EDV-03-15-00001-RP Empire State Post Production Tax Credit Program

6/10/15 N.Y. St. Reg. EDV-03-15-00001-RP

NEW YORK STATE REGISTER

VOLUME XXXVII, ISSUE 23

June 10, 2015

RULE MAKING ACTIVITIES

DEPARTMENT OF ECONOMIC DEVELOPMENT

REVISED RULE MAKING

NO HEARING(S) SCHEDULED

 

I.D No. EDV-03-15-00001-RP

Empire State Post Production Tax Credit Program

PURSUANT TO THE PROVISIONS OF THE State Administrative Procedure Act, NOTICE is hereby given of the following revised rule:

Proposed Action:

Addition of Part 230 to Title 5 NYCRR.

Statutory authority:

L. 2010, ch. 57, as amended by L. 2013, ch. 59

Subject:

Empire State Post Production Tax Credit Program.

Purpose:

Establish application procedure for the Empire State Post Production Tax Credit Program.

Substance of revised rule:

The Empire State Post Production Tax Credit Program is a tax credit designed to attract film and television production companies to the State of New York so as to secure the associated economic and employment benefits for New Yorkers.

1) The regulation defines important terms, including, but not limited to “certificate of conditional eligibility,” “completion of a qualified film,” “post production costs,” “qualified film production company,” “qualified post production facility,” and “third party inspection.” Of particular note, the definition of “post production costs” includes post production costs for musical composition except for expenditures for the salaries of music composers.

2) The regulation indicates that only authorized applicants, qualifying film production companies scheduled to begin post production within one hundred eighty (180) days, may apply for program benefits.

3) The regulation delineates the application process for participation in the program. An authorized applicant is to submit an initial application prior to completion of principal photography. The New York State Department of Economic Development (“DED”) may waive this requirement if the applicant can show exigent circumstances, and has not yet incurred qualified costs in New York. Applicants may be required to supplement their application with an interview with DED.

4) The regulation directs DED to assess initial applications to determine whether they are: (1) complete; (2) not premature [i.e., submitted no more than one hundred eighty (180) days prior to the commencement of post production]; (3) submitted prior to the end of principal photography; (4) submitted by a qualified production company; (5) in relation to a qualified film the applicant plans to complete; (6) projecting the applicant’s qualified production costs at a qualified post production facility in the production of a qualified film to equal or exceed 75% of the projected total post production costs, or projecting the applicant’s visual effects or animation at a qualified post production facility to meet or exceed $3 million or 20% of the total post production costs for visual effects or animation paid or incurred in the post production of a qualified film at any post production facility, whichever is less; (7) supported by an attestation that the applicant did not submit false or misleading information to DED; (8) supported by certification that the applicant will purchase taxable tangible property and services, defined as qualified post production costs, only from companies registered to collect and remit New York state and local sales and use taxes; and (9) supported by a showing of the applicant’s intent to comply with the end credit requirements by either including in the end credits of each qualified film the phrase “This Production Participated in the New York State Governor’s Office for Motion Picture & Television Development’s Post Production Credit Program” and a logo provided by the Governor's Office of Motion Picture and Television Development, or by including a New York promotional video approved by the Governor’s Office of Motion Picture and Television Development in each film distributed on the secondary market.

5) The regulation provides that, after review of the applicant’s application, DED shall advise the applicant as to whether the applicant’s initial application meets the Program requirements. DED may issue a certificate of conditional eligibility to an applicant if that applicant’s initial application meets the Program requirements.

6) DED evaluates final applications to determine whether: (1) the application is complete; (2) a qualified film was produced and completed; (3) the authorized applicant met the abovementioned requirements as to incurring qualified post production costs attributable to the use of tangible property or the performance of services at a qualified post production facility; (4) the authorized applicant did not knowingly submit false or misleading information; and (5) the applicant supplied documentation that the end credit requirements have been met. The Department may accept from an applicant a voluntary third party inspection, performed by a qualified certified public accountant, as part of an applicant’s final application.

7) DED is to issue a certificate of tax credit to applicants whose final applications are approved, and a notice of disapproval stating the reason for the disapproval to any applicants whose final applications are not approved. Copies of certified tax credits are to be forwarded to the Department of Taxation and Finance.

8) The regulation provides that DED is to allocate tax credits each year in such a way as to give priority to applicants whose applications are approved at the earliest dates. In the event that an applicant’s tax credit would exceed the maximum annual tax credit under the program, $7 million in 2013 and 2014, and $25 million in 2015-2019, that applicant is to be given priority for a tax credit in the immediate succeeding year.

9) Applicants are required to retain records of any qualified post production costs used to calculate their potential or actual benefit(s) under the program for a minimum of three (3) years from the date the applicant claims the tax credit. Applicants are to make records available to DED during normal business hours at an office of the applicant’s within the State or, if no such office is available, at a mutually agreeable and reasonable venue within the State for the three year period.

10) An applicant may appeal a denial by DED of its final application, or a calculation by DED of a tax credit. Appeals of denials of applications must be sent to DED within thirty (30) days of the date of the denial letter, and appeals of tax credit determinations must be sent to DED within thirty (30) days of the issuance of the certificate of tax credit. Failure to appeal within the thirty (30) day period constitutes a waiver of an applicant’s right to appeal.

11) The regulation describes the appeal process for appeals pursuant to timely appeal letters. The Commissioner of DED is to appoint an independent hearing officer to render a recommendation to the Commissioner. The Commissioner is to issue a final decision on the appeal within sixty (60) days of receiving the hearing officer’s recommendation. A copy of the final decision must be delivered to the applicant within ten (10) days of the Commissioner’s final order.

12) The regulation directs DED to file a quarterly report with the director of the Division of the Budget and the chairmen of the Assembly Ways and Means Committee and Senate Finance Committee within fifteen (15) days after the close of each calendar quarter. The report must indicate: (1) the total dollar amount of certificates of tax credits issued during each month of the calendar quarter, broken down by month; (2) the number of film projects which have been issued certificates of tax credits of less than $1 million per project and the total dollar amount of credits issued to those projects; (3) the number of film projects which have been issued certificates of tax credits of $1 million or more but less than $5 million per project and the total dollar amount of credits issued to those projects; (4) the number of film projects which have been issued certificates of tax credits of $5 million or more per project and the total dollar amount of credits issued to those projects; (5) for each film project which has been issued a certificate of tax credit, an itemization of labor information and expenditures; and (6) information on the identity, residency, and value of tax benefits received for each participant receiving tax credits under the program.

13) The regulation requires DED to file a report on a biennial basis with the director of the Division of the Budget and the chairs of the Assembly Ways and Means Committee and Senate Finance Committee within fifteen (15) days after the close of every other calendar year, with the coverage period for the first report spanning two (2) years beginning January 1, 2013. The report is to be prepared by a third-party auditor. This report must contain: (1) information as to the efficiency of program operations, reliability of financial reporting, compliance with laws and regulations, and distribution of assets and funds; (2) an economic impact study prepared by an independent third-party; and (3) any other information the Commissioner deems to be useful in analyzing the effects of the program.

Revised rule compared with proposed rule:

Substantial revisions were made in sections 230.2, 230.6 and 230.7.

Text of revised proposed rule and any required statements and analyses may be obtained from

Thomas Regan, New York State Department of Economic Development, 625 Broadway, 8th Floor, Albany, NY 12207, [phone], email: [e-mail]

Data, views or arguments may be submitted to:

Same as above.

Public comment will be received until:

30 days after publication of this notice.

Revised Regulatory Impact Statement, Regulatory Flexibility Analysis, Rural Area Flexibility Analysis and Job Impact Statement

Changes made to the last published rule do not necessitate revision to the previously published Regulatory Impact Statement, Regulatory Flexibility Analysis, Rural Area Flexibility Analysis and Job Impact Statement. The changes made represent clarification of issues that do not impact the statements.

Assessment of Public Comment

The New York State Department of Economic Development (the “Department”) received approximately 72 comments on the proposed regulation implementing the Empire State Post Production Tax Credit Program (the “Program”). The following is a summary of the comments and the Department’s response to such comments. Note that where the Department is modifying its regulations as a result of a comment, it is so noted.

Definitions

Comment: The definition of “post production costs” should be expanded to include the costs associated with the production stage of animation.

Answer: The definition of “post production costs” has been expanded to include costs associated with the production of a fully animated film.

Comment: The definition of “post production costs” should be expanded to include costs for the salaries of music composers.

Answer: Expanding the definition of “post production costs” to encompass “above-the-line” costs, including costs for the salaries of music composers, would not comport with the Department’s policy to focus incentives on “below-the-line” costs most likely to generate jobs for New Yorkers. Accordingly, this change has not been made.

Comment: The definition of “post production costs” should not exclude costs for licensing or rights associated with the production of a qualified film.

Answer: § 31(b)(2) of the Tax Law limits “post production costs” to activities associated with “traditional, emerging and new workflow techniques used in post-production.” As licensing or otherwise procuring rights is not part of the workflow resulting in a finished film, such costs are not encompassed by the statutory definition of “post-production costs.” Therefore, this change has not been made.

Comment: § 230.2(m) of the proposed regulations defines post production rather than post production costs. The words “the costs of” should be inserted to the first sentence so as to define post production costs.

Answer: The definition of “post production costs” has been changed accordingly.

Comment: The definition of “post production facility” should be clarified to describe the extent to which a facility must be used for post production in order to be a “post production facility.”

Answer: There are no specific physical requirements inherent to post production facilities, and, in practice, post production facilities do not share uniform physical characteristics. Furthermore, post production service providers do not necessarily provide post production services exclusively. Therefore, limiting the range of facilities that may constitute a “post production facility” through a narrower definition thereof would undermine the goal of the Program to maximize post production activities in the State. The change proposed by the commenter has not been made.

Comment: The definition of “qualified film” should be omitted since it is the same definition that applies to the Empire State Film Production Tax Credit Program.

Answer: The Department provided the definition in full, rather than referring to the definition codified in § 24 of the Tax Law, in order to promote clarity and ease of use. Accordingly, the proposed change will not be made.

Comment: The definition of “qualified film production company” should be revised to provide that a “qualified film production company” for the purposes of the Program need only control the production for the period to which the credit applies.

Answer: Pursuant to § 31(b)(1) of the Tax Law, the definition of “qualified film production company” for the purposes of the Program shall be the same as that used in § 24 of the Tax Law. § 24(b)(6) of the Tax Law defines “qualified film production company” as an entity that “controls the qualified film during production.” Therefore, the Department lacks the statutory authority to make the requested change.

Comment: The definition of “qualified post production costs” should not limit such costs to those for tangible products or the performance of services within New York State.

Answer: As described above, the statutory definition of “post production costs” of § 31(b)(2) of the Tax Law limits “post production costs” to those associated with “workflow techniques used in post-production.” To the extent that costs incurred in connection with the post-production of a film are not associated with the workflow resulting in the finished film, such costs are not “post production costs” for the purposes of the Program, and accordingly cannot be “qualified post production costs.” The Department has thus interpreted § 31(b)(2) of the Tax Law to exclude any costs connected with the post production of a film which are not products or services associated with the post production of a film. Furthermore, § 31(a)(2) of the Tax Law provides that the amount of a credit to be issued to a participant in the Program is to be limited to those “qualified post production costs” incurred in New York State at a qualified production facility. Accordingly, the Department may properly limit “qualified post production costs” to those incurred in New York State. Therefore, the changes proposed by the commenter have not been made.

Comment: The use of the word “review” in the definition of “third party verification” inaccurately describes the services to be provided by certified public accountants as part of third party verifications and should be removed from the definition.

Answer: The term “third party verification” has been changed to “third party inspection,” and the word “review” has been replaced with the word “inspection” in the definition.

Criteria for Evaluation of Applications

Comment: The Department does not have the statutory authority to require authorized applicants to certify that they will purchase taxable tangible property and services only from companies registered to collect and remit New York State and local sales and use taxes.

Answer: Determining the contents of applications for Program benefits is delegated to the Department. The Department considers this provision to be within its authority to establish an application for program benefits.

Comment: The regulation currently provides that final applications must show that qualified post production costs incurred at qualified post production facilities equaled or exceeded seventy-five (75) percent of the projected post production costs for the project. The Department should not evaluate applications based upon projected post production costs after a project is completed and actual post production costs are available. Accordingly, the word “projected” in § 230.6(b)(3) of the proposed rule should be changed to “actual”.

Answer: The word “projected” has been removed from § 230.6(b)(3).