By: Mariel Williams – Hancock Askew
The Georgia Entertainment Industry Investment Act of 2008 introduced enormous benefits for the Film and Media industry as well as other taxpayers who file Georgia income tax returns. Film and media projects produced in Georgia are allowed a tax credit for up to 30% of their expenses generated in-state. Because most productions cannot use all the credits that they create, individuals, trusts, and other corporations can receive the benefit of that excess to offset their own Georgia Income Tax liability. The production companies often work with tax credit brokers to sell their extra credits and finance a portion of their project.
Favorable exchange rates make it more advantageous to buy state film tax credits than pay state tax liabilities in cash. Brokers sell the credits at a range of 87 to 92 cents on the dollar which means that a buyer on the secondary market could pay off their GA income tax liability at a lower cash value. This strategy can be used to offset prior year, current year, or even future Georgia tax liabilities. Although the credits are nonrefundable, any unused portion will carryover for up to five years.
In the tax year that the buyer applies the credit, a short-term or long-term capital gain for the difference in exchange rate is recognized. The credit also allows a Schedule A deduction for the buyer for state taxes paid (to the extent of the new SALT limitation of $10K under the new IRS regulations). In addition, these Georgia film tax credits offer a flexible timeline. They can be purchased shortly before filing a return and offset a prior year liability thus avoiding state underpayment penalties and interest. However, all these expected benefits would be lost if the credits purchased are discovered to not be valid. Taxpayers interested in these credits should be careful to find a reputable tax credit broker who deals in audited productions and credits to mitigate risk.
We here at Hancock Askew are very experienced in tax planning strategies centered around using state credits. Should you have any further questions or wish to explore incorporating the use of film tax credits as part of your overall tax strategy, please do not hesitate to contact us.