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Screen Magazine - Index

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

which extends to motor vehicles, replacement parts, tools
and supplies such as camera, lighting equipment and
lumber. The exemption does not apply, however, to tangible
personal property, the use of which is incidental to the
production of the film or video.
A New Jersey sales tax exemption applies to the following:
sales of films, records, tapes or any type of visual or sound
transcriptions produced for exhibition in or use through the
medium of theaters and radio and television broadcasting
stations or networks, and not used for advertising purposes.
For more information about these programs, including links to
the necessary applications, visit the New Jersey Motion Picture
and Television Commission’s website at www.njfilm.org.
The Incredible Saleable (And Transferable) Credit:
Buying And Selling Tax Credits
Key to the success of the film tax credit program is the
provision giving the production company the option to
sell its tax credit to another corporate taxpayer. Because
the credits must be marketable or risk-free to the buyer,
pricing in any state is dependent on several factors. First,
the tax credit itself must be “clean,” that is, it must not
be subject to recapture or invalidation by the state. In
New Jersey, recapture is not allowed, so if the expenses
upon which the tax credit was granted were overstated
(mistakenly or fraudulently), the state has no authority to
recapture the improperly issued credits from the good
faith purchaser (though it still has recourse against the
production company). In states where there recapture is
permitted (e.g., Rhode Island), indemnities are often used
for every transaction, and pricing generally reflects the
added credit risk.
Second, the buyer of a tax credit must
be able to carry it forward, in the event
they over-buy or miss projections. In
states where there is no right to carry
forward credits (e.g., Pennsylvania),
buyers are forced to “haircut” their
purchase so as not to risk buying
credits they cannot ultimately use.
Finally, in some states where the credit
is otherwise “clean,” pricing may be
low because there simply is not enough
demand for credits. In those states,
the amount of available credits on
the market outweighs the amount
of liability necessary to absorb those
credits, which drives prices down.
In New Jersey, production companies
are getting $.88 per tax credit dollar,
(buyers are paying $.92) which is
among the strongest pricing in the U.S.
It is critical that production companies
research current pricing in a particular
state and obtain a commitment from
an eligible buyer through the services
of a competent placement specialist or
broker before green-lighting a project.
In the more mature film tax credit
markets, some banks are beginning
to “cash flow” anticipated tax
credits, advancing production companies capital prior
to commencement of principal photography. In order to
qualify, production companies must have a completion
bond to insure that the project will be finished and will
therefore earn the anticipated tax credit, and eligible
buyers must commit to take the credits upon the issuance
of a certified film tax credit by the NJEDA and Division of
Taxation. Now, in addition to providing a back-end reward
for filming in New Jersey, the tax credit program may even
help eligible projects fund the gap in their financing.
Again, an early relationship with a competent placement
specialist is highly advisable to maximize the value of the
incentive and explore leveraging opportunities, as well.
It’s A Wrap
Myriad factors must be considered when analyzing where
to shoot all or part of a motion picture. Locations, budgets,
cast, crew and schedules all drive where a film is ultimately
shot. Increasingly, however, the financial incentives offered
by a particular state or nation impact this critical decision.
Authors’ Note: The New Jersey Motion Picture & Television
Commission is at risk of losing state funding. Although the
incentive programs will survive, the film community will
suffer great hardship without the aforementioned services
of the Commission. We encourage you to contact the New
Jersey Governor’s office today at the following numbers to
register your support of the Commission: fax: (609) 292-3454,
phone: (609) 292-6000.
//www.njfilm.org