1Amending the act of March 4, 1971 (P.L.6, No.2), entitled "An
2act relating to tax reform and State taxation by codifying
3and enumerating certain subjects of taxation and imposing
4taxes thereon; providing procedures for the payment,
5collection, administration and enforcement thereof; providing
6for tax credits in certain cases; conferring powers and
7imposing duties upon the Department of Revenue, certain
8employers, fiduciaries, individuals, persons, corporations
9and other entities; prescribing crimes, offenses and
10penalties," providing for video game production tax credit.

11The General Assembly of the Commonwealth of Pennsylvania
12hereby enacts as follows:

13Section 1. The act of March 4, 1971 (P.L.6, No.2), known as 
14the Tax Reform Code of 1971, is amended by adding an article to
15read:

16ARTICLE XVII-J

17VIDEO GAME PRODUCTION TAX CREDIT

18Section 1701-J. Scope of article.

19This article relates to video game production tax credits.

20Section 1702-J. Definitions.

21The following words and phrases when used in this article
22shall have the meanings given to them in this section unless the

1context clearly indicates otherwise:

2"Department." The Department of Community and Economic
3Development of the Commonwealth.

4"Pass-through entity." A partnership as defined in section
5301(n.0) or a Pennsylvania S corporation as defined in section
6301(n.1).

7"Pennsylvania production expense." Production expense
8incurred in this Commonwealth. The term includes:

9(1) Compensation paid to an individual on which the tax
10imposed by Article III will be paid or accrued.

11(2) Payment to a personal service corporation
12representing individual talent if the tax imposed by Article
13IV will be paid or accrued on the net income of the
14corporation for the taxable year.

15(3) Payment to a pass-through entity representing
16individual talent if the tax imposed by Article III will be
17paid or accrued by all of the partners, members or
18shareholders of the pass-through entity for the taxable year.

19(4) The cost of transportation incurred while
20transporting to or from a train station, bus depot or
21airport, located in this Commonwealth.

22(5) The cost of insurance coverage purchased through an
23insurance agent based in this Commonwealth.

24(6) The purchase of music or story rights if any of the
25following subparagraphs apply:

26(i) The purchase is from a resident of this
27Commonwealth.

28(ii) The purchase is from an entity subject to
29taxation in this Commonwealth, and the transaction is
30subject to taxation under Article III, IV or VI.

1(7) The cost of rental of facilities and equipment
2rented from or through a resident of this Commonwealth or an
3entity subject to taxation in this Commonwealth.

4"Production expense." As follows:

5(1) The term includes all of the following:

6(i) Compensation paid to an individual employed in
7the production of a video game.

8(ii) Payment to a personal service corporation
9representing individual talent.

10(iii) Payment to a pass-through entity representing
11individual talent.

12(iv) The costs of construction, operations, editing,
13photography, sound synchronization, lighting, wardrobe
14and accessories.

15(v) The cost of leasing vehicles.

16(vi) The cost of transportation to or from a train
17station, bus depot or airport.

18(vii) The cost of insurance coverage.

19(viii) The costs of food and lodging.

20(ix) The purchase of music or story rights.

21(x) The cost of rental of facilities and equipment.

22(2) The term does not include any of the following:

23(i) Deferred, leveraged or profit participation paid
24or to be paid to individuals employed in the production
25of a video game or paid to entities representing an
26individual for services provided in the production of a
27video game.

28(ii) Development cost.

29(iii) Expense incurred in marketing or advertising a
30video game.

1(iv) Cost related to the sale or assignment of a
2video game production tax credit under section 1705-J(e).

3"Qualified tax liability." The liability for taxes imposed
4under Article III, IV or VI. The term shall not include any tax
5withheld by an employer from an employee under Article III.

6"Qualified video game production expense." All Pennsylvania
7production expenses if Pennsylvania production expenses comprise
8at least 60% of the video game's total production expenses. The
9term shall not include more than $1,000,000 in the aggregate of
10compensation paid to individuals or payment made to entities
11representing an individual for services provided in the
12production of the video game.

13"Start date." The first day of principal production of a
14video game in this Commonwealth.

15"Tax credit." The video game production tax credit provided
16under this article.

17"Taxpayer." A video game production company subject to tax
18under Article III, IV or VI. The term does not include
19contractors or subcontractors of a video game production
20company.

21"Video game." An electronic game that involves interaction
22with a user interface to generate visual feedback on a video
23device. The term does not include a game that contains obscene
24material or performances as defined in 18 Pa.C.S. § 5903(b)
25(relating to obscene and other sexual materials and
26performances) or a game designed primarily for private,
27political, industrial, corporate or institutional purposes.

28Section 1703-J. Credit for qualified video game production
29expenses.

30(a) Application.--A taxpayer may apply to the department for

1a tax credit under this section. The application shall be on the
2form required by the department.

3(b) Review and approval.--The department shall review and
4approve or disapprove the applications in the order in which
5they are received. Upon determining the taxpayer has incurred or
6will incur qualified video game production expenses, the
7department may approve the taxpayer for a tax credit.

8(c) Contract.--If the department approves the taxpayer's
9application under subsection (b), the department and the
10taxpayer shall enter into a contract containing the following:

11(1) An itemized list of production expenses incurred or
12to be incurred for the video game.

13(2) An itemized list of Pennsylvania production expenses
14incurred or to be incurred for the video game.

15(3) With respect to a contract entered into prior to
16completion of production, a commitment by the taxpayer to
17incur the qualified video game production expenses as
18itemized.

19(4) The start date.

20(5) Any other information the department deems
21appropriate.

22(d) Certificate.--Upon execution of the contract required by
23subsection (c), the department shall award the taxpayer a video
24game production tax credit and issue the taxpayer a video game
25production tax credit certificate.

26Section 1704-J. Video game production tax credits.

27A taxpayer may claim a tax credit against the qualified tax
28liability of the taxpayer.

29Section 1705-J. Carryover, carryback and assignment of credit.

30(a) General rule.--If the taxpayer cannot use the entire

1amount of the tax credit for the taxable year in which the tax
2credit is first approved, then the excess may be carried over to
3succeeding taxable years and used as a credit against the
4qualified tax liability of the taxpayer for those taxable years.
5Each time the tax credit is carried over to a succeeding taxable
6year, it shall be reduced by the amount that was used as a
7credit during the immediately preceding taxable year. The tax
8credit may be carried over and applied to succeeding taxable
9years for no more than three taxable years following the first
10taxable year for which the taxpayer was entitled to claim the
11tax credit.

12(b) Application.--A tax credit approved by the department in
13a taxable year first shall be applied against the taxpayer's
14qualified tax liability for the current taxable year as of the
15date on which the tax credit was approved before the tax credit
16can be applied against any tax liability under subsection (a).

17(c) No carryback or refund.--A taxpayer is not entitled to
18carry back or obtain a refund of all or any portion of an unused
19tax credit granted to the taxpayer under this article.

20(d) (Reserved).

21(e) Sale or assignment.--The following shall apply:

22(1) A taxpayer, upon application to and approval by the
23department, may sell or assign, in whole or in part, a tax
24credit granted to the taxpayer under this article.

25(2) The department and the Department of Revenue shall
26jointly promulgate regulations for the approval of
27applications under this subsection.

28(3) Before an application is approved, the Department of
29Revenue must make a finding that the applicant has filed all
30required State tax reports and returns for all applicable

1taxable years and paid any balance of State tax due as
2determined at settlement, assessment or determination by the
3Department of Revenue.

4(4) Notwithstanding any other provision of law, the
5Department of Revenue shall settle, assess or determine the
6tax of an applicant under this subsection within 90 days of
7the filing of all required final returns or reports in
8accordance with section 806.1(a)(5) of the act of April 9,
91929 (P.L.343, No.176), known as The Fiscal Code.

10(f) Purchasers and assignees.--The purchaser or assignee of
11all or a portion of a tax credit under subsection (e) shall
12immediately claim the tax credit in the taxable year in which
13the purchase or assignment is made. The amount of the tax credit
14that a purchaser or assignee may use against any one qualified
15tax liability may not exceed 50% of such qualified tax liability
16for the taxable year. The purchaser or assignee may not carry
17forward, carry back or obtain a refund of or sell or assign the
18tax credit. The purchaser or assignee shall notify the
19Department of Revenue of the seller or assignor of the tax
20credit in compliance with procedures specified by the Department
21of Revenue.

22Section 1706-J. Determination of Pennsylvania production
23expenses.

24In prescribing standards for determining which production
25expenses are considered Pennsylvania production expenses for
26purposes of computing the tax credit, the department shall
27consider:

28(1) The location where services are performed.

29(2) The location where supplies are consumed.

30(3) Other factors the department determines are

1relevant.

2Section 1707-J. Limitations.

3(a) Cap.--In no case shall the aggregate amount of tax
4credits awarded in any fiscal year under this article exceed
5$20,000,000.

6(b) Individual limitations.--The following shall apply:

7(1) The aggregate amount of video game production tax
8credits awarded by the department under section 1703-J(d) to
9a taxpayer for a video game may not exceed 25% of the
10qualified video game production expenses to be incurred
11during each of the first four years that the video game
12production expenses are incurred and 10% for each year
13thereafter that the video game production expenses are
14incurred.

15(2) A taxpayer that has received a grant under 12 
16Pa.C.S. § 4106 (relating to approval) shall not be eligible 
17for a video game production tax credit for the same video 
18game.

19Section 1708-J. Penalty.

20A taxpayer which claims a tax credit and fails to incur the
21amount of qualified video game production expenses agreed to in
22section 1703-J(c)(3) for a video game in that taxable year shall
23repay to the Commonwealth the amount of the video game
24production tax credit claimed under this article for the video
25game.

26Section 1709-J. Pass-through entity.

27(a) General rule.--If a pass-through entity has any unused
28tax credit under section 1705-J, it may elect in writing,
29according to procedures established by the Department of
30Revenue, to transfer all or a portion of the tax credit to

1shareholders, members or partners in proportion to the share of
2the entity's distributive income to which the shareholder,
3member or partner is entitled.

4(b) Limitation.--A pass-through entity and a shareholder,
5member or partner of a pass-through entity shall not claim the
6tax credit under subsection (a) for the same qualified video
7game production expense.

8(c) Application.--A shareholder, member or partner of a
9pass-through entity to whom a tax credit is transferred under
10subsection (a) shall immediately claim the tax credit in the
11taxable year in which the transfer is made. The shareholder,
12member or partner may not carry forward, carry back, obtain a
13refund of or sell or assign the tax credit.

14Section 1710-J. Department guidelines and regulations.

15The department shall develop written guidelines for the
16implementation of the provisions of this article. The guidelines
17shall be in effect until such time as the department promulgates
18regulations for the implementation of the provisions of this
19article. The department shall promulgate regulations for the
20implementation of this article within two years of the effective
21date of this section.

22Section 1711-J. Report to General Assembly.

23(a) General rule.--No later than June 1 of the second year
24that commences after the effective date of this section, and
25September 1 of each year thereafter, the Secretary of Community
26and Economic Development shall submit a report to the General
27Assembly summarizing the effectiveness of the tax credit. The
28report shall include the name of the video game produced, the
29names of all taxpayers utilizing the tax credit as of the date
30of the report and the amount of tax credits approved for,

1utilized by or sold or assigned by each taxpayer. The report may
2also include any recommendations for changes in the calculation
3or administration of the tax credit. The report shall be
4submitted to the chairman and minority chairman of the
5Appropriations Committee and the chairman and minority chairman
6of the Finance Committee of the Senate and the chairman and
7minority chairman of the Appropriations Committee and the
8chairman and minority chairman of the Finance Committee of the
9House of Representatives. In addition to the information stated
10in this section, the report shall include the following
11information which shall be separated by geographic location
12within this Commonwealth:

13(1) The amount of tax credits claimed by taxpayers
14during the fiscal year.

15(2) The total amount spent on video games in this
16Commonwealth during the fiscal year.

17(3) The total amount of tax revenues collected from the
18sale of video games in this Commonwealth during the fiscal
19year.

20(4) The total number of jobs created by taxpayers during
21the fiscal year, including the duration of the jobs.

22(b) Public information.--Notwithstanding any law providing
23for the confidentiality of tax records, the information in the
24report shall be public information, and all report information
25shall be posted on the department's Internet website.

26Section 2. This act shall take effect in 60 days.