Probably all of us at one time or another have leaned back in our chairs while sitting in a movie theatre and thought “Wow, what would it be like to be a movie star.” Well, fear not, maybe all is not lost. The entertainment industry is definitely in a state of flux. No longer is it necessarily centered in California.
Companies like Netflix and Hulu are changing the industries’ paradigms. Production companies are looking for sites across the country to establish studios. A prime example of this are the Silvercup Studios located in a former bread bakery in Queens, New York. Not to be left behind, and wanting to attract revenue and additional jobs to the state, New Jersey is offering an attractive menu of tax credits to certain qualified production companies to locate their activities in the Garden State. That package, plus the ample available infrastructure to house production locations (think Meadowlands and abandoned military armories), as well as the great variety of in-state shooting locations, has many members of the entertainment industry looking at the state in a much more favorable light.
Qualified production companies can receive a transferable tax credit equal to 30% (35% in certain counties) of qualified production expenses. The credit may be sold and transferred one time only by the initial program applicant subject to a non-refundable $1,000 transfer fee. To qualify for the program a production company must meet the requirements listed below.
- On any individual project, a production company must incur at least 60% of total film production expenses within New Jersey (exclusive of post-production costs) or incur more than $1 million in qualified production expenses.
- A production company must begin principal photography within 180 days of the original program application date or 150 days from the date of approval by the New Jersey Economic Development Authority.
- Employers must withhold New Jersey Gross Income Tax for employees working in the state and 6.37% from each payment to a loan-out company or independent contractor. Loan out companies and independent contractors must be registered to do business in New Jersey.
- Excluded are payments in excess of $500,000 made to highly compensated individuals for costs of a story, script, or scenario used in the production of a film; and for wages or salaries or other compensation for writers, directors, including music directors, producers and performers.
- Payments to vendors are qualified only if the vendors are registered to do business in New Jersey and have obtained a New Jersey tax ID number.
- Reality television shows qualify for tax credits only if the production company producing the show has owned or leased a production facility of at least 20,000 square feet for a minimum of 24 months, and has invested at least $3 million in the facility, which must be located in a state designated urban enterprise zone.
- Production companies can receive an additional credit equal to 2% of the qualified film production expenses provided that their application to the program is accompanied by a diversity plan; the plan is approved; and the New Jersey Economic Development Authority has verified that the applicant has met or made good faith efforts regarding achieving the goals set forth within the diversity plan.
- The program has an annual cap of $100 million per fiscal year (July 1 through June 30).
- Digital media projects can receive a 20% to 25% credit and have different requirements.
- Applications are considered on a first come, first served basis.
- A production company’s New Jersey production costs, and in some cases, total productions costs, must be certified by a New Jersey licensed CPA.
Sales Tax Exemption
It should be noted that separate and apart from the tax credit program governed by the state’s Economic Development Authority, the state offers a sales tax exemption for certain items that are used primarily to produce film or video. Items generally qualifying for the exemption include the following:
- Cameras and accessories
- Recording and sound equipment
- Audio/visual mixing and editing equipment
- Replacement parts for exempt tangible personal property
- Materials used in construction
- Dollies, including grips and tracks
- Props used in film or videos, including motor vehicles
- Motor vehicles used to mount cameras and equipment during filming
- Makeup and cosmetics
Since the New Jersey program considers applicants to its Entertainment Industry Credit Program based on their application date, and there is an annual cap to the program’s benefits, this is truly a case where hesitation may cause loss. A company considering applying to the program should move with haste to get its application filed so it may reap the benefits of the state’s generosity.
Count on Friedman LLP
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