PRINTER'S NO. 405
THE GENERAL ASSEMBLY OF PENNSYLVANIA
HOUSE BILL
No.
393
Session of
2017
INTRODUCED BY P. COSTA, READSHAW, BARRAR, D. COSTA, DONATUCCI,
DRISCOLL, McNEILL, O'BRIEN, ROZZI, SCHWEYER, THOMAS AND
YOUNGBLOOD, FEBRUARY 8, 2017
REFERRED TO COMMITTEE ON FINANCE, FEBRUARY 8, 2017
AN ACT
Amending the act of March 4, 1971 (P.L.6, No.2), entitled "An
act relating to tax reform and State taxation by codifying
and enumerating certain subjects of taxation and imposing
taxes thereon; providing procedures for the payment,
collection, administration and enforcement thereof; providing
for tax credits in certain cases; conferring powers and
imposing duties upon the Department of Revenue, certain
employers, fiduciaries, individuals, persons, corporations
and other entities; prescribing crimes, offenses and
penalties," in entertainment production tax credit, further
providing for definitions, for credit for qualified film
production expenses and for limitations.
The General Assembly of the Commonwealth of Pennsylvania
hereby enacts as follows:
Section 1. The definitions of "Pennsylvania production
expense," "production expense," "start date" and "taxpayer" in
section 1711-D of the act of March 4, 1971 (P.L.6, No.2), known
as the Tax Reform Code of 1971, renumbered and amended July 13,
2016 (P.L.526, No.84), are amended and the section is amended by
adding definitions to read:
Section 1711-D. Definitions.
The following words and phrases when used in this article
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shall have the meanings given to them in this section unless the
context clearly indicates otherwise:
"Digital interactive media." As follows:
(1) The term includes an expense incurred in the
development of interactive software that meets all of the
following:
(i) Is produced at a digital interactive media
facility.
(ii) Is produced for distribution on or accessed via
electronic media, including software accessed via or
downloaded from the Internet or a mobile network and
software distributed on optical media or embedded in or
downloadable to an electronic device, including a mobile
phone, game system, computer, tablet and personal digital
assistant or other handheld electronic device.
(iii) Allows a user to interact with the interactive
software via an electronic device, including a mobile
phone, game system, computer, tablet and personal digital
assistant or other handheld electronic device.
(iv) Includes an appreciable quantity of text,
sound, fixed images, animated images or 3-D geometry.
(2) The term does not include media that contains
obscene material or performance as defined in 18 Pa.C.S. ยง
5903(b) (relating to obscene and other sexual materials and
performances).
"Digital interactive media equipment." Equipment that is
required for the development or functioning of a digital
interactive media product or service. The term includes:
(1) Integrated video and audio equipment, networking
routers, switches, network cabling and any other computer-
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related hardware necessary to create or operate a digital
interactive media product or platform.
(2) Software, notwithstanding the method of delivery,
transfer or access.
(3) Computer code.
(4) Image files, music files, audio files, video files,
scripts and plays.
(5) Concept mock-ups.
(6) Software tools.
(7) Testing procedures.
(8) A component part of an item listed under paragraph
(2), (3), (4), (5), (6) or (7) necessary and integral to
create, develop or produce a digital interactive media
product or service.
"Digital interactive media facility." A facility where
digital interactive media or digital interactive media equipment
is developed and that:
(1) is located in this Commonwealth;
(2) employs at least ten full-time employees who reside
in this Commonwealth; and
(3) has a capital investment of at least $500,000.
* * *
"Pennsylvania digital interactive media expense." A digital
interactive media expense incurred at a qualified digital
interactive media facility.
"Pennsylvania postproduction expense." A postproduction
expense incurred at a qualified postproduction facility.
"Pennsylvania production expense." Production expense
incurred in this Commonwealth. The term includes:
(1) A payment made by a taxpayer to a person upon which
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withholding will be made on the payment by the taxpayer as
required under Part VII of Article III.
(2) Payment to a personal service corporation
representing individual talent if the tax imposed by Article
IV will be paid or accrued on the net income of the
corporation for the taxable year.
(3) Payment to a pass-through entity representing
individual talent for which withholding will be made by the
pass-through entity on the payment as required under Part VII
or VII-A of Article III.
(4) The cost of transportation incurred while
transporting to or from a train station, bus depot or
airport, located in this Commonwealth.
(5) The cost of insurance coverage purchased through an
insurance agent based in this Commonwealth.
(6) The purchase of music or story rights if any of the
following subparagraphs apply:
(i) The purchase is from a resident of this
Commonwealth.
(ii) The purchase is from an entity subject to
taxation in this Commonwealth, and the transaction is
subject to taxation under Article III, IV or VI.
(7) The cost of rental of facilities and equipment
rented from or through a resident of this Commonwealth or an
entity subject to taxation in this Commonwealth.
(8) A qualified postproduction expense.
(9) The development and manufacture of digital
interactive media equipment.
* * *
"Production expense." As follows:
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(1) The term includes all of the following:
(i) Compensation paid to an individual employed in
the production of the film.
(ii) Payment to a personal service corporation
representing individual talent.
(iii) Payment to a pass-through entity representing
individual talent.
(iv) The costs of construction, operations, editing,
photography, sound synchronization, lighting, wardrobe
and accessories.
(v) The cost of leasing vehicles.
(vi) The cost of transportation to or from a train
station, bus depot or airport.
(vii) The cost of insurance coverage.
(viii) The costs of food and lodging.
(ix) The purchase of music or story rights.
(x) The cost of rental of facilities and equipment.
(xi) Development and production costs relating to
digital interactive media.
(2) The term does not include any of the following:
(i) Deferred, leveraged or profit participation paid
or to be paid to individuals employed in the production
of the film or paid to entities representing an
individual for services provided in the production of the
film.
(ii) Development cost.
(iii) Expense incurred in marketing or advertising a
film.
(iv) Cost related to the sale or assignment of a
film production tax credit under section 1714-D(e).
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"Q ualified digital interactive media expense." All
Pennsylvania digital interactive media expenses if the
Pennsylvania digital interactive media expenses comprise at
least 60% of the digital interactive media expenses of the
digital interactive media produced.
"Qualified digital interactive media facility." A facility
where digital interactive media or digital interactive media
equipment is developed and that:
(1) is located in this Commonwealth;
(2) employs at least ten full-time employees who reside
in this Commonwealth; and
(3) has a capital investment of at least $500,000.
* * *
"Start date." As follows:
(1) For a film:
(i) the first day of principal photography in this
Commonwealth; or
(ii) an earlier date approved by the Pennsylvania
Film Office.
(2) For a postproduction project, a date approved by the
Pennsylvania Film Office.
(3) For digital interactive media, a date approved by
the Pennsylvania Film Office.
* * *
"Taxpayer." A film production or digital interactive media
company subject to tax under Article III, IV or VI. The term
does not include contractors or subcontractors of a film
production company.
Section 2. Sections 1712-D and 1716-D of the act, renumbered
and amended July 13, 2016 (P.L.526, No.84), are amended to read:
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Section 1712-D. Credit for qualified film production expenses.
(a) Application.--A taxpayer may apply to the department for
a tax credit under this section. If a film qualifies for a
qualified film production expense, any postproduction work done
in this Commonwealth shall qualify for a 30% credit. The
application shall be on the form required by the department.
(b) Review and approval.--The department shall establish
application periods not to exceed 90 days each. All applications
received during the application period shall be reviewed and
evaluated by the department based on the following criteria:
(1) The anticipated number of production days in a
qualified production facility.
(2) The anticipated number of Pennsylvania employees.
(3) The number of preproduction days through
postproduction days in Pennsylvania.
(4) The anticipated number of days spent in Pennsylvania
hotels.
(5) The Pennsylvania production expenses in comparison
to the production budget.
(6) The use of studio resources.
(7) If the application includes a qualified
postproduction expense or a qualified digital interactive
media expense:
(i) The qualified postproduction facility where the
activity will occur.
(ii) The anticipated type of postproduction activity
that will be conducted.
(iii) The percentage of the total postproduction
activity conducted for a film in this Commonwealth.
(8) Other criteria that the Director of the Pennsylvania
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Film Office deems appropriate to ensure maximum employment
and benefit within this Commonwealth.
Upon determining the taxpayer has incurred or will incur
qualified film production expenses, qualified postproduction
expenses or qualified digital interactive media expenses, the
department may approve the taxpayer for a tax credit.
Applications not approved may be reviewed and considered in
subsequent application periods. The department may approve a
taxpayer for a tax credit based on its evaluation of the
criteria under this subsection.
(c) Contract.--If the department approves the taxpayer's
application under subsection (b), the department and the
taxpayer shall enter into a contract containing the following:
(1) An itemized list of production or development
expenses incurred or to be incurred for the film and
software.
(2) An itemized list of Pennsylvania production,
Pennsylvania postproduction and Pennsylvania digital
interactive media expenses incurred or to be incurred for the
film and software.
(3) With respect to a contract entered into prior to
completion of production, a commitment by the taxpayer to
incur the qualified film, digital interactive media
production or qualified postproduction expenses as itemized.
(4) The start date.
(5) Any other information the department deems
appropriate.
(d) Certificate.--Upon execution of the contract required by
subsection (c), the department shall award the taxpayer a film
production tax credit and issue the taxpayer a film production
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tax credit certificate.
Section 1716-D. Limitations.
(a) [Cap.--Except for tax credits reissued under section
1761.1-D, in no case shall the aggregate amount of tax credits
awarded in any fiscal year under this subarticle exceed
$65,000,000.] Award of credits.--The department may, in its
discretion, award in one fiscal year up to:
(1) Thirty percent of the dollar amount of film
production tax credits available to be awarded in the next
succeeding fiscal year.
(2) Twenty percent of the dollar amount of film
production tax credits available to be awarded in the second
successive fiscal year.
(3) Ten percent of the dollar amount of film production
tax credits available to be awarded in the third successive
fiscal year.
(a.1) Advance award of credits.--The advance award of film
tax credits under subsection (a) shall:
(1) count against the total dollar amount of credits
that the department may award in that next succeeding fiscal
year; and
(2) reduce the dollar amount of credits that the
department may award in that next succeeding fiscal year.
The individual limitations on the awarding of film production
tax credits apply to an advance award of film production tax
credits under subsection (a) and to a combination of film
production tax credits awarded against the current fiscal year
cap and against the next succeeding fiscal year's cap.
(b) Individual limitations.--The following shall apply:
(1) Except as set forth in paragraph (1.1) or (1.2), the
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aggregate amount of film production, postproduction or
digital interactive media tax credits awarded by the
department under section 1712-D(d) to a taxpayer for a film
may not exceed 25% of the qualified [film production]
expenses to be incurred.
(1.1) In addition to the tax credit under paragraph (1),
a taxpayer is eligible for a credit in the amount of 5% of
the qualified film production expenses or qualified
postproduction expenses incurred by the taxpayer if the
taxpayer:
(i) films a feature film, television film or
television series, which is intended as programming for a
national audience; and
(ii) either :
(A) films in a qualified production facility
which meets the minimum stage filming
requirements[.]; or
(B) conducts at least 50% of all qualified
postproduction expenses at a qualified postproduction
facility.
(1.2) A qualified postproduction expense shall qualify
for a 30% credit.
(2) A taxpayer that has received a grant under 12
Pa.C.S. ยง 4106 (relating to approval) shall not be eligible
for a film production tax credit under this act for the same
film.
(c) Qualified production facility.--To be considered a
qualified production facility [or], qualified postproduction
facility or qualified digital interactive media facility, the
owner of a facility shall provide evidence to the department to
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verify the development or facility specifications and capital
investment costs incurred for the facility so that the threshold
amounts set in the definitions of "qualified production
facility" [and], "qualified postproduction facility" or
"qualified digital interactive media facility" are satisfied,
and upon verification, the facility shall be registered by the
department officially as a qualified production facility [or],
qualified postproduction facility or qualified digital
interactive media facility.
(d) Waiver.--The department may make a determination that
the financial benefit to this Commonwealth resulting from the
direct investment in or payments made to Pennsylvania facilities
outweighs the benefit of maintaining the 60% requirement
contained in the definition of "qualified film production
expense." If such determination is made, the department may
waive the requirement that 60% of a film's total production or
postproduction expenses be comprised of Pennsylvania production
expenses for a film, television film or television series that
is intended as programming for a national audience and is filmed
or produced in a qualified production facility or qualified
postproduction facility if the taxpayer who has Pennsylvania
production expenses of at least $30,000,000 per production meets
the minimum stage filming requirements.
Section 3. The amendment of sections 1711-D, 1712-D and
1716-D of the act shall apply to taxable years beginning after
December 31, 2017.
Section 4. This act shall take effect immediately.
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