Regular Session 2015-2016 Senate Bill 0739 P.N. 0765

PRINTER'S NO. 765

THE GENERAL ASSEMBLY OF PENNSYLVANIA

SENATE BILL

No.

739

Session of

2015

INTRODUCED BY LEACH, BREWSTER, FONTANA, FARNESE, COSTA AND

SMITH, APRIL 16, 2015

REFERRED TO FINANCE, APRIL 16, 2015

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," providing for video game production tax credit.

The General Assembly of the Commonwealth of Pennsylvania

hereby enacts as follows:

Section 1. The act of March 4, 1971 (P.L.6, No.2), known as

the Tax Reform Code of 1971, is amended by adding an article to

read:

ARTICLE XVII-J

VIDEO GAME PRODUCTION TAX CREDIT

Section 1701-J. Scope of article.

This article relates to video game production tax credits.

Section 1702-J. Definitions.

The following words and phrases when used in this article

shall have the meanings given to them in this section unless the

context clearly indicates otherwise:

"Department." The Department of Community and Economic

Development of the Commonwealth.

"Pass-through entity." A partnership as defined in section

301(n.0) or a Pennsylvania S corporation as defined in section

301(n.1).

"Pennsylvania production expense." Production expense

incurred in this Commonwealth. The term includes:

(1) Compensation paid to an individual on which the tax

imposed by Article III will be paid or accrued.

(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 if the tax imposed by Article III will be

paid or accrued by all of the partners, members or

shareholders of the pass-through entity for the taxable year.

(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.

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(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.

"Production expense." As follows:

(1) The term includes all of the following:

(i) Compensation paid to an individual employed in

the production of a video game.

(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.

(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 a video game or paid to entities representing an

individual for services provided in the production of a

video game.

(ii) Development cost.

(iii) Expense incurred in marketing or advertising a

video game.

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(iv) Cost related to the sale or assignment of a

video game production tax credit under section 1705-J(e).

"Qualified tax liability." The liability for taxes imposed

under Article III, IV or VI. The term does not include a tax

withheld by an employer from an employee under Article III.

"Qualified video game production expense." All Pennsylvania

production expenses if Pennsylvania production expenses comprise

at least 60% of the video game's total production expenses. The

term does not include more than $1,000,000 in the aggregate of

compensation paid to individuals or payment made to entities

representing an individual for services provided in the

production of the video game.

"Start date." The first day of principal production of a

video game in this Commonwealth.

"Tax credit." The video game production tax credit provided

under this article.

"Taxpayer." A video game production company subject to tax

under Article III, IV or VI. The term does not include

contractors or subcontractors of a video game production

company.

"Video game." An electronic game that involves interaction

with a user interface to generate visual feedback on a video

device. The term does not include a game that contains obscene

material or performances as defined in 18 Pa.C.S. § 5903(b)

(relating to obscene and other sexual materials and

performances) or a game designed primarily for private,

political, industrial, corporate or institutional purposes.

Section 1703-J. Credit for qualified video game production

expenses.

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

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a tax credit under this section. The application shall be on the

form required by the department.

(b) Review and approval.--The department shall review and

approve or disapprove the applications in the order in which

they are received. Upon determining the taxpayer has incurred or

will incur qualified video game production expenses, the

department may approve the taxpayer for a tax credit.

application under subsection (b), the department and the

taxpayer shall enter into a contract containing the following:

(1) An itemized list of production expenses incurred or

to be incurred for the video game.

(2) An itemized list of Pennsylvania production expenses

incurred or to be incurred for the video game.

(3) With respect to a contract entered into prior to

completion of production, a commitment by the taxpayer to

incur the qualified video game production 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 video

game production tax credit and issue the taxpayer a video game

production tax credit certificate.

Section 1704-J. Video game production tax credits.

A taxpayer may claim a tax credit against the qualified tax

liability of the taxpayer.

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

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

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amount of the tax credit for the taxable year in which the tax

credit is first approved, then the excess may be carried over to

succeeding taxable years and used as a credit against the

qualified tax liability of the taxpayer for those taxable years.

Each time the tax credit is carried over to a succeeding taxable

year, it shall be reduced by the amount that was used as a

credit during the immediately preceding taxable year. The tax

credit may be carried over and applied to succeeding taxable

years for no more than three taxable years following the first

taxable year for which the taxpayer was entitled to claim the

tax credit.

(b) Application.--A tax credit approved by the department in

a taxable year first shall be applied against the taxpayer's

qualified tax liability for the current taxable year as of the

date on which the tax credit was approved before the tax credit

can be applied against any tax liability under subsection (a).

carry back or obtain a refund of all or any portion of an unused

tax credit granted to the taxpayer under this article.

(d) (Reserved).

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

(1) A taxpayer, upon application to and approval by the

department, may sell or assign, in whole or in part, a tax

credit granted to the taxpayer under this article.

(2) The department and the Department of Revenue shall

jointly promulgate regulations for the approval of

applications under this subsection.

(3) Before an application is approved, the Department of

Revenue must make a finding that the applicant has filed all

required State tax reports and returns for all applicable

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taxable years and paid any balance of State tax due as

determined at settlement, assessment or determination by the

Department of Revenue.

(4) Notwithstanding any other provision of law, the

Department of Revenue shall settle, assess or determine the

tax of an applicant under this subsection within 90 days of

the filing of all required final returns or reports in

accordance with section 806.1(a)(5) of the act of April 9,

1929 (P.L.343, No.176), known as The Fiscal Code.

(f) Purchasers and assignees.--The purchaser or assignee of

all or a portion of a tax credit under subsection (e) shall

immediately claim the tax credit in the taxable year in which

the purchase or assignment is made. The amount of the tax credit

that a purchaser or assignee may use against any one qualified

tax liability may not exceed 50% of such qualified tax liability

for the taxable year. The purchaser or assignee may not carry

forward, carry back or obtain a refund of or sell or assign the

tax credit. The purchaser or assignee shall notify the

Department of Revenue of the seller or assignor of the tax

credit in compliance with procedures specified by the Department

of Revenue.

Section 1706-J. Determination of Pennsylvania production

expenses.

In prescribing standards for determining which production

expenses are considered Pennsylvania production expenses for

purposes of computing the tax credit, the department shall

consider:

(1) The location where services are performed.

(2) The location where supplies are consumed.

(3) Other factors the department determines are

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relevant.

Section 1707-J. Limitations.

(a) Cap.--In no case shall the aggregate amount of tax

credits awarded in a fiscal year under this article exceed

$20,000,000.

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

(1) The aggregate amount of video game production tax

credits awarded by the department under section 1703-J(d) to

a taxpayer for a video game may not exceed 25% of the

qualified video game production expenses to be incurred

during each of the first four years that the video game

production expenses are incurred and 10% for each year

thereafter that the video game production expenses are

incurred.

(2) A taxpayer that has received a grant under 12

Pa.C.S. § 4106 (relating to approval) may not be eligible for

a video game production tax credit for the same video game.

Section 1708-J. Penalty.

A taxpayer which claims a tax credit and fails to incur the

amount of qualified video game production expenses agreed to in

section 1703-J(c)(3) for a video game in that taxable year shall

repay to the Commonwealth the amount of the video game

production tax credit claimed under this article for the video

game.

Section 1709-J. Pass-through entity.

(a) General rule.--If a pass-through entity has an unused

tax credit under section 1705-J, it may elect in writing,

according to procedures established by the Department of

Revenue, to transfer all or a portion of the tax credit to

shareholders, members or partners in proportion to the share of

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the entity's distributive income to which the shareholder,

member or partner is entitled.

(b) Limitation.--A pass-through entity and a shareholder,

member or partner of a pass-through entity shall not claim the

tax credit under subsection (a) for the same qualified video

game production expense.

pass-through entity to whom a tax credit is transferred under

subsection (a) shall immediately claim the tax credit in the

taxable year in which the transfer is made. The shareholder,

member or partner may not carry forward, carry back, obtain a

refund of or sell or assign the tax credit.

Section 1710-J. Department guidelines and regulations.

The department shall develop written guidelines for the

implementation of the provisions of this article. The guidelines

shall be in effect until such time as the department promulgates

regulations for the implementation of the provisions of this

article. The department shall promulgate regulations for the

implementation of this article within two years of the effective

date of this section.

Section 1711-J. Report to General Assembly.

(a) General rule.--No later than June 1 of the second year

that commences after the effective date of this section, and

September 1 of each year thereafter, the Secretary of Community

and Economic Development shall submit a report to the General

Assembly summarizing the effectiveness of the tax credit. The

report shall include the name of the video game produced, the

names of all taxpayers utilizing the tax credit as of the date

of the report and the amount of tax credits approved for,

utilized by or sold or assigned by each taxpayer. The report may

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also include recommendations for changes in the calculation or

administration of the tax credit. The report shall be submitted

to the chairman and minority chairman of the Appropriations

Committee and the chairman and minority chairman of the Finance

Committee of the Senate and the chairman and minority chairman

of the Appropriations Committee and the chairman and minority

chairman of the Finance Committee of the House of

Representatives. In addition to the information stated in this

section, the report shall include the following information

which shall be separated by geographic location within this

Commonwealth:

(1) The amount of tax credits claimed by taxpayers

during the fiscal year.

(2) The total amount spent on video games in this

Commonwealth during the fiscal year.

(3) The total amount of tax revenues collected from the

sale of video games in this Commonwealth during the fiscal

year.

(4) The total number of jobs created by taxpayers during

the fiscal year, including the duration of the jobs.

(b) Public information.--Notwithstanding any law providing

for the confidentiality of tax records, the information in the

report shall be public information, and all report information

shall be posted on the department's Internet website.

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

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