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Screen Magazine - Index

Screen Magazine - Screen Magazine: Vol. 29, Issue 10 - Index

(“QFPE”) back in the form of a tax credit, which can
be used to offset New Jersey state corporate business
tax. In order to qualify, 60 percent of the production
company’s total production expenses, excluding postproduction
costs, must be incurred in New Jersey. If the
production company earning the tax credit cannot use it,
which will often be the case, the tax credit may be sold to
another eligible New Jersey taxpayer.
The production accountant’s task of properly classifying
QFPE in accordance with the Division of Taxation’s
interpretation of “used and consumed in New Jersey” can
be complex. In some cases, goods and services purchased
outside of New Jersey may be considered a QFPE; however,
production companies should use New Jersey-based
vendors whenever possible.
Significantly, a payment to a loan-out company that would
otherwise qualify as a QFPE will qualify only if the loanout
company is authorized to do business in New Jersey.
This can be a point of contention with many loan out
companies, as many are not properly registered to do
business in the state. Payments to unauthorized loan-out
companies could put production companies at risk of losing
a substantial portion or all of their QFPE credit since, in large
part, production companies’ budgets are typically paid to
loan out-companies. Accordingly, production companies
should insist that the loan-out company substantiate that it is
authorized to do business in New Jersey.
In addition, principal photography must commence within 150
days after the initial approval of the taxpayer’s application for
the credit. Taxpayers must apply for the credit by submitting
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an application to the director of the Division of Taxation and
the New Jersey Economic Development Authority (“NJEDA”).
The tax credit applies to tax periods beginning on and after
July 1, 2005 and is set to sunset in 2015.
Anticipating that many production companies may not
have a New Jersey state tax liability against which the tax
credit may be utilized, the legislation allows for the sale of
the tax credit, in full or in part, to any other taxpayer that
may have a tax liability under the gross income tax or the
corporation business tax. The production company must
receive at least 75 cents on the dollar for the value of the
tax credit transferred. Any amount of a tax credit used
by a purchaser will be subject to the same limitations and
conditions that apply to the use of the gross income tax
credit for film production expense, including the right to carry
unused credits forward.
Applications for the tax credit must be submitted to the
NJEDA and are considered for approval on a first in
time basis. A completed application must include, but
is not limited to, a projected budget for the film project
with a breakout of costs, including post-production costs;
the anticipated “in-state” spend; a description of the
project (plot summary, genre, rating, principals, actors,
locations and schedule); the anticipated or actual date
of commencement of principal photography; whether the
applicant is a partnership or limited liability company; a list
of members or owners applying for a tax credit under this
program, including the percentage of ownership interest of
each; and the applicant’s New Jersey privilege period or
taxable year.
Upon completion of the project, the
production company will have its
expenses verified by a third-party
independent CPA utilizing “Agreed
Upon Procedures.” The spend reports,
as well as “final cut” of the picture or
project, will be delivered to the NJEDA
and then to Division of Taxation for final
review and issuance of the tax credit
certificate.
The Division of Taxation will issue tax
credit certificates within 30 days of
receipt from the NJEDA evidencing its
final approval. In the case of entities
taxed as partnerships for New Jersey
purposes, the certificate, if it is not
intended to be sold, will be issued
to the entity, and the names of the
partners will appear on the certificate.
Thereafter, the credit will be allocated
to the partners based on profit and loss
sharing agreements, and each partner
must claim its proportionate share of its
credit on its own tax return.
Sales And Use Tax Incentives
New Jersey provides a broad exemption
from its seven percent sales and use
tax for purchases of tangible personal
property purchased for use in the
production of a film in New Jersey,