On August 4, 2020, Georgia Governor Brian Kemp signed H.B. 1037 (the “Bill”) into law, which contains modifications to Georgia’s entertainment tax credit program (the “Program”). Peter Stathopoulos, head of Bennett Thrasher’s Entertainment practice and Chair of the Governmental Affairs Committee of Georgia Production Partnership, worked with industry lobbyists, other entertainment coalitions and lawmakers in helping to shape portions of the Bill. The Bill was sponsored by Rep. Matt Dollar, Chair of the House Working Group on Creative Arts & Entertainment, in response to criticism of the Program raised in a Georgia Department of Audits report in January of 2020.
Georgia’s entertainment tax credit program allows for up to a 30 percent transferable income tax credit for film, television and digital interactive media productions. Unused credits may be sold to any taxpayer that can use the credits against their own tax liability. The credits are usually purchased at a discount by the buyer. The Program has been hugely successful in incentivizing investment by the entertainment industry in Georgia, with an estimated economic impact in fiscal year 2020 of between $6-$9 billion.
One of the biggest modifications to the Program is the requirement that, starting for projects certified by the Film Office on or after January 1, 2021 and over a two year phase-in period, all claims for credits have to be audited by the Georgia Department of Revenue (“Department”) or by a third party CPA firm approved by the Department to conduct such audits. Prior to the Bill, Georgia did not require a state audit of film tax credit claims, but most productions had their credits reviewed by an independent accounting firm that specializes in entertainment incentives or voluntarily petitioned the Department of Revenue to audit their credits. The provision allowing for third-party CPA audits was designed to speed up the state audit process and prevent undue delays and is similar to provisions in many other state film tax credit programs like New York, California, Massachusetts, New Mexico, Louisiana, Virginia et al.
The audit requirement also changes the timing for claiming the credits. Formerly, credits were claimed for every year in which a state-certified production had qualified production expenditures (after meeting a minimum spending threshold). Now, all credits are claimed in the year the state audit (or third party CPA audit) is completed. The credit carryforward was also reduced from five years to three.
Another substantial change was to require actual multimarket commercial distribution in order to get the 10 percent Georgia Entertainment Promotion credit (the base credit in Georgia is 20 percent with a 10 percent “uplift” for including a Georgia Film Office logo in the credits for the production or including an alternative marketing promotion). Prior to the Bill, only a good faith distribution plan was required to get approved for the uplift credit.
Given the huge success of the Georgia entertainment tax credit program, and the fact that program is more than 10 years old a this point, the Bill should be viewed as a necessary and healthy mid-course adjustment that was widely supported by the entertainment industry.