§ 105-151.29. Credit for qualifying expenses of a production company. - North Carolina Statutes

§ 105‑151.29.  Creditfor qualifying expenses of a production company.

(a)        Definitions. – Thefollowing definitions apply in this section:

(1)        Highly compensatedindividual. – An individual who directly or indirectly receives compensation inexcess of one million dollars ($1,000,000) for personal services with respectto a single production. An individual receives compensation indirectly when aproduction company pays a personal service company or an employee leasingcompany that pays the individual.

(2)        Live sporting event.– A scheduled sporting competition, game, or race that is not originated by aproduction company, but originated solely by an amateur, collegiate, orprofessional organization, institution, or association for live or tape‑delayedtelevision or satellite broadcast. A live sporting event does not includecommercial advertising, an episodic television series, a television pilot, amusic video, a motion picture, or a documentary production in which sportingevents are presented through archived historical footage or similar footagetaken at least 30 days before it is used.

(3)        Production company.– Defined in G.S. 105‑164.3.

(4)        Qualifying expenses.– The sum of the following amounts spent in this State by a production companyin connection with a production, less the amount paid in excess of one milliondollars ($1,000,000) to a highly compensated individual:

a.         Goods and servicesleased or purchased. For goods with a purchase price of twenty‑fivethousand dollars ($25,000) or more, the amount included in qualifying expensesis the purchase price less the fair market value of the good at the time theproduction is completed.

b.         Compensation andwages on which withholding payments are remitted to the Department of Revenueunder Article 4A of this Chapter.

c.         The cost ofproduction‑related insurance coverage obtained on the production.Expenses for insurance coverage purchased from a related member are notqualifying expenses.

(5)        Related member. – Definedin G.S. 105‑130.7A.

(b)        Credit. – A taxpayerthat is a production company and has qualifying expenses of at least twohundred fifty thousand dollars ($250,000) with respect to a production isallowed a credit against the taxes imposed by this Part equal to fifteenpercent (15%) of the production company's qualifying expenses. For the purposesof this section, in the case of an episodic television series, an entire seasonof episodes is one production. The credit is computed based on all of thetaxpayer's qualifying expenses incurred with respect to the production, notjust the qualifying expenses incurred during the taxable year.

(b1)      (Effective fortaxable years beginning on or after January 1, 2010) Alternative Credit. – Inlieu of the credit allowed under subsection (b) of this section, a taxpayerthat is a production company and has qualifying expenses of at least twohundred fifty thousand dollars ($250,000) with respect to a production mayelect to take a credit against the taxes imposed by this Part equal to twenty‑fivepercent (25%) of the production company's qualifying expenses less thedifference between the amount of tax paid on purchases subject to the tax underG.S. 105‑187.51 and the amount of sales or use tax that would have beendue had the purchases been subject to the sales or use tax at the combinedgeneral rate, as defined in G.S. 105‑164.3. The credit is computed basedon all of the taxpayer's qualifying expenses incurred with respect to theproduction, not just the qualifying expenses incurred during the taxable year.The taxpayer shall elect whether to claim the credit allowed under thissubsection or the one allowed under subsection (b) of this section at the timethe taxpayer files the return on which the credit is claimed. This election isbinding.

(c)        (Effective fortaxable years beginning before January 1, 2010) Pass‑Through Entity.– Notwithstanding the provisions of G.S. 105‑131.8 and G.S. 105‑269.15,a pass‑through entity that qualifies for the credit provided in thissection does not distribute the credit among any of its owners. The pass‑throughentity is considered the taxpayer for purposes of claiming the credit allowedby this section. If a return filed by a pass‑through entity indicatesthat the entity is paying tax on behalf of the owners of the entity, the creditallowed under this section does not affect the entity's payment of tax onbehalf of its owners.

(c)        (Effective fortaxable years beginning on or after January 1, 2010) Pass‑ThroughEntity. – Notwithstanding the provisions of G.S. 105‑131.8 and G.S. 105‑269.15,a pass‑through entity that qualifies for a credit provided in thissection does not distribute the credit among any of its owners. The pass‑throughentity is considered the taxpayer for purposes of claiming a credit allowed bythis section. If a return filed by a pass‑through entity indicates thatthe entity is paying tax on behalf of the owners of the entity, a creditallowed under this section does not affect the entity's payment of tax onbehalf of its owners.

(d)        (Effective fortaxable years beginning before January 1, 2010) Return. – A taxpayer mayclaim the credit allowed by this section on a return filed for the taxable yearin which the production activities are completed. The return must state thename of the production, a description of the production, and a detailedaccounting of the qualifying expenses with respect to which a credit isclaimed.

(d)        (Effective fortaxable years beginning on or after January 1, 2010) Return. – A taxpayermay claim a credit allowed by this section on a return filed for the taxableyear in which the production activities are completed. The return must statethe name of the production, a description of the production, and a detailedaccounting of the qualifying expenses with respect to which a credit isclaimed.

(e)        (Effective fortaxable years beginning before January 1, 2010) Credit Refundable. – If thecredit allowed by this section exceeds the amount of tax imposed by this Partfor the taxable year reduced by the sum of all credits allowable, the Secretarymust refund the excess to the taxpayer. The refundable excess is governed bythe provisions governing a refund of an overpayment by the taxpayer of the taximposed in this Part. In computing the amount of tax against which multiplecredits are allowed, nonrefundable credits are subtracted before refundablecredits.

(e)        (Effective fortaxable years beginning on or after January 1, 2010) Credit Refundable. – Ifa credit allowed by this section exceeds the amount of tax imposed by this Partfor the taxable year reduced by the sum of all credits allowable, the Secretarymust refund the excess to the taxpayer. The refundable excess is governed bythe provisions governing a refund of an overpayment by the taxpayer of the taximposed in this Part. In computing the amount of tax against which multiplecredits are allowed, nonrefundable credits are subtracted before refundablecredits.

(f)         Limitations. – Theamount of credit allowed under this section with respect to a production thatis a feature film may not exceed seven million five hundred thousand dollars($7,500,000). No credit is allowed under this section for any production thatsatisfies one of the following conditions:

(1)        It is politicaladvertising.

(2)        It is a televisionproduction of a news program or live sporting event.

(3)        It contains materialthat is obscene, as defined in G.S. 14‑190.1.

(4)        It is a radioproduction.

(g)        Substantiation. – Ataxpayer allowed a credit under this section must maintain and make availablefor inspection any information or records required by the Secretary of Revenue.The taxpayer has the burden of proving eligibility for a credit and the amountof the credit. The Secretary may consult with the North Carolina Film Office ofthe Department of Commerce and the regional film commissions in order todetermine the amount of qualifying expenses.

(h)        Report. – TheDepartment of Revenue must publish by May 1 of each year the followinginformation, itemized by taxpayer for the 12‑month period ending thepreceding December 31:

(1)        The location ofsites used in a production for which a credit was taken.

(2)        The qualifyingexpenses for which a credit was taken, classified by whether the expenses werefor goods, services, or compensation paid by the production company.

(3)        The number of peopleemployed in the State with respect to credits taken.

(4)        The total cost tothe General Fund of the credits taken.

(i)         Repealed bySession Laws 2006‑220, s. 4, effective for taxable years beginning on andafter January 1, 2007.

(j)         NC Film Office. – Toclaim a credit under this section, a taxpayer must notify the Division ofTourism, Film, and Sports Development in the Department of Commerce of thetaxpayer's intent to claim the production tax credit. The notification mustinclude the title of the production, the name of the production company, afinancial contact for the production company, the proposed dates on which theproduction company plans to begin filming the production, and any otherinformation required by the Division. For productions that have productioncredits, a taxpayer claiming a credit under this section must acknowledge inthe production credits both the North Carolina Film Office and the regionalfilm office responsible for the geographic area in which the filming of theproduction occurred.

(k)        Sunset. – Thissection is repealed for qualifying expenses occurring on or after January 1,2014.  (2005‑276,s. 39.1(b); 2005‑345, ss. 47(c), 47(d); 2006‑162, s. 4(b); 2006‑220,s. 4; 2007‑527, s. 24; 2008‑107, s. 28.24(b); 2009‑445, s.8(b); 2009‑529, s. 2.)