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The Virginia Department of Taxation and the Virginia Film Office have developed the following guidelines specifically for the Virginia Motion Picture Tax Credit Fund but these guidelines will also apply to the Motion Picture Opportunity Fund. The primary difference is the minimum spend. Tax credits require a minimum spend of $250,000. There is no minimum spend requirement for a grant.
Each production must spend at least $250,000 in total production costs in the Commonwealth.
The project must be fully funded with a multi-market distribution contract, without taking into account the value of the tax credits.
Feature length films, documentaries, long-form specials, television mini-series, episodic television series, commercial advertisements, videos and music videos, digital interactive media productions, and interactive television designed to fit a thirty minute or longer time slot.
- Political advertising and editorial based content;
- Any ongoing television program created primarily as news, weather or financial market reports;
- Any live or pre-recorded production featuring current events, sporting events or an awards show or other gala event;
- A reality television production, including, but not limited to, productions in the respect of a game, questionnaire, auction or contest;
- Any production that contains obscene material;
- Productions whose sole purpose is fundraising;
- A long-form production that primarily markets a product or service;
- A production used for corporate training or in-house corporate advertising or other similar productions;
- Games of chance websites and other games of chance productions;
- Marketing and promotional websites or microsites; all forms of social media, social networking, marketing and brand promotion;
- Infomercials, infotainment or edutainment content;
- Solicitation-based productions
- Productions that do not spend at least $250,000 in qualifying expenses in the Commonwealth.MOU The production must enter into and comply with a Memo of Understanding (MOU) issued by the VFO, signed by both the VFO and the production company, as an agreement of the terms and conditions that must be met in order for the production company to receive the tax credits.
- Percentage Filmed in Virginia. The production must demonstrate that a best-faith effort has been made to film at least 50 percent of principal photography days in the Commonwealth.
The final production credits must include a ‘Filmed in Virginia’ mention, (text to be provided by the Virginia Film Office), and a Virginia is for Film Lovers logo.
When to Apply
Applications must be received at least 30 days before the start of principal photography, and the project must go into pre-production within 90 days of the application’s approval.
How to Apply
Download an application by clicking here. Save the application, fill it out and e-mail to firstname.lastname@example.org along with the required Script, Budget Top Sheet, and Proposed Production Schedule. After the completed application and all required documents are received, a review for credit allocation will occur.
HOW TO CALCULATE CREDITS
Base-Income Tax Credit
The base credit is equal to 15 percent of all qualifying expenses (including wages).If the production is filmed in an economically distressed area of the Commonwealth, (determined by the Virginia Economic Development Partnership in conjunction with the Virginia Employment Commission), the base credit is increased to 20 percent of qualifying expenses.
Additional Virginia Resident Payroll Credit
A production company with production costs in Virginia of at least $250,000, but not more than $1 million, may claim an additional credit equal to 10 percent of the total Virginia resident aggregate payroll.
A production company with production costs in the Commonwealth of more than $1 million may claim an additional credit equal to 20 percent of the total Virginia resident aggregate payroll.
Additional Virginia Resident First-Time Industry Employee Credit
In addition, production companies may claim a credit equal to 10 percent of the total aggregate payroll for Virginia residents who are employed as first time actors or first time members of a production crew in connection with a production in Virginia. It must be the employee’s first time receiving compensation and wages as either an actor or as a member of a production crew on a film, ever, anywhere, and the employee must be a Virginia resident.
FAQ’s CALCULATING CREDITS
What are Qualifying Expenses?
Qualifying expenses include “amounts spent in the Commonwealth by a production company in connection with the production of a motion picture filmed in the Commonwealth for certain goods and services leased or purchased” and certain compensation and wages. “Goods and services” are defined as “physical products and services domiciled and used in Virginia that are directly attributable to the production of a project.” Such goods and services include services provided by contractors, subcontractors and service providers, product or equipment purchases, rentals, and leases. “Compensation and wages: means as “wages” as defined for federal income tax withholding purposes in Internal Revenue Code (IRC”) § 3401. “Amounts spent in the Commonwealth” means, in the case of tangible property, expenses for goods and materials purchased or leased from a qualified vendor that are actually and physically provided, supplied, consumed or used in Virginia. In the case of services, “amounts spent in the Commonwealth” means expenses for services performed within Virginia.
Eligible expenses include items such as Virginia resident** salaries and wages, renting, leasing or purchasing Virginia-based goods and services, site rental fees, set construction costs, soundstage rental, film processing and editing/post-production costs spent in Virginia. “Goods and Services” means physical products and services domiciled and used in Virginia that are directly attributable to the production of the project while filming in Virginia, including, but not limited to, VA resident contractors, subcontractors and service providers, and product or equipment purchases, rentals, and leases from VA resident companies. For goods with a purchase price of $25,000 or more, the amount included in qualifying expenses is the purchase price less the fair market value of the good at the time the production is completed.
Example: Elite Motion Pictures purchases a new car for $50,000 to be used as a prop on the set of their movie for filming. At the completion of production the car’s value has depreciated to $40,000. Elite Motion Pictures may only report $10,000 worth of expenses for the cost of the car to qualify for the credit.
Are any ATL positions excluded from the base credit?
No. Virginia does not distinguish between above-the-line and below-the-line employees. The compensation and wages of producers, directors, actors, stunt players, production staff and crews qualify, up to $1 million per individual.
Non-resident employee wages may qualify for the base credit only. Virginia resident wages may qualify for the base credit and the additional Virginia resident credits.
How do I document the Virginia resident first-time actors and crew members?
A Virginia Residency Form must be submitted for every Virginia resident employee, with a copy of their valid Virginia driver’s license.
If a non-Virginia resident is issued Form 1099 to show payments received for services as an independent contract, could those payments qualify as “wages” for purposes of the credit?
Wages are earned by employees, not independent contractors, so any payment to an independent contractor who is issued a Form 1099 would not qualify for the additional Virginia resident credits, and such payments would not qualify as compensation and wages for purposes of the base credit. However such wages could potentially qualify as payments for goods and services for purposes of the base credit.
If a non-Virginia resident, paid through payroll, receives a bonus that will not be run through payroll, could this bonus also qualify for the Tax Incentive?
Generally, bonuses are considered wages for federal income tax withholding purposes and would therefore qualify for the credit to the extent that such bonuses are paid in connection with the production of a motion picture filmed in Virginia.
Do the health insurance premiums, pension contributions, and workers’ compensation insurance premiums qualify?
Health insurance premiums, pension contributions, and workers’ compensation insurance premiums paid to cast and crew members qualify as compensation and wages for purposes of the base and additional Virginia resident credits if the company treats the benefits as “wages” for which the production company is withholding federal income taxes. Federal withholding is generally required on most health insurance plans and other benefits, but certain fringe benefits are excluded from being treated as “wages” for federal purposes, and such exclusions would not qualify as compensation and wages for purposes of the tax credit.
Examples of fringe benefits that are excluded from the federal definition of “wages” for withholding purposes, include health insurance premiums paid by an employer (excluded from an employee’s gross income under IRC § 106); certain types of pension and retirement accounts (for example, those under IRC §§ 401, 403(a), 402(h), and 408(p)); and worker’s compensation insurance.
These expenses may qualify for the base credit if they are related to the production of the film in Virginia and if the expenses are considered amounts spent in Virginia. Such expenses would not qualify for the Virginia resident or the Virginia resident first-time industry credits.
What about other fringe benefits that are not related to health insurance, pension contributions, or workers’ compensation?
Other fringe benefits (for example, paid vacation or taxable per diem) directly related to the film production employees working in Virginia will generally qualify as compensation expenses or “wages” for purposes of federal withholding, and those fringes will qualify for the base credit. They would be included in payroll and would also qualify for the Virginia resident and Virginia resident first-time industry employee credits.
Is per diem a qualifying expense?
Per diem may be a qualified expense. Although a per diem payment in an amount less than the federal taxable amount is not considered “wages” for federal purposes , Va. Code § 58.1-439.12:03 includes “compensation and wages” in the definition of “qualifying expenses.” Therefore, a per diem payment may qualify for the credit.
Do payroll taxes qualify? FICA, FUI, and Virginia SUI?
Payroll taxes (such as FICA and federal and state unemployment insurance taxes) are generally not qualifying expenses for purposes of the credit. However, there may be cases (for example, when an employer pays the employee’s portion of FICA taxes without any reimbursement from the employee), when certain payments are considered compensation to the employee and therefore qualify for the base credit and the two additional Virginia resident credits.
- Federal Insurance Contribution Act (“FICA”) Taxes: The employer’s portion of FICA taxes are not compensation and wages for purposes of the credit because FICA taxes are imposed directly on the employer and are not considered remuneration paid to the employee. The employee’s portion of FICA taxes may be compensation and wages for purposes of the credit if the employer pays the employee’s portion of the tax without deduction from the remuneration of, or other reimbursement from, the employee. If an employee pays his entire portion of FICA taxes, such taxes cannot be considered compensation and wages for purposes of the tax credit.
- Unemployment Insurance Taxes (FUI and Virginia SUI) Neither the federal nor Virginia unemployment taxes are compensation and wages for purposes of the tax credit because they are imposed only on the employer. Supplemental unemployment compensation benefits paid to an individual may be compensation and wages for purposes of the base credit and the additional Virginia resident credits to the extent that such benefits are includable in the gross income of the employee.
What about worker’s compensation insurance?
Any premiums paid by an employer for workers’ compensation insurance are not considered wages for federal withholding purposes and are not qualifying expenses for purposes of the two additional Virginia resident credits. However, such premium payments may qualify for the base credit to the extent that the expenses are related to the production of a Virginia film and are considered amounts spent in Virginia.
Because the payment of worker’s compensation benefits are usually paid by a third party (not the production company), the payment of actual benefits will not generally qualify. However, if the production company is self-insured, any benefits paid would be an expense of the production company. This expense would qualify for the credit to the extent that it is related to the film produced in Virginia.
Do Payroll Service Fees qualify?
Payroll service fees qualify for the film tax credit to the extent such services are (1) performed within Virginia and (2) directly attributable to the production of a motion picture filmed in Virginia. To meet such qualifications, the payroll company must actually process the payroll within Virginia and the fees must be related to compensation and wages that are also qualified expenses. Any payroll service fees associated with non-qualifying wages (for example, fees associated with the portion of an employee’s salary that exceeds the $1 million cap) would not qualify for the tax credit.
Is Virginia sales tax considered a qualified cost?
Yes, sales taxes related to the production of the Virginia film do qualify.
Is there any Virginia withholding on non-resident loan outs?
Generally, an employer is required to withhold income taxes for both resident and nonresident employees. However, withholding is not required for wages paid for acting or service as a member of the crew of a motion picture feature film television series or commercial, or promotional film that is filmed totally or partially in the Commonwealth by an individual or corporation that conducts business in Virginia for fewer than 90 days of the taxable year and when such film, series, or commercial is processed, edited, and marketed outside of Virginia. Immediately after the filming of the production, the company must notify the Department of the names and social security numbers of each actor or crew member who is a resident of Virginia. In the case of actors and crew members obtained from a third party, the third party (not the production company) would be responsible for any withholding requirements.
Would the cost of a tangible item procured from out of the State of Virginia but used in Virginia be deemed qualified for the purposes of the tax credit if the item is sourced through a Virginia pass-through entity?
The base credit may be claimed for “amounts spent in the Commonwealth,” which in the case of tangible property is defined as, expenses for goods and materials purchased or leased from a qualified vendor that are actually and physically provided, supplied, consumed, or used within Virginia. A “qualified vendor” is “any individual, partnership, corporation, limited liability company or other business entity that 1) provides goods and services that it provides in its ordinary course of business to a qualified motion picture during production; 2) maintains a physical place of business in Virginia; and 3) is qualified to do business in Virginia. If the production company purchases a tangible item from a pass-through entity that meets the definition of a “qualified vendor,” such purchase would qualify for the credit.
How do I submit documentation of the expenditures?
The Virginia Film Office can provide a sample packet of the documents which need to be submitted, and the format in which they should appear.
Will I need to keep and submit hard copy receipts for all expenditures?
Submitting hard copy receipts is not required, the accounting ledger will suffice. However, the film company must maintain hard copy receipts in case they are requested.
When should my company submit a Virginia tax return?
A production company may claim the Motion Picture Production Tax Credit when it files its Virginia income tax return. Taxpayers are required to use the same taxable year for Virginia purposes that was used for federal purposes. For companies that file on a calendar year basis (January 1 through December 31), tax returns are due April 15 (for corporations) or May 1 (for individuals). For all other companies, tax returns are due on the fifteenth day of the fourth month following the end of the company’s taxable year.
A taxable entity will only be allowed to file a short year Virginia income tax return if it is required to file a short period tax return for federal income tax purposes. A taxpayer will only be required to file a short period tax return for federal income tax purposes if it is a taxable entity and is not in existence for an entire taxable year. For questions about your company’s tax filing status, contact a tax professional.
Additional Motion Picture Production Tax Credit FAQs
Do outside legal and accounting expenses qualify for the credit?
Outside legal and accounting expenses may qualify for the credit. In order to qualify for the credit, such services must be performed within Virginia by a qualified vendor and be directly attributable to the production of a motion picture filmed in Virginia.
What happens when the production company is disregarded for state income tax purposes (e.g., a single member LLC owned by a partnership or corporation)? What if part of production costs incurred in regarded parent entity but part of costs incurred in disregarded sub? Can they combine spends for minimum spend threshold purposes? Does AUP apply to both entities? Whole files the detailed accounting report? Who files the tax return?
Only one taxpayer may claim the credit for a motion picture production filmed in Virginia. Any credits earned by a disregarded entity may be claimed on the parent’s tax return. The company that claims the credit must file the required accounting report.
Do related party producer fees qualify?
Related party producer fees may be qualified expenses as long as the transaction is at arm’s length. The legitimacy of any given transaction is subject to an audit by the Department of Taxation.
Can a production company aggregate projects to meet minimum investment thresholds? Can a production company aggregate projects over multiple years?
No. A production company may not aggregate projects to meet minimum thresholds and may not aggregate projects over multiple years.
Should the cost report be on a cash or accrual basis of accounting?
For purposes of the credit, a production company should report its expenses using the accounting method that it uses to report its income and expenses for federal income tax purposes.