SENATE BUDGET AND APPROPRIATIONS COMMITTEE
STATEMENT TO
SENATE, No. 122
with committee amendments
STATE OF NEW JERSEY
DATED: MARCH 13, 2018
The Senate Budget and Appropriations Committee reports favorably Senate Bill No. 122, with committee amendments.
As amended, this bill is designated as the “Garden State Film and Digital Media Jobs Act” and provides a credit against the corporation business tax and the gross income tax for certain expenses incurred for the production of certain films and digital media content in this State.
Under the bill, a taxpayer, upon approval of an application to the New Jersey Economic Development Authority and the Director of the Division of Taxation in the Department of the Treasury, is allowed a credit against the corporation business tax or gross income tax in an amount equal to 30 percent of the qualified film production expenses or 20 percent of the qualified digital media content production expenses, of the taxpayer during a privilege period or taxable year commencing on or after July 1, 2018 but before July 1, 2023.
The bill increases the amount of the allowable credit to 35 percent of the qualified film production expenses or 25 percent of the qualified digital media content production expenses of the taxpayer during those years if the expenses are incurred for services performed and tangible personal property used or consumed in Atlantic, Burlington, Camden, Cape May, Cumberland, Gloucester, Mercer, or Salem County for the film or digital media production.
In order to claim the tax credit for qualified film production expenses, the bill provides that the following conditions must be met: -- at least 60 percent of the total film production expenses, exclusive of post-production costs, of the taxpayer are incurred for services performed, and goods purchased through vendors authorized to do business, in New Jersey, or the qualified production expenses of the taxpayer during the privilege period exceed $1,000,000 per production;
-- principal photography of the film commences within the earlier of 180 days from the date of the original application for the tax credit, or 150 days from the date of the approval of the application for the tax credit;
-- the film includes, when determined to be appropriate by the Motion Picture and Television Development Commission, at no cost to the State, marketing materials promoting this State as a film and entertainment production destination, which materials are to include a placement of a “Filmed in New Jersey” or “Produced in New Jersey” statement, or an appropriate logo approved by the Motion Picture and Television Development Commission, in the end credits of the film;
-- the taxpayer submits a tax credit verification report prepared by an independent certified public accountant licensed in this State; and
-- the taxpayer complies with the withholding requirements provided for payments to loan out companies and independent contractors.
In order to claim the tax credit for qualified digital media content production expenses, the bill provides that the following conditions must be met:
-- at least $2,000,000 of the total digital media content production expenses of the taxpayer are incurred for services performed, and goods purchased through vendors authorized to do business, in this State;
-- at least 50 percent of the qualified digital media content production expenses of the taxpayer are for wages and salaries paid to full-time or full-time equivalent employees in this State;
-- the taxpayer submits a tax credit verification report prepared by an independent certified public accountant licensed in this State; and
-- the taxpayer complies with the withholding requirements provided for payments to loan out companies and independent contractors.
The bill imposes a limit on the total cumulative amount of tax credits that are allowed during each fiscal year for the five-year period in which tax credits are available. The bill provides that no more than $75 million in tax credits are allowed to be granted to taxpayers for qualified film production expenses for fiscal year 2019 and in each fiscal year thereafter prior to fiscal year 2024, and no more than $10 million in tax credits are allowed to be granted to taxpayers for qualified digital media content production expenses in fiscal year 2019 and in each fiscal year thereafter prior to fiscal year 2024.
The bill permits the authority and the director to adopt rules and regulations necessary to effectuate the purposes of the bill and permits the immediate filing of those rules and regulations with the Office of Administrative Law, effective for a period not to exceed 360 days following the effective date of the bill.
The bill repeals sections of current law that
established a prior corporation business tax and gross income tax credit for
film and digital media content production expenses, which were created by
P.L.2005, c.345 (for film production expenses) and P.L.2007, c.257 (for digital
media content production expenses) and expired in 2015.
COMMITTEE AMENDMENTS:
The amendments permit the placement of an appropriate logo approved by the Motion Picture and Television Development Commission in the end credits of a film instead of a “Filmed in New Jersey” or “Produced in New Jersey” statement.
The amendments provide an enhanced tax credit equal to 35 percent of qualified film production expenses and an enhanced tax credit equal to 25 percent of qualified digital media content production expenses if those expenses are incurred for services performed and tangible personal property used or consumed in Atlantic, Burlington, Camden, Cape May, Cumberland, Gloucester, Mercer, or Salem County for the film or digital media production.
The amendments remove a provision which provided a tax credit equal to 40 percent of qualified film productions or qualified digital media content production expenses for expenses incurred in an eligible municipality for the film or digital media content production with tax credits.
The amendments clarify that the Director of the Division of Taxation determines the order in which film and digital media tax credits are applied against a taxpayer’s tax liability.
The amendments remove the definition of eligible municipality.
The amendments permit the awarding of tax credits to game shows that are filmed and produced at nonprofit arts and cultural centers that do not receive State funding.
The amendments lower the income threshold for a “highly compensated individual” from $1,500,000 to $500,000.
The amendments repeal current sections of law that established a prior tax credit for film and digital media content production expenses.
The amendments make various technical corrections.
FISCAL IMPACT:
The Office of Legislative Services (OLS) can project neither the direction nor the magnitude of the bill's net impact on the finances of the State and local governments. The State fiscal net impact is calculated by adding the direct revenue loss from awarding film and digital media production tax credits and their opportunity costs (the fiscal benefits the State forgoes as spending is redirected from one economic activity to another) and subtracting from that sum the indirect revenue gain that will accrue from additional activity that the tax credits will catalyze.
The OLS notes that the bill’s direct State revenue loss will be up to $85 million annually from FY 2019 through FY 2023, but it does not have sufficient information to gauge the bill’s opportunity costs or offsetting indirect revenue gain. The bill establishes two tax credit programs for the five-year period from FY 2019 through FY 2023, which in turn could cause up to $75 million in annual foregone State revenue attributable to the film production tax credit program and another up to $10 million in annual foregone State revenue ascribable to the digital media production tax credit program.
The bill might accrue an indeterminate revenue gain to affected local governments if the bill results in digital media content or film production activity that would not be undertaken absent the assistance.