, lead cast, supporting cast, day players, and other services of job positions performed by personnel of the production that are associated with the creative or financial control of a production and customarily considered as above the line services in the film and television industry.
(b) "Alternative marketing opportunity" means an alternative marketing mechanism which has been approved by the MDA for a production as an alternative to a Mississippi promotional graphic.
(c) "Base investment" means cash or cash equivalent investment made and used for production expenditures in the state for a state-certified production.
(d) "Department" means the Department of Revenue.
(e) "Expended in the state" means an expenditure to lease real property located in the state, an expenditure as compensation for services performed in the state, or an expenditure to purchase or lease tangible personal property within the state.
(f) "Expenditure" means actual cash or cash equivalent exchanged for goods or services.
(g) "Fringe benefit" means an additional benefit which supplements an employee's salary and may include meal per diems, housing per diems, pension or retirement contributions, health insurance premium payments, box rental that includes an inventory list, and car allowances.
(h) "Headquartered in Mississippi" means a corporation incorporated in Mississippi or a partnership, limited liability company, or other business entity domiciled and headquartered in Mississippi for the purpose of producing nationally or internationally distributed motion pictures.
(i) "Independent film production" means a state-certified production, with a production budget no greater than Ten Million Dollars ($10,000,000.00), produced outside of the major film studio system, as approved by the MDA.
(j) "Mississippi promotional graphic" means a graphical brand or logo for promotion of the state which has been approved by the MDA.
(k) "Mississippi resident company" means a motion picture production company licensed to conduct business in the State of Mississippi, with its principal place of business in this state, which is owned one hundred percent (100%) by a Mississippi resident or residents. A Mississippi resident company is required to file a Mississippi income tax return and maintain a physical location in this state.
(l) "Mississippi screenplay production" means a state-certified production meeting the Mississippi screenplay base investment enhancement eligibility criteria set forth in Section 3(2)(a)(i) of this act.
(m) "Marketing and promotion expenses" means expenditures in this state directly relating to the development of advertising and marketing campaigns for a state-certified production, such as the creation of film trailers and posters. Marketing and promotional expenses must be included in and expended from the production budget and may not exceed One Million Dollars ($1,000,000.00), or fifteen percent (15%) of the total state-certified tax credits for the production, whichever is less. Marketing and promotional expenses shall not include media buys except for a fixed fee or commission payment made to a Mississippi company for services performed in the state in accordance with standard business practices as established by the MDA.
(n) "Motion picture" means a nationally or internationally distributed feature-length film, short film, video, television pilot, television series, television movie of the week, animated feature film, animated short film, animated television series, commercial, or documentary made in Mississippi, in whole or in part, for theatrical or television viewing, or for viewing on any digital online platform as may be further defined by the MDA through the promulgation of rules. The term "motion picture" shall not include the production of television coverage of news and athletic events or music festivals.
(o) "Motion picture production company" means a company engaged in the business of producing nationally or internationally distributed motion pictures. The term "motion picture production company" shall not mean or include any company owned, affiliated, or controlled, in whole or in part, by any company or person which is in default on a loan made by the state or a loan guaranteed by the state, nor with any company or person who has ever declared bankruptcy under which an obligation of the company or person to pay or repay public funds or monies was discharged as a part of such bankruptcy.
(p) "New jobs" means full-time employment in this state working an average of thirty (30) hours or more per week, filled by residents of the state, at the project site designated in the contract, who were not previously on the QEC's payroll in Mississippi, nor previously on the payroll of the QEC's parent entity, subsidiary, or affiliate in Mississippi, or previously on the payroll of any business whose physical location and employees are substantially the same as those of the QEC in Mississippi, as approved by the MDA.
(q) "MDA" means the Mississippi Development Authority.
(r) "Payroll" means all salary, wages, and fringe benefits paid, provided, or rendered to an individual for services relating to a state-certified production and, except for fringe benefits not includible in gross income, for which taxes are withheld and remitted to the department in accordance with the Mississippi Income Tax Withholding Law of 1968, and taxable in this state as verified by the MDA through the use of information which may be provided upon request by the MDA from the department. Any information so furnished shall be considered and held confidential and privileged by the MDA.
(s) "Principal place of business" means the state where the administrative or management activities of a business are conducted. A company claiming that its principal place of business is in Mississippi must be a motion picture production company headquartered in this state and shall not have any fixed locations outside of Mississippi in which administrative or management activities are conducted, and the company shall be required to maintain a physical location in the state. The company shall be licensed to conduct business in this state and shall be required to file a Mississippi income tax return.
(t) "Production expenditure verification report" means a report issued by a qualified accountant who is unrelated to the motion picture production company and that is a report of the qualified accountant's verification of the motion picture production's cost report of production expenditures. The production expenditure verification report shall contain an opinion from the qualified accountant stating that there are no related party transactions or that material transactions of related party relationships are properly reported and accounted for as required by Section 4(7) of this act, adequately disclosed, and explained in the report and that the production's cost report of production expenditures presents fairly, in all material aspects, the production expenditures expended in Mississippi pursuant to the provisions of this act. The production expenditure verification report shall:
(i) Be performed in accordance with the accounting standards generally accepted in the United States;
(ii) Be addressed to the party which has engaged the qualified accountant, with a copy addressed to the motion picture production company or motion picture investor tax credit applicant;
(iii) Contain the qualified accountant's name, address, and telephone number;
(iv) Contain a certification that the qualified accountant is unrelated to the motion picture production company;
(v) Be dated as of the date of completion of the qualified accountant's work; and
(vi) Contain a statement of acknowledgment by the qualified accountant that the state is relying on the qualified production expenditure verification report in the issuance of the tax credits under this act.
(u) "Production expenditures" means preproduction, production, and postproduction expenditures in this state directly relating to a state-certified production, including without limitation the following: set construction and operation; wardrobes, makeup, accessories, and related services; costs associated with photography and sound synchronization, lighting, and related services and materials; editing and related services; rental of facilities and equipment; leasing of vehicles; costs of food and lodging; digital or tape editing, film processing, transfer of film to tape or digital format, sound mixing, special and visual effects; payroll; and marketing and promotion expenses. The term "production expenditures" shall not include non-production related overhead; amounts reimbursed by the state or any other governmental entity; costs related to the transfer of tax credits; amounts that are paid to persons or entities as a result of their participation in profits from the exploitation of the production; any application fee; state or local taxes; expenditures occurring outside of Mississippi; expenditures for related party transactions denied or limited by the MDA; the production expenditure verification report fee; expenditures for ATL salaries for the production that exceed forty percent (40%) of total production expenditures in the state for the production; expenditures for airfare; or expenditures for bond fees, insurance premiums, finance fees, loan interest fees, or payments of a similar nature, paid to investors in the production unless such expenditures are made to a Mississippi resident licensed insurance producer that has its principal place of business in this state or a Mississippi financial institution, in which case, the expenditures may be allocated only on a pro rata basis, allocating the fees based on the relative percentage of production activity occurring in and out of state. The term "production expenditures" shall not include expenditures for catering and craft services unless such expenditures are made to a source within the state.
(v) "Project completion" means completion of principal photography, or as otherwise approved in writing by the MDA.
(w) "Qualified accountant" means a certified public accountant or "CPA" who meets all of the following qualifications:
(i) Maintains an active Mississippi certified public accountant license;
(ii) Maintains a current Mississippi certified public accountant firm permit;
(iii) Actively participates in a peer review program approved by the Mississippi State Board of Public Accountancy;
(iv) Completes eight (8) hours of continuing professional education in approved tax credit attestation courses for each reporting cycle; and
(v) Is capable of conducting two (2) levels of review within the CPA firm or, if not within the firm, then through a cooperative endeavor with another CPA for the review of a verification report prior to its issuance.
(x) "Qualified Entertainment Company (QEC)" means an entity authorized to do business in the State of Mississippi, engaged in the development or distribution of audio, visual, or both audio-visual entertainment products for public consumption, directly or indirectly, certified by the MDA as meeting the eligibility requirements of this act, and executing a contract providing the terms and conditions for its participation.
(y) "QEC Payroll" means W-2, box 1 wages.
(z) "Related party transaction" means a transaction between parties deemed to be related by common ownership or control according to generally accepted accounting standards, or "GAAS", and generally accepted accounting principles, or "GAAP".
(aa) "Resident" or "resident of Mississippi” means a natural person who is required to file a Mississippi resident individual income tax return.
(bb) "Source within the state" means a physical facility in Mississippi, operating with posted business hours and employing at least one (1) full-time equivalent employee.
(cc) "State" means the State of Mississippi.
(dd) "State-certified production" means a production or slate of productions approved by the MDA which is produced by a motion picture production company domiciled and headquartered in Mississippi and which has a viable multi-market commercial distribution plan.
(ee) "Taxpayer" means an investor in a production, a motion picture production company applicant, or an individual with an ownership interest in a motion picture production company applicant.
SECTION 3. (1) There is hereby authorized a tax credit against state income tax imposed under Section 27-7-1 et seq., Mississippi Code of 1972, for Mississippi taxpayers for expenditures related to state-certified productions and qualified entertainment companies. The tax credit shall be earned by a motion picture production company at the time expenditures are certified by the MDA for a motion picture production company in a state-certified production. However, credits cannot be applied against a tax or transferred until the expenditures are certified by the MDA. For state-certified productions, expenditures shall be certified no more than once per production, after project completion. However, if at the time of application for initial certification, the MDA is notified that post-production activities will take place in Mississippi, a supplemental request for certification of expenditures directly related to such post-production activity may be submitted for consideration by the MDA. The cost of any verification or audit of such expenditures shall be borne by the motion picture production company. The tax credit shall be calculated as a percentage of the total base investment dollars certified per project, or as otherwise provided in this section.
(2) (a) If the total base investment is greater than Three Hundred Thousand Dollars ($300,000.00) or if a production is a Mississippi screenplay production, each investor shall be allowed a tax credit of twenty-five percent (25%) of the base investment made by the investor. Investors may receive an increased base investment credit rate by satisfying any of the following criteria:
(i) A ten percent (10%) increase in the base investment rate may be allowed for state-certified production expenditures equal to or greater than Fifty Thousand Dollars ($50,000.00) but no greater than Five Million Dollars ($5,000,000.00), based upon a screenplay created by a Mississippi resident as evidenced by documents such as certificate of authorship, a Writers Guild of America registration certificate, the records of the United States Copyright Office, or a reasonable legal opinion issued to the MDA.
(ii) To the extent that base investment is expended on payroll for Mississippi residents employed in connection with a state-certified production, each investor shall be allowed an additional tax credit of fifteen percent (15%) of such payroll.
(iii) To the extent that base investment is expended on visual effects expenditures, each investor shall be allowed an additional tax credit of five percent (5%) of such expenditures if at least fifty percent (50%) of the visual effects budget is expended for services performed in Mississippi by an approved QEC, or a minimum of One Million Dollars ($1,000,000.00) in qualified visual effects expenditures are made in Mississippi.
(b) The maximum tax credit that a production can earn pursuant to this section for the base investment credit, including base investment increases for Mississippi screenplay, and the additional payroll and visual effects credits is forty percent (40%) of base investment.
(c) The initial certification shall be effective for qualifying expenditures made within a period of twelve (12) months prior to the date of application, and twenty-four (24) months after the date of initial certification, except that state-certified productions for scripted episodic content, with estimated expenditures of at least Ten Million Dollars ($10,000,000.00) in qualifying in-state expenditures per calendar year, for up to five (5) years, shall be issued an initial certification effective for qualifying expenditures made until sixty (60) months after the date of initial certification, under terms and conditions approved by the MDA as set forth in the initial certification.
(d) As a condition of receiving tax credits pursuant to this act, state-certified productions shall be required to acknowledge the financial assistance of the state of Mississippi through the inclusion of a Mississippi promotional graphic or an alternative marketing option and a donation to a Mississippi nonprofit film grant program as approved by the MDA.
(e) As a condition of receiving tax credits pursuant to this act, state-certified productions shall be required to participate in a career-based learning and training program approved by the MDA. The MDA shall determine approved programs as well as the minimum criteria that an applicant must meet in order to qualify according to this section.
(f) To the extent that base investment is expended on payroll for Mississippi residents in connection with a QEC, tax credits shall be earned at the following rates:
(i) A payroll credit of fifteen percent (15%) shall be earned for each new job whose QEC payroll is equal to or greater than Forty-five Thousand Dollars ($45,000.00) per year, but not greater than Sixty-six Thousand Dollars ($66,000.00) per year.
(ii) A payroll credit of twenty percent (20%) shall be earned for each new job whose QEC payroll is equal to or greater than Sixty-six Thousand Dollars ($66,000.00) per year, but not greater than Two Hundred Thousand Dollars ($200,000.00) per year.
(g) Motion picture investor tax credits associated with a state-certified production shall never exceed the total base investment in that production.
(h) Motion picture investor tax credits shall be certified only upon the receipt and approval by the MDA of a production expenditure verification report submitted by a qualified accountant in accordance with Section 4 of this act. (3) The credit shall be allowed against the income tax for the taxable period in which the credit is earned or for the taxable period in which initial certification authorizes the credit to be taken. If the tax credit allowed pursuant to this section exceeds the amount of such taxes due for such tax period, then any unused credit may be carried forward as a credit against subsequent tax liability for a period not to exceed five (5) years.
(4) Taxpayers claiming a credit under this act shall claim the credit on their income tax return. Tax credits that are earned by a partnership, limited liability company, S corporation or other similar pass through entity, shall be allocated among all partners, members or shareholders, respectively, either in proportion to their ownership interest in such entity or as the partners, members or shareholders mutually agree as provided in an executed document.
(5) (a) Motion picture tax credits not previously claimed by any taxpayer against its income tax may be transferred to the department for ninety percent (90%) of the face value of the credits.
(b) A bank or other lender may be named as an irrevocable designee in the initial tax credit certification or other document submitted thereafter by a motion picture production company to the MDA. As an irrevocable designee, a bank or other lender may elect to have the tax credits issued directly to it from the MDA. An irrevocable designee may transfer credits to the department in the amount provided in paragraph (a) of this subsection (5).
(c) The department may require the transferor to submit such additional information as may be necessary to administer the provisions of this subsection (5). The department shall make payment to the motion picture production company or its irrevocable designee in the amount to which the motion picture production company or irrevocable designee is entitled from current income tax collections, provided the credits are transferred to the department within one (1) calendar year of certification.
(6) A state-certified production which receives tax credits pursuant to the provisions of this act shall not be eligible to receive rebates under Section 57-89-1 et seq., Mississippi Code of 1972.
SECTION 4. (1) (a) (i) It is the intent of the Legislature that the tax credits provided in this act should be used primarily as an inducement for qualified entertainment businesses to permanently locate new operations or expand existing operations in Mississippi. A business may be eligible for participation in the program if it meets all of the following criteria:
1. Is engaged in the development or distribution of audio, visual, or both audio-visual entertainment products for public consumption, directly or indirectly, as approved by the MDA;
2. Creates a minimum of five (5) new jobs meeting or exceeding the minimum wage requirements of Section 3(2)(f)(i) of this act; and
3. Is approved by the MDA.
(ii) The following business types are ineligible for tax credits under this act:
1. Telecommunications; and
2. Any other businesses as determined by the MDA.
(iii) The MDA shall determine the minimum criteria that a project must meet in order to qualify according to this section.
(b) When determining which productions may qualify, the MDA shall take the following factors into consideration:
(i) The impact of the production on the immediate and long-term objectives of this act;
(ii) The impact of the production on the employment of Mississippi residents;
(iii) The impact of the production on the overall economy of the state;
(iv) Conviction for a criminal offense as an incident to obtaining or attempting to obtain motion picture investor tax credits; and
(v) Filming location, project size, project type, and availability of tax credits in any given year.
(2) (a) An applicant for the motion picture investor tax credit shall submit an application for initial certification to the MDA that includes the following information:
(i) For state-certified productions the application shall include:
1. The multi-market commercial distribution plan;
2. A preliminary budget including estimated Mississippi payroll and estimated base investment;
3. The script, including a synopsis;
4. A list of the principal creative elements, including the cast, producer, and director;
5. A statement that the production will qualify as a state-certified production;
6. Estimated start and completion dates;
7. The format of the project, for example whether it is a feature film or television series, and whether it seeks qualification as a QEC, independent film project, or Mississippi screenplay project; and
8. A statement of which of the base credit rate enhancements or additional credits for payroll or visual effects, if any, will apply to the project and an estimate of expenditures in each applicable category.
(b) Applications shall be submitted to the MDA on a form prescribed by the MDA, or if available submitted electronically, to include such information as may be required by the MDA to determine if the applicant is qualified. If the application is incomplete, additional information may be requested prior to further action by the MDA.
(c) (i) In order to protect the integrity of the motion picture investor tax credit program by ensuring that tax credits are certified only for eligible expenditures and to provide for uniformity in expenditure verification reporting, the MDA shall directly engage and assign an independent certified public accountant to prepare for the MDA, the required production expenditure verification report on a tax credit applicant's cost report of expenditures or claims. The applicant shall be responsible for and assessed any production expenditure verification report fee that may be required by law, including any up-front deposit of the fee. For purposes of the report, the applicant shall make all records related to the tax credit application available to the certified public accountant.
(ii) The applicant will be assessed the MDA's actual cost for the production expenditure verification report fee. The maximum fee for the report shall be Fifteen Thousand Dollars ($15,000.00) for verification of a cost report reflecting qualified production expenditures between Three Hundred Thousand Dollars ($300,000.00) and Twenty-five Million Dollars ($25,000,000.00), and the maximum fee shall be Twenty-five Thousand Dollars ($25,000.00) for verification of a cost report reflecting qualified production expenditures in excess of Twenty-five Million Dollars ($25,000,000.00).
(iii) At the time of application, the applicant shall submit a deposit of the production expenditure verification report fee of Seven Thousand Five Hundred Dollars ($7,500.00) for a production with qualified expenditures projected to be between Three Hundred Thousand Dollars ($300,000.00) and Twenty-five Million Dollars ($25,000,000.00), and a deposit of Fifteen Thousand Dollars ($15,000.00) for those projected to be in excess of Twenty-five Million Dollars ($25,000,000.00).
(d) (i) After application review and consideration of all discretionary factors and within sixty (60) days of the receipt of all required information, the MDA shall submit its initial certification or written denial of a project as a state-certified production to investors and to the department indicating the total base investment which shall be expended in the state on the state-certified production. The initial certification shall include a unique identifying number for each state-certified production and shall provide for a preliminary allocation of tax credits by year.
(ii) After application review and consideration of all discretionary factors, the MDA may execute a contract with an applicant for a period of up to five (5) years providing the terms and conditions for its participation. A five-year renewal contract may be authorized if the applicant has complied with all the terms of the contract and has not performed any act, nor failed to perform any act, which would have made the applicant liable for suspension, and has complied with the provisions of this act. The contract shall set forth an estimate of jobs and payroll per calendar year, which will be tentatively allocated to the QEC for annual cap computation purposes.
(e) (i) Not later than six (6) months after the expiration of the initial certification period for the applicable state-certified production, a state-certified motion picture production company applicant shall make a request to the MDA to proceed to final certification by submitting to the MDA a cost report of production expenditures to be formatted in accordance with instructions of the MDA. The applicant shall make all records related to the cost report available for inspection by the MDA and the qualified accountant selected by the MDA to prepare the production expenditure verification report. After review and investigation of the cost report, the accountant shall submit to the MDA a production expenditure verification report. The MDA shall review the production expenditure verification report and may require additional information needed to make a determination as to final certification of all tax credits for that production. Within one hundred twenty (120) days of the receipt of the production expenditure verification report and all required supporting information, the MDA shall issue a tax credit certification letter indicating the amount of tax credits certified for the state-certified production to the applicant for all qualifying expenditures verified by the MDA. For any expenditures for which tax credits were neither denied nor certified due to insufficient information or other issues, the MDA shall diligently work to resolve the outstanding issues in a timely manner, and the MDA may subsequently issue a supplemental tax credit certification at the time of such resolution.
(ii) The MDA may request an additional production expenditure verification report of the expenditures submitted by the motion picture production company with the cost of the additional report paid by the motion picture production company. The motion picture production company may submit an amended cost report of production expenditures if additional expenditures are incurred or discovered after the submission and/or approval of the initial production expenditure verification report issued pursuant to subparagraph (i) of this paragraph (e), and the MDA may issue a supplemental tax credit certification if so warranted. (iii) Only expenditures made during the initial certification period shall earn credits.
(iv) State-certified productions for scripted episodic content and approved QECs may submit more than one (1) request for final certification of tax credits, but no more frequently than once per calendar year, in accordance with the terms of the initial certification letter or QEC contract and instructions by the MDA.
(f) In addition to the requirements of paragraph (e) of this subsection (2), prior to any final certification of a state-certified production, the motion picture production company applicant shall submit to the MDA a notarized statement demonstrating conformity with, and agreeing to, the following:
(i) To pay all undisputed legal obligations the film production company has incurred in Mississippi;
(ii) To publish, at completion of principal photography, a notice at least once a week for three (3) consecutive weeks in local newspapers in regions where filming has taken place in order to notify the public of the need to file creditor claims against the film production company by a specified date;
(iii) That the outstanding obligations are not waived should a creditor fail to file by the specified date; and
(iv) To delay filing a claim for the film production tax credit until the MDA delivers written notification to the department that the film production company has fulfilled all requirements for the credit.
(g) In addition to any other requirements of this subsection (2), the production expenditure verification report shall include information concerning the total number of people who were paid salary, wages, benefits, and other compensation in the production which was included as payroll for which a credit was claimed and the number of those who were Mississippi residents.
(h) (i) In addition to any other requirements of this act, the production expenditure verification report shall include a sworn affidavit by the individual responsible for providing the accounts, documents, records and any other information necessary to the accountant charged with preparing and filing the production expenditure verification report that such accounts, documents, records, and other information were true and correct and that all related party transactions were accurately reported in accordance with subsection (7) of this section, all to the best of the affiant's knowledge, information, and belief.
(ii) Any false statement under oath contained in the affidavit required by this paragraph (h) shall constitute perjury and shall be punished as provided by state law.
(3) Any taxpayer applying for a tax credit shall be required to reimburse the MDA for any audits required in relation to granting the credit.
(4) (a) A motion picture production company applying for a tax credit based upon payroll for any individuals must remit a schedule to the department, in a machine-sensible format approved by the department, that includes the following information:
(i) Name, address, and taxpayer identification number of a loan-out company or other entity, if any;
(ii) Identification of entity type: partnership, S Corporation, limited liability company, or other entity type with tax type specified, if applicable;
(iii) Name, address, and social security number of the payee; and
(iv) An affirmative statement of whether or not the production company is a related party to a loan-out company or other entity, and if so, provision of an affidavit stating under penalty of perjury that the transaction is valued at the same value that an unrelated party would value the same transaction. If the production company is a related party to a loan-out company, the schedule shall also include all of the following information:
1. The ownership structure of the loan-out company or other entity, and
2. An estimate amount of what the loan-out company or other entity will pay the payee.
(b) The department shall, for purposes of administering the reporting provisions required under this subsection (4), collect an administrative fee in the amount of Two Hundred Dollars ($200.00) per motion picture production for which reports and payroll withholding information are mandated.
(c) Such information shall be verified by the MDA through the use of information which may be provided upon request by the MDA from the department.
(5) (a) The MDA shall prepare a written report to be submitted to the House Ways and Means Committee and the Senate Finance Committee no less than sixty (60) days prior to the start of the 2021 Regular Session of the Legislature, and every second year thereafter. The report shall include the overall impact of the tax credits, the amount of the tax credits issued, the number of net new jobs created, the amount of Mississippi payroll created, the economic impact of the tax credits and film industry, and any other factors that describe the impact of the program.
(b) The MDA shall include in its annual report information detailing the alternative marketing opportunities it has approved in the most recently ended calendar year for tax credits earned for productions which employed an alternative marketing opportunity in lieu of a Mississippi promotional graphic as provided in Section 3(2)(d) of this act. The report shall include, but not be limited to, the following:
(i) The goals and strategy behind each alternative marketing opportunity approved for state-certified productions;
(ii) The names of all motion picture production companies approved by the MDA to provide alternative marketing opportunities;
(iii) The estimated value to the state of each approved alternative marketing opportunity compared to the estimated value of a Mississippi promotional graphic; and
(iv) The names of all motion picture production companies that chose to include a Mississippi promotional graphic instead of offering the state an alternative marketing opportunity.
(6) The MDA may request an additional audit of the expenditures submitted by the motion picture production company at the cost of the motion picture production company.
(7) (a) The production expenditure verification report required by subsection (2) of this section shall verify that all related party transactions have been disclosed and explained, and that the production accounts include all of the following:
(i) The name of the related party;
(ii) The nature of the relationship between the related party and the motion picture production company;
(iii) The nature of the transaction;
(iv) The amount of the transaction; and
(v) The capture and reporting of the functional expense classifications of related party transactions and an explanation of how each is a legitimate project expenditure, including reporting of labor and facility/equipment charge rates related to production company personnel and facility and equipment used in the production of the state-certified production.
(b) Tax credits certified for goods and services provided by related parties to a state-certified production shall be further limited as follows:
(i) Qualifying production expenditures for Above the Line salaries provided by related parties shall be limited to twelve percent (12%) of total Mississippi production expenditures.
(ii) Qualifying production expenditures for Below the Line services provided by a related party shall be limited to the actual compensation including the value of employer-funded benefits paid by the related party to its employee or employees who are actually performing the service, allocated to the production on an hourly basis.
(iii) 1. Qualifying production expenditures for goods and services such as equipment, supplies, studio rental, and visual effects packages provided by a related party shall be limited to fair market value as established through the related party's historic dealings with unrelated parties, or established by comparable transactions between other unrelated parties for substantially similar goods and services considering the geographic market and other pertinent variables.
2. If the fair market value cannot be established in the manner provided for in item 1 of this subparagraph (iii), qualifying production expenditures shall be limited to the internal cost recovery rate to be determined by dividing the actual acquisition cost plus ongoing maintenance and upgrade cost by anticipated utilization over the real useful life of the property. However, qualifying production expenditures for visual effects packages shall be limited to either the internal cost recovery rate or the actual compensation including the value of employer-funded benefits paid by the related party employer to its employee or employees actually performing the service, allocated to the production on an hourly basis as determined by the methodology selected and deemed most appropriate under the circumstances by the MDA.
(iv) No tax credits shall be earned or certified for expenditures for finance fees, interest, or payments of a similar nature paid to related parties, investors in the production, or any other entities which the MDA determines will gain financial rewards based upon sale or exploitation of the product or success in procuring distribution agreements unless such expenditures are for payments made to a Mississippi resident licensed insurance producer that has its principal place of business in this state or to a Mississippi financial institution.
(c) The MDA may request and use additional information in determining the extent to which expenditures for related party transactions will be certified by requesting and obtaining documentation including, but not limited to, third-party contracts, notarized affidavits, tax records, W-2s, 1099s, and cancelled checks.
SECTION 5. (1) A bad faith holder may not claim tax credits pursuant to this act, nor transfer tax credits pursuant to this act. A bad faith holder is a person who participated in material misrepresentation or fraudulent acts in connection with the certification of tax credits pursuant to this act, or who prior to or at the time of certification of such tax credits knew or reasonably should have known of such material misrepresentation or fraudulent acts, or a legal entity owned or controlled by such a person. Upon a determination of bad faith by the department such tax credits shall be deemed disallowed as to the bad faith holder.
(2) In the event tax credits obtained through material misrepresentation or fraudulent acts are claimed by a taxpayer who is not a bad faith holder, the department shall disallow the credit.
(3) Tax credits previously granted to a taxpayer, but later disallowed pursuant to the provisions of this section, may be recovered by the department through any collection remedy authorized by law and initiated within the later of the following:
(a) Two (2) years from December 31 of the year in which the tax credits were transferred to the department under Section 3(5) of this act;
(b) Three (3) years from December 31 of the year in which the taxes for the filing period were due; or
(c) Three (3) years from December 31 of the year in which the final tax credit certification letter was issued.
SECTION 6. No tax credits shall be allowed pursuant to this act for applications received on or after July 1, 2025.
SECTION 7. (1) (a) The MDA shall establish the method of provisionally allocating available tax credits in initial certification letters, and the method for granting tax credits in final tax credit certification letters, including, but not limited to, a first-come, first-served system, reservation of tax credits for a specific time period, or other method which the MDA, in its discretion, may find beneficial to the program.
(b) The total amount of all tax credits granted in a final certification letter by the MDA in any fiscal year shall not exceed Fifty Million Dollars ($50,000,000.00). Twenty percent (20%) of the annual program cap shall be reserved as follows: five percent (5%) for qualified entertainment companies, five percent (5%) for Mississippi screenplay productions, and ten percent (10%) for independent film productions. If the total amount of credits applied for in any year exceeds the aggregate amount of tax credits allowed for that year, the excess shall be treated as having been applied for on the first day of the subsequent year.
(c) (i) If the total amount of credits granted to QECs in any fiscal year is less than the QEC cap, any residual amount of unused credits shall carry forward for use in subsequent years and may be granted in addition to the QEC cap for each year.
(ii) If the total amount of credits granted in any fiscal year to screenplay productions or independent film productions is less than their respective caps, any residual amount may be available for issuance by the MDA during that fiscal year as established by the MDA.
(d) The MDA shall make reasonable efforts to post a listing of estimated amounts available under the cap on its website.
(2) (a) Claims against state income tax allowed on returns for tax credits shall be limited to an aggregate total of Sixty Million Dollars ($60,000,000.00) each fiscal year. If less than Sixty Million Dollars ($60,000,000.00) of such tax credits and transfers are allowed in a fiscal year, the remaining amount, plus any amounts remaining from previous fiscal years, shall be added to the Sixty Million Dollar ($60,000,000.00) limit of subsequent fiscal years until that amount of tax credits are claimed and allowed.
(b) Claims for tax credits shall be allowed on a first-come, first-served basis. Any taxpayer whose claim for such tax credits is disallowed because the fiscal year cap has been reached may use the tax credits against state income tax due in an original return filed in the next fiscal year and his claim or transfer shall have priority over other claims filed or transfers applied for after the date of his original claim or application for transfer.
(c) The MDA shall make reasonable efforts to post a listing of estimated amounts available under the cap on its website.
(3) (a) The maximum amount of credits that may be granted for a single state-certified production shall not exceed Twenty Million Dollars ($20,000,000.00), except for state-certified productions for scripted episodic content that may be granted up to Twenty-five Million Dollars ($25,000,000.00) per season.
(b) The maximum amount of credits that may be granted for a single company shall not exceed One Million Dollars ($1,000,000.00) per year.
(4) (a) The maximum amount of qualifying payroll expenditures made for the services rendered by an individual, whether directly to an individual, or indirectly through a loan-out company, shall be Three Million Dollars ($3,000,000.00) per person and no tax credits shall be earned for payroll expenditures in excess of Three Million Dollars ($3,000,000.00) per person.
(b) The maximum amount of qualifying QEC payroll expenditures shall be Two Hundred Thousand Dollars ($200,000.00) per person, for each employee as reported on a Form W-2, and no tax credits shall be earned for payroll expenditures in excess of Two Hundred Thousand Dollars ($200,000.00) per person.
(5) (a) The MDA, in its discretion, may require credits for any size production or approved QEC to be structured over the course of two (2) or more years, as provided for in the initial certification letter or QEC contract. The MDA shall establish the circumstances under which a structured pay-out of credits may be required, including, but not limited to, the availability of tax credits in any given year or the best interests of the state.
SECTION 8. The Mississippi Development Authority and the Department of Revenue shall have all powers necessary to implement and administer the provisions of this act, and the Mississippi Development Authority and the Department of Revenue shall promulgate rules and regulations, in accordance with the Mississippi Administrative Procedures Law, necessary for the implementation of this act.
SECTION 9. This act shall take effect and be in force from and after January 1, 2020.
