Chapter 06-020

2006 -- S 2917 SUBSTITUTE A

Enacted 04/14/06

A N A C T

RELATING TO MOTION PICTURE PRODUCTION TAX CREDITS

Introduced By: Senators J Montalbano, Ruggerio, Paiva-Weed, Badeau, and Ciccone

Date Introduced: March 09, 2006

It is enacted by the General Assembly as follows:

     SECTION 1. Chapter 42-75 of the General Laws entitled "Council on the Arts" is hereby

amended by adding thereto the following section:

42-75-12. Rhode Island film and television office. – Within the commission there is

established a separate, distinct office entitled the "Rhode Island film and television office." This

office is established in order to promote and encourage film and television productions within the

state of Rhode Island. This office is also responsible for the review of applications of motion

picture productions pursuant to the requirements of chapter 44-31.2.

     SECTION 2. Sections 44-31.2-2, 44-31.2-5, 44-31.2-6, 44-31.2-7, 44-31.2-8, 44-31.2-9

and 44-31.2-10 of the General Laws in Chapter 44-31.2 entitled "Motion Picture Production Tax

Credits" are hereby amended to read as follows:

44-31.2-2. Definitions. -- For the purposes of this chapter:

(1) "Accountant's certification" as provided in this chapter means a certified audit by a

Rhode Island certified public accountant licensed in accordance with section 5-3.1.

(1) (2) "Base investment" means the actual investment made and expended by a state-

certified production in the state as direct production-related costs.

(2) (3) "Domiciled in Rhode Island" means a corporation incorporated in Rhode Island

or a partnership, limited liability company, or other business entity domiciled and headquartered

in formed under the laws of the state of Rhode Island for the purpose of producing motion

pictures as defined in this section, or an individual who maintains a permanent place of abode

within the state and spends in the aggregate more than six (6) months of each year within the state

is a domiciled resident of the state of Rhode Island as defined in chapter 30 of this title.

(3) (4) "Motion picture" means a feature-length film, video, video games, television

series, or commercial made in Rhode Island, in whole or in part, for theatrical or television

viewing or as a television pilot. The term "motion picture" shall not include the production of

television coverage of news or athletic events, nor shall it apply to any film, video, television

series or commercial or a production for which records are required under section 2257 of title

18, U.S.C., to be maintained with respect to any performer in such production or reporting of

books, films, etc. with respect to sexually explicit conduct.

(4) (5) "Motion picture production company" means a corporation, partnership, limited

liability company or other business entity engaged in the business of producing one or more

motion pictures as defined in this section. Motion picture production company shall not mean or

include: (a) any company owned, affiliated, or controlled, in whole or in part by any company or

person which is in default: (i) on taxes owed to the state; or (ii) on a loan made by the state; or

(iii) a loan guaranteed by the state,, nor (iv) any company or person who has even 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.

(6) "Primary locations" means the locations within which at least fifty-one percent (51%)

of the motion picture principal photography days are filmed.

(7) "Rhode Island film and television office" means an office within the Rhode Island

state council on the arts that has been established in order to promote and encourage the locating

of film and television productions within the state of Rhode Island. The office is also referred to

within as the "film office".

(5) (8) "State-certified production" means a motion picture production approved by the

Rhode Island film office and produced by a motion picture production company domiciled and

headquartered in Rhode Island, whether or not such company owns or controls the copyright and

distribution rights in the motion picture; provided, that such company has either: (a) which has

signed a viable distribution plan with either a; or (b) is producing the motion picture for: (i) a

major motion picture distributor; (ii) a major theatrical exhibitor,; (iii) television network; or (iv)

cable television program programmer.

(9) "State certified production cost" means any pre-production, production and post-

production cost that a motion picture production company incurs and pays to the extent it occurs

within the state of Rhode Island. Without limiting the generality of the foregoing, "state certified

production costs" include: set construction and operation; wardrobes, make-up, accessories, and

related services; costs associated with photography and sound synchronization, lighting, and

related services and materials; editing and related services, including, but not limited to, film

processing, transfers of film to tape or digital format, sound mixing, computer graphics services,

special effects services, and animation services, salary, wages, and other compensation, including

related benefits, of persons employed, either directly or indirectly, in the production of a film

including writer, motion picture director, producer (provided the work is performed in the state of

Rhode Island); rental of facilities and equipment used in Rhode Island; leasing of vehicles; costs

of food and lodging; music, if performed, composed, or recorded by a Rhode Island musician, or

released or published by a person domiciled in Rhode Island; travel expenses incurred to bring

persons employed, either directly or indirectly, in the production of the motion picture, to Rhode

Island (but not expenses of such persons departing from Rhode Island); and legal (but not the

expense of a completion bond or insurance and accounting fees and expenses related to the

production's activities in Rhode Island); provided such services are provided by Rhode Island

licensed attorneys or accountants.

44-31.2-5. Motion picture production company tax credit. -- (a) A motion picture

production company shall be allowed a credit to be computed as provided in this chapter against a

tax imposed by chapters 11, 14, 17 and 30 of this title. The amount of the credit shall be twenty-

five percent (25%) of the state certified production costs incurred directly attributable to activity

within the state, provided that the primary locations are within the state of Rhode Island and the

total production budget as defined herein is a minimum of three hundred thousand dollars

($300,000). The credit shall be earned in the taxable year in which production in Rhode Island is

completed, as determined by the film office in final certification pursuant to subsection 44-31.2-

6(c).

      (b) For the purposes of this section: "total production budget" is defined as a pre-

production cost including, but not limited to, the purchase of the screenplay, salaries, equipment,

film processing, sound, editing, and other services related to a production filmed in Rhode

Island.. means and includes the motion picture production company's pre-production, production

and post-production costs incurred for the production activities of the motion picture production

company in Rhode Island in connection with the production of a state-certified production. The

budget shall not include costs associated with the promotion or marketing of the film, video or

television product.

      (c) The credit shall not exceed the total production budget and shall be allowed against

the income tax for the taxable period in which the credit is earned or and can be carried forward

for not more than three (3) succeeding tax years.

(d) Credits allowed to a motion picture production company, which is a subchapter S

corporation, partnership, or a limited liability company that is taxed as a partnership, shall be

passed through respectively to persons designated as partners, members or owners on a pro rata

basis or pursuant to an executed agreement among such persons designated as subchapter S

corporation shareholders, partners, or members documenting an alternate distribution method

without regard to their sharing of other tax or economic attributes of such entity.

44-31.2-6. Certification and administration. -- (a) The director of the Rhode Island

Film and Television Office shall determine through the promulgation of rules what projects

qualify according to this chapter.

(b) (1) The Rhode Island Film and Television Office shall submit its initial certification

of a project as a state-certified production to investors and to the administrator of the division of

taxation. The initial certification shall include a unique identifying number for each state-certified

production.

(2) Upon completion of the state-certified production, the Rhode Island Film and

Television Office shall review the production expenses and will issue a credit certificate to the

investors. The certificate shall include the identifying number assigned to that state-certified

production in the initial certification.

(a) Initial certification of a production. The applicant shall properly prepare, sign and

submit to the film office an application for initial certification of the Rhode Island production.

The application shall include such information and data as the film office deems necessary for the

proper evaluation and administration of said application, including, but not limited to, any

information about the motion picture production company, and a specific Rhode Island motion

picture. The film office shall review the completed application and determine whether it meets

the requisite criteria and qualifications for the initial certification for the production. If the initial

certification is granted, the film office shall issue a notice of initial certification of the motion

picture production to the motion picture production company and to the tax administrator. The

notice shall state that, after appropriate review, the initial application meets the appropriate

criteria for conditional eligibility. The notice of initial certification will provide a unique

identification number for the production and is only a statement of conditional eligibility for the

production and, as such, does not grant or convey any Rhode Island tax benefits.

(b) Final certification of a production. Upon completion of the Rhode Island production

activities, the applicant shall request a certificate of good standing from the Rhode Island division

of taxation. The division shall expedite the process for reviewing the issuance of such certificates.

Such certificates shall verify to the film office the motion picture production company's

compliance with the requirements of subsection 44-31.2-2(5). The applicant shall properly

prepare, sign and submit to the film office an application for final certification of the production

and which must include the certificate of good standing from the division of taxation. In addition,

the application shall contain such information and data as the film office determines is necessary

for the proper evaluation and administration, including, but not limited to, any information about

the motion picture production company, its investors and information about the production

previously granted initial certification. The final application shall also contain a cost report and an

"accountant's certification". The film office and tax administrator may rely without independent

investigation, upon the accountant's certification, in the form of an opinion, confirming the

accuracy of the information included in the cost report. Upon review of a duly completed and

filed application, the film office will make a determination pertaining to the final certification of

the production and the resultant credits for section 44-31.2-5.

(c) Final certification and credits. Upon determination that the motion picture production

company qualifies for final certification and the resultant credits, the film office shall issue a

letter to the production company indicating "certificate of completion of a state certified

production" and shall provide specifically designed certificates for the motion picture production

company credit under section 44-31.2-5. All documents that are issued by the film office pursuant

to this section shall reference the identification number that was issued to the production as part

of its initial certification.

(d) The director of the Rhode Island film and television office, in consultation as needed

with the tax administrator, shall promulgate such rules and regulations as are necessary to carry

out the intent and purposes of this chapter in accordance with the general guidelines provided

herein for the certification of the production and the resultant production credit.

(c) (e) The tax administrator of the division of taxation, in consultation with the director

of the Rhode Island film and television office, shall promulgate such rules and regulations as are

necessary to carry out the intent and purposes of this chapter in accordance with the general

guidelines for the tax credit provided herein.

(d) (f) Any taxpayer motion picture production company applying for the credit shall be

required to reimburse the division of taxation for any audits required in relation to granting the

credit.

44-31.2-7. Recapture of credits. – Information requests. -- If the Rhode Island Film

and Television Office finds that funds for which an investor received credits according to this

section are not invested in and expended with respect to a state-certified production within

twenty-four (24) months of the date that such credits are earned, then the investor's state income

tax for such taxable period shall be increased by such amount necessary for the recapture of credit

provided by this section.

(a) The director of the film office and his or her agents, for the purpose of ascertaining

the propriety or correctness of any materials pertaining to the certification of any motion picture

production or to credits claimed under the provisions of this chapter, may examine any books,

papers, records, or memoranda bearing upon the matters required to be included in the return,

report, or other statement, and may require the attendance of the person executing the return,

report, or other statement, and may require the attendance of any taxpayer, or the attendance of

any other person, and may examine the person under oath respecting any matter which the

director or his or her agent deems pertinent or material in administration and application of this

chapter and, where not inconsistent with other legal provisions, the director may request

information from the tax administrator.

(b) The tax administrator and his or her agents, for the purpose of ascertaining the

correctness of any credit claimed under the provisions of this chapter, may examine any books,

papers, records, or memoranda bearing upon matters required to be included in the return, report,

or other statement, and may require the attendance of the person executing the return, report, or

other statement, or of any officer or employee of any taxpayer, or the attendance of any other

person, and may examine the person under oath respecting any matter which the tax administrator

or his or her agent deems pertinent or material in determining the eligibility for credits claimed

and may request information from the film office, and the film office shall provide the

information in all cases to the tax administrator.

44-31.2-8. Recovery of credits by division of taxation. – Hearings and appeals. -- (a)

Credits previously granted to a taxpayer, but later disallowed, may be recovered by the tax

administrator of the division of taxation through any collection remedy authorized and initiated

within three (3) years from December thirty-first (31st) of the year in which the twenty-four (24)

month investment period specified in this chapter ends.

(b) The only interest that may be assessed and collected on recovered credits is interest at

a rate three (3) percentage points above the rate provided in section 44-1-7, which shall be

computed from the original due date of the return on which the credit was taken.

(c) The provisions of this section are in addition to and shall not limit the authority of the

tax administrator of the division of taxation to assess or to collect under any other provision of

law.

(a) From an action of the film office. – For matters pertaining exclusively to application,

production, and certification of motion picture productions, any person aggrieved by a denial

action of the film office under this chapter shall notify the director of the film office in writing,

within thirty (30) days from the date of mailing of the notice of denial action by the film office

and request a hearing relative to the denial or action. The director of the film office shall, as soon

as is practicable, fix a time and place of hearing, and shall render a final decision. Appeals from a

final decision of the director of the film office under this chapter are to the sixth (6th) division

district court pursuant to chapter 35 of title 42 of the general laws.

(b) From denial of tax credit. – Any person aggrieved by the tax administrator's denial of

a tax credit or tax benefit in this section shall notify the tax administrator in writing within thirty

(30) days from the date of mailing of the notice of denial of the tax credit and request a hearing

relative to the denial of the tax credit. The tax administrator shall, as soon as is practicable, fix a

time and place for a hearing, and shall render a final decision. Appeals from a final decision of

the tax administrator under this chapter are to the sixth (6th) division district court pursuant to

chapter 8 of title 8 of the general laws. The taxpayer's right to appeal is expressly made

conditional upon prepayment of all taxes, interest, and penalties, unless the taxpayer files a timely

motion for exemption from prepayment with the district court in accordance with the

requirements imposed pursuant to section 8-8-26 of the general laws.

44-31.2-9. Transferability of the credit. -- (a) Any motion picture production company

tax credit with respect to a state-certified production allocated to a company and not previously

claimed by any taxpayer against its income tax certificate issued in accordance with section 44-

31.2-5, which has been issued to a motion picture production company or passed through in

accordance with subsection 44-31.2-5(d), and to the extent not previously claimed against the tax

of the motion picture production company or of the owner of the certificate if the certificate was

issued in accordance with subsection 44-31.2-5(d), may be transferred or sold by such company

to another Rhode Island taxpayer, subject to the following conditions:

      (1) A single transfer or sale may involve one or more transferees, assignees or

purchasers. The transferee of the investor tax credits may transfer or sell such investor tax credits

subject to the conditions of this section. A transfer or sale of the credits may involve multiple

transfers to one or more transferees, assignees or purchasers.

      (2) Transferors and transferees sellers shall submit to the Rhode Island film office, and to

the tax administrator in writing, a notification of any transfer or sale of tax credits within thirty

(30) days after the transfer or sale of such tax credits. The notification shall include the

transferor's tax credit balance prior to transfer, the credit certificate number, the name of the state-

certified production, the transferor's remaining tax credit balance after transfer, all tax

identification numbers for both transferor and transferee, the date of transfer, the amount

transferred, a copy of the credit certificate, a certification and opinion by a certified public

accountant as to the validity of the credit, and any other information required by the Rhode Island

office of film and television or the division of taxation. The notification submitted to the division

of taxation shall include a processing fee of up to two hundred dollars ($200) per transferee which

shall be deposited as general revenues.

      (3) Failure to comply with this section will result in the disallowance of the tax credit

until the taxpayers are in full compliance.

      (4) The transfer or sale of this credit does not extend the time in which the credit can be

used. The carry forward period for credit that is transferred or sold begins on the date on which

the credit was originally earned granted by the film office.

      (5) To the extent that the transferor did not have rights to claim or use the credit at the

time of the transfer, the division of taxation shall either disallow the credit claimed by the

transferee or recapture the credit from the transferee through any collection method authorized by

Rhode Island general law. The transferee's recourse is against the transferor.

(6) The film office shall assess and collect an administrative fee of two hundred dollars

($200) per transfer, assignment or sale for issuing multiple motion picture production company

tax credit certificates or for reissuing certificates.

      (b) The transferee, assignee or purchaser shall apply such credits in the same manner and

against the same taxes as the taxpayer motion picture production company originally awarded the

credit.

(c) For purposes of this chapter, any assignment or sales proceeds received by the motion

picture production company for its assignment or sale of the tax credits allowed pursuant to this

section shall be exempt from this title.

44-31.2-10. Disclaimer. – Disclaimer and severability. – (a) The state of Rhode Island

reserves the right to refuse the use of Rhode Island's name in credits of any motion picture filmed

or produced in the state.

(b) If any clause, sentence, paragraph, or part of this chapter is for any reason judged

invalid by any court of competent jurisdiction, the judgment does not affect, impair, or invalidate

the remainder of this chapter but is confined in its operation to the clause, sentence, paragraph, or

part of this chapter directly involved in the controversy in which the judgment has been rendered.

     SECTION 3. Sections 44-31.2-3 and 44-31.2-4 of the General Laws in Chapter 44-31.2

entitled "Motion Picture Production Tax Credits" are hereby repealed.

44-31.2-3. Investor tax credit -- Specific projects. -- There is hereby authorized a tax

credit against state income tax pursuant to chapters 11, 14, 17 and 30 of this title of the general

laws for taxpayers domiciled in the state of Rhode Island, other than motion picture production

companies. The tax credit shall be earned by investors at the time of such investment in such

state-certified productions and calculated as a percentage of the investment according to the total

base investment dollars certified per project. The credit shall be nontransferable and earned in the

taxable year in which the investment is certified.

(1) For state-certified productions approved by the Rhode Island Film and Television

Office if total base investment is greater than three hundred thousand dollars ($300,000) and less

than or equal to five million dollars ($5,000,000), each taxpayer shall be allowed a tax credit of

fifteen percent (15%) of the actual investment made by that taxpayer.

(2) For state-certified productions approved by the Rhode Island Film and Television

Office, if the total base investment is greater than five million dollars ($5,000,000), each taxpayer

shall be allowed a tax credit of twenty-five percent (25%) of the investment made by that

taxpayer.

(3) Motion picture investor tax credits associated with a state-certified production shall

never exceed the total base investment in that production.

(4) The credit shall be allowed against the income tax for the taxable period in which the

credit is earned or can be carried forward for not more than three (3) succeeding tax years.

44-31.2-4. Application of the credit. -- (a) All entities taxed as corporations for Rhode

Island income tax purposes shall claim any credit allowed under this chapter on their corporation

income tax return.

(b) Individuals shall claim any credit allowed under this chapter on their individual

income tax return.

(c) Entities not taxed as corporations shall claim any credit allowed under this chapter on

the returns of the partners or members as follows:

(1) Corporate partners or members shall claim their share of the credit on their

corporation income tax returns.

(2) Individual partners or members shall claim their share of the credit on their

individual income tax returns.

(3) Partners or members that are estates or trusts shall claim their share of the credit on

their fiduciary income tax returns.

     SECTION 4. This act shall take effect upon passage and shall apply to any production

that filed written notice with the Rhode Island film office as of or subsequent to January 1, 2005.

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LC02755/SUB A/3

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