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                                                      PRINTER'S NO. 1242

THE GENERAL ASSEMBLY OF PENNSYLVANIA


SENATE BILL

No. 1008 Session of 2007


        INTRODUCED BY FERLO, COSTA, ORIE, LAVALLE, FONTANA, RAFFERTY,
           MUSTO, TARTAGLIONE, STACK, KITCHEN, WASHINGTON, LOGAN,
           WONDERLING, O'PAKE, BROWNE AND PIPPY, JUNE 26, 2007

        REFERRED TO FINANCE, JUNE 26, 2007

                                     AN ACT

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

    13     The General Assembly of the Commonwealth of Pennsylvania
    14  hereby enacts as follows:
    15     Section 1.  The act of March 4, 1971 (P.L.6, No.2), known as
    16  the Tax Reform Code of 1971, is amended by adding an article to
    17  read:
    18                           ARTICLE XVII-D
    19                     FILM PRODUCTION TAX CREDIT
    20  Section 1701-D.  Scope of article.
    21     This article relates to film production tax credits.
    22  Section 1702-D.  Definitions.


     1     The following words and phrases when used in this article
     2  shall have the meanings given to them in this section unless the
     3  context clearly indicates otherwise:
     4     "Department."  The Department of Community and Economic
     5  Development of the Commonwealth.
     6     "Film."  A feature film, a television film, a television talk
     7  or game show series, a television commercial or a television
     8  pilot or each episode of a television series which is intended
     9  as programming for a national or regional audience. The term
    10  does not include a production featuring news, current events,
    11  weather and market reports, or public programming, sports event,
    12  awards show or other gala event, a production that solicits
    13  funds, a production containing obscene material or performances
    14  as defined in 18 Pa.C.S. § 5903(b) (relating to obscene and
    15  other sexual materials and performances) or a production
    16  primarily for private, political, industrial, corporate or
    17  institutional purposes.
    18     "Film production tax credit."  The credit provided under this
    19  article.
    20     "Pass-through entity."  A partnership as defined in section
    21  301(n.0) or a Pennsylvania S corporation as defined in section
    22  301(n.1).
    23     "Pennsylvania production expense."  A production expense
    24  incurred in this Commonwealth. The term includes only wages and
    25  salaries on which the taxes imposed by Article III or IV will be
    26  paid or accrued.
    27     "Production expense."  An expense incurred in the production
    28  of a film. The term includes the amount of wages and salaries of
    29  individuals employed in the production of the film; the costs of
    30  construction, operations, editing, photography, sound
    20070S1008B1242                  - 2 -     

     1  synchronization, lighting, wardrobe and accessories; the cost of
     2  leasing vehicles; the cost of transportation to or from a
     3  Pennsylvania train station, bus depot or airport; the cost of
     4  insurance coverage if the insurance is purchased through a
     5  Pennsylvania-based insurance agent; the costs of food and
     6  lodging; the purchase of music or story rights if the purchase
     7  price is under $1,000,000, the rights are purchased from a
     8  Pennsylvania resident or an entity subject to taxation in this
     9  Commonwealth and the transaction is subject to taxation under
    10  Article III, IV or VI; and the cost of rental of facilities and
    11  equipment, if rented from or through a Pennsylvania resident or
    12  an entity subject to taxation in this Commonwealth. The term
    13  does not include:
    14         (1)  deferred, leveraged or profit participation paid or
    15     to be paid to individuals employed in the production of the
    16     film;
    17         (2)  development costs; or
    18         (3)  expenses incurred in marketing or advertising a
    19     film.
    20     "Qualified film production expense."  A Pennsylvania
    21  production expense if at least 60% of the total expenses are
    22  Pennsylvania production expenses.
    23     "Qualified tax liability."  The liability for taxes imposed
    24  under Article III, IV or VI. The term shall not include any tax
    25  withheld by an employer from an employee under Article III.
    26     "Start date."  The first day of principal photography in this
    27  Commonwealth.
    28     "Taxpayer."  A film production company subject to tax under
    29  Article III, IV or VI. The term does not include contractors or
    30  subcontractors of a film production company.
    20070S1008B1242                  - 3 -     

     1  Section 1703-D.  Credit for qualified film production expenses.
     2     (a)  Application.--A taxpayer may apply to the department for
     3  a film production tax credit under this section. The application
     4  shall be on the form required by the department.
     5     (b)  Review and approval.--The department shall review the
     6  application. Upon determining the qualified film production
     7  expense amount for the taxpayer, the department may approve the
     8  taxpayer for a film production tax credit.
     9     (c)  Contract.--If the department approves the taxpayer's
    10  application under subsection (b), the department and the
    11  taxpayer shall enter into a contract containing the following:
    12         (1)  An itemized list of production expenses incurred or
    13     to be incurred.
    14         (2)  An itemized list of Pennsylvania production expenses
    15     incurred or to be incurred.
    16         (3)  With respect to a contract entered into prior to
    17     completion of production, a commitment by the taxpayer to
    18     incur the qualified film production expenses as itemized.
    19         (4)  The start date.
    20         (5)  Any other information the department deems
    21     appropriate.
    22     (d)  Certificate.--Upon execution of the contract required by
    23  subsection (c), the department shall award the taxpayer a film
    24  production tax credit and issue the taxpayer a film production
    25  tax credit certificate.
    26     (e)  Limitations.--The following limitations shall apply:
    27         (1)  The aggregate amount of film production tax credits
    28     awarded by the department under subsection (d) to a taxpayer
    29     for a film may not exceed 25% of the qualified film
    30     production expenses to be incurred.
    20070S1008B1242                  - 4 -     

     1         (2)  A taxpayer with a budget for a film that is less
     2     than $2,000,000 shall not be eligible to apply for a film
     3     production tax credit under this article for that film,
     4     unless the taxpayer receives a written waiver of this
     5     requirement from the department.
     6         (3)  A taxpayer has received a grant under 12 Pa.C.S. §
     7     4106 (relating to approval) shall not be eligible for a film
     8     production tax credit under this act for the same film.
     9         (4)  The aggregate amount of film production tax credits
    10     claimed by a taxpayer under section 1704-D may not exceed the
    11     amount awarded for the department under this section for the
    12     taxpayer for that taxable year.
    13  Section 1704-D.  Film production tax credits.
    14     A taxpayer may claim a film production tax credit against the
    15  qualified tax liability of the taxpayer.
    16  Section 1705-D.  Carryover, carryback, refund and assignment of
    17                     credit.
    18     (a)  General rule.--If the taxpayer cannot use the entire
    19  amount of the film production tax credit for the taxable year in
    20  which the film production tax credit is first approved, then the
    21  excess may be carried over to succeeding taxable years and used
    22  as a credit against the qualified tax liability of the taxpayer
    23  for those taxable years. Each time the film production tax
    24  credit is carried over to a succeeding taxable year, it shall be
    25  reduced by the amount that was used as a credit during the
    26  immediately preceding taxable year. The film production tax
    27  credit provided by this article may be carried over and applied
    28  to succeeding taxable years for no more than three taxable years
    29  following the first taxable year for which the taxpayer was
    30  entitled to claim the credit.
    20070S1008B1242                  - 5 -     

     1     (b)  Application.--A film production tax credit approved by
     2  the department in a taxable year first shall be applied against
     3  the taxpayer's qualified tax liability for the current taxable
     4  year as of the date on which the credit was approved before the
     5  film production tax credit can be applied against any tax
     6  liability under subsection (a).
     7     (c)  No carryback.--A taxpayer is not entitled to carry back
     8  all or any portion of an unused film production tax credit
     9  granted to the taxpayer under this article.
    10     (d)  Refund.--If the amount of the film production tax credit
    11  granted to a taxpayer under this article exceeds the taxpayer's
    12  qualified tax liability for the taxable year in which the credit
    13  is being claimed and if the taxpayer has not sold or assigned
    14  all or any portion of the film production tax credit pursuant to
    15  subsection (e), the excess shall be refunded to the taxpayer
    16  provided that the Department of Revenue has made a finding that
    17  the taxpayer has filed all required State tax reports and
    18  returns for all applicable taxable years and paid any balance of
    19  State tax due as determined at settlement, assessment or
    20  determination by the Department of Revenue.
    21     (e)  Sale or assignment.--The following shall apply:
    22         (1)  A taxpayer, upon application to and approval by the
    23     department, may sell or assign, in whole or in part, a film
    24     production tax credit granted to the taxpayer under this
    25     article.
    26         (2)  The department and the Department of Revenue shall
    27     jointly promulgate regulations for the approval of
    28     applications under this subsection.
    29         (3)  Before an application is approved, the Department of
    30     Revenue must make a finding that the applicant has filed all
    20070S1008B1242                  - 6 -     

     1     required State tax reports and returns for all applicable
     2     taxable years and paid any balance of State tax due as
     3     determined at settlement, assessment or determination by the
     4     Department of Revenue.
     5         (4)  Notwithstanding any other provision of law, the
     6     Department of Revenue shall settle, assess or determine the
     7     tax of an applicant under this subsection within 90 days of
     8     the filing of all required final returns or reports in
     9     accordance with section 806.1(a)(5) of the act of April 9,
    10     1929 (P.L.343, No.176), known as The Fiscal Code.
    11     (f)  Purchasers and assignees.--The purchaser or assignee of
    12  all or a portion of a film production tax credit under
    13  subsection (e) shall immediately claim the credit in the taxable
    14  year in which the purchase or assignment is made. The amount of
    15  the film production credit that a purchaser or assignee may use
    16  against any one qualified tax liability may not exceed 50% of
    17  such qualified tax liability for the taxable year. The purchaser
    18  or assignee may not carry back or obtain a refund of the film
    19  production tax credit. The purchaser or assignee shall notify
    20  the Department of Revenue of the seller or assignor of the film
    21  production tax credit in compliance with procedures specified by
    22  the Department of Revenue.
    23  Section 1706-D.  Determination of qualified film production
    24                     expenses.
    25     In prescribing standards for determining which production
    26  expenses are considered qualified film production expenses for
    27  purposes of computing the credit provided by this article, the
    28  department shall consider:
    29         (1)  The location where services are performed.
    30         (2)  The residence or business location of the person or
    20070S1008B1242                  - 7 -     

     1     persons performing the service.
     2         (3)  The location where supplies are consumed.
     3         (4)  Other factors the department determines are
     4     relevant.
     5  Section 1707-D.  Penalty.
     6     A taxpayer which claims a film production tax credit and
     7  fails to incur the amount of qualified film production expenses
     8  agreed to in section 1703-D(c)(3) for a film in that taxable
     9  year shall repay to the Commonwealth the amount of the film
    10  production tax credit claimed under this article for the film,
    11  including any sums refunded to the taxpayer under section 1705-
    12  D(d).
    13  Section 1708-D.  Pass-through entity.
    14     (a)  General rule.--If a pass-through entity has any unused
    15  tax credit under section 1705-D, it may elect in writing,
    16  according to procedures established by the Department of
    17  Revenue, to transfer all or a portion of the credit to
    18  shareholders, members or partners in proportion to the share of
    19  distributive income to which the shareholder, member or partner
    20  is entitled.
    21     (b)  Limitation.--The credit provided under subsection (a)
    22  cannot be claimed under this article for the same qualified film
    23  production expense by pass-through entity and a shareholder,
    24  member or partner of a pass-through entity.
    25     (c)  Application.--A shareholder, member or partner of a
    26  pass-through entity to whom a credit is transferred under
    27  subsection (a) shall immediately claim the credit in the taxable
    28  year in which the transfer is made. The shareholder, member or
    29  partner may not carry forward, carry back, obtain a refund of or
    30  sell or assign the credit.
    20070S1008B1242                  - 8 -     

     1  Section 1709-D.  Department guidelines.
     2     The department shall develop written guidelines for the
     3  implementation of the provisions of this article.
     4     Section 2.  The addition of Article XVII-D of the act shall
     5  apply to:
     6         (1)  qualified film production expenses incurred after
     7     December 31, 2006; and
     8         (2)  taxable years commencing after December 31, 2006.
     9     Section 3.  This act shall take effect immediately.














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