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HCS CSSSSB 230(FIN): "An Act establishing the film office in the Department of Commerce, Community, and Economic Development; creating a transferable tax credit applicable to certain film production expenditures incurred in the state; and providing for an effective date."

00       HCS FOR CS FOR SPONSOR SUBSTITUTE FOR SENATE BILL NO. 230(FIN)                                                    
01 "An Act establishing the film office in the Department of Commerce, Community, and                                      
02 Economic Development; creating a transferable tax credit applicable to certain film                                     
03 production expenditures incurred in the state; and providing for an effective date."                                    
04 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF ALASKA:                                                                
05    * Section 1. AS 43.98 is amended by adding a new section to read:                                                  
06            Sec. 43.98.030. Film production tax credit. (a) In cooperation with the film                               
07       office in the Department of Commerce, Community, and Economic Development, the                                    
08       department shall provide a transferable film production tax credit to a producer, as                              
09       defined in AS 44.33.239, for qualified production expenditures under AS 44.33.231 -                               
10       44.33.239.                                                                                                        
11            (b)  A tax credit provided under (a) of this section may be sold, assigned,                                  
12       exchanged, conveyed, or otherwise transferred in whole or in part.                                                
13            (c)  A taxpayer acquiring a transferable credit may use the credit or a portion of                           
14       the credit to offset taxes imposed under AS 43.20 (Alaska Net Income Tax Act). Any                                
15       portion of the credit not used may be used at a later period or transferred under (b) of                          
01       this section.                                                                                                     
02            (d)  The department shall adopt regulations necessary for the administration of                              
03       this section.                                                                                                     
04            (e)  A credit provided under (a) of this section, whether sold, assigned,                                    
05       exchanged, conveyed, or otherwise transferred, in whole or in part, must be used                                  
06       within three years after being provided by the department.                                                        
07            (f)  The number of tax credits provided in the aggregate under this section may                              
08       not exceed $100,000,000.                                                                                          
09    * Sec. 2. AS 44.33 is amended by adding new sections to read:                                                      
10                         Article 2A. Film Office.                                                                      
11            Sec. 44.33.231. Duties. (a) There is created a film office in the Department of                            
12       Commerce, Community, and Economic Development. The film office shall                                              
13                 (1)  cooperate with organizations in the private sector for the expansion                               
14       and development of film production industries in the state;                                                       
15                 (2)  promote Alaska as an appropriate location for film production;                                     
16                 (3)  provide production assistance through connecting film directors,                                   
17       makers, and producers with Alaska location scouts and contractors, including                                      
18       contractors providing assistance with permit applications;                                                        
19                 (4)  certify Alaska film production internship training programs and                                    
20       promote the employment of program interns by eligible productions; and                                            
21                 (5)  in cooperation with the Department of Revenue, administer the                                      
22       Alaska film production incentive program.                                                                         
23            (b)  The film office shall make available to the legislature, within 30 days after                           
24       the start of each regular session, a report of the activities conducted by the film office                        
25       under AS 43.33.231 - 43.33.239. The report must include                                                           
26                 (1)  the number of applications received under AS 44.33.234;                                            
27                 (2)  the number of applications approved by the film office; and                                        
28                 (3)  the number of, and amount of, tax credits disbursed under                                          
29       AS 44.33.232.                                                                                                     
30            (c)  The commissioner shall appoint a director to oversee the film office and                                
31       carry out its duties under AS 44.43.231 - 44.43.239.                                                              
01            Sec. 44.33.232. Alaska film production incentive program. Subject to                                       
02       appropriations for the purpose, the film office shall administer in cooperation with the                          
03       Department of Revenue the Alaska film production incentive program to provide a tax                               
04       credit under AS 43.98.030 for certain film production expenditures incurred in the                                
05       state.                                                                                                            
06            Sec. 44.33.233. Eligibility. (a) A film production is eligible for a tax credit                            
07       under AS 43.98.030, if the                                                                                        
08                 (1)  producer has $100,000 or more in qualified expenditures in a                                       
09       consecutive 24-month period under AS 44.33.236;                                                                   
10                 (2)  film office determines that the production is not contrary to the best                             
11       interests of the state; and                                                                                       
12                 (3)  production is approved by the film office.                                                         
13            (b)  In determining under (a) of this section whether a production is not                                    
14       contrary to the best interests of the state, the film office may consider                                         
15                 (1)  the effect of the production on both the immediate and long-term                                   
16       prospects for the film industry in Alaska;                                                                        
17                 (2)  the effect of the production on the employment of Alaska residents;                                
18       and                                                                                                               
19                 (3)  the effect of the production on the economy of the state.                                          
20            (c)  The following productions are not eligible, regardless of the production                                
21       costs:                                                                                                            
22                 (1)  news, weather, or current events programming;                                                      
23                 (2)  a production produced primarily for industrial, corporate, or                                      
24       institutional purposes, and for internal use;                                                                     
25                 (3)  an advertisement, infomercial, or any other production that solicits                               
26       funds, except for a commercial television advertisement produced for national                                     
27       distribution;                                                                                                     
28                 (4)  a political advertisement; or                                                                      
29                 (5)  a production that is determined by the film office to contain                                      
30       sexually explicit conduct as defined in 18 U.S.C. 2256.                                                           
31            Sec. 44.33.234. Qualification for film production tax credit. (a) A film                                   
01       producer may apply for the film production tax credit under AS 43.98.030 by                                       
02       submitting an application to the film office on a form provided by the film office. The                           
03       application must include                                                                                          
04                 (1)  a script or synopsis of the production;                                                            
05                 (2)  the names of the producer, director, and proposed cast;                                            
06                 (3)  estimated start, completion, and filming dates; and                                                
07                 (4)  other information the film office may require to determine the                                     
08       producer's eligibility for a credit and the estimated amount of the credit.                                       
09            (b)  If the film office approves an application submitted under (a) of this                                  
10       section, the film office shall issue a notice of qualification to the producer. The notice                        
11       of qualification must include a determination by the film office of the estimated film                            
12       production tax credit for which the production qualifies.                                                         
13            Sec. 44.33.235. Award of film production tax credit. (a) Subject to                                        
14       AS 43.98.030(f), the film office, in cooperation with the Department of Revenue, shall                            
15       determine the amount of the tax credit under AS 43.98.030 available to a producer                                 
16       who has obtained a notice of qualification under AS 43.33.234(b), based on the                                    
17       qualified expenditures of the production under AS 44.33.236.                                                      
18            (b)  The base amount of a tax credit awarded under this section is equal to 30                               
19       percent of the qualified expenditures of the production.                                                          
20            (c)  In determining the amount of the tax credit, the percentage provided by (b)                             
21       of this section shall be increased by the film office based on the following criteria:                            
22                 (1)  an additional 10 percent of qualified expenditures that are wages                                  
23       paid to Alaska residents;                                                                                         
24                 (2)  an additional two percent of qualified expenditures made in a rural                                
25       area; and                                                                                                         
26                 (3)  an additional two percent of qualified expenditures made in the                                    
27       state between October 1 and March 30.                                                                             
28            (d)  After completion of the production, the producer shall provide the film                                 
29       office with a production cost report detailing the qualified expenditures of the                                  
30       production, with verification by an independent certified public accountant approved                              
31       by the film office that the costs claimed in the report are qualified expenditures under                          
01       AS 44.33.236.                                                                                                     
02            (e)  Subject to (g) of this section, the film office, in cooperation with the                                
03       Department of Revenue, shall determine the amount of the tax credit based on the                                  
04       information provided by the producer under (d) of this section and shall award a tax                              
05       credit in cooperation with the Department of Revenue under AS 43.98.030 if the                                    
06       producer has satisfied all requirements under AS 44.33.231 - 44.33.239.                                           
07            (f)  The award of a tax credit under this section is conditioned on the                                      
08       producer's and the production's full compliance with all applicable state laws and                                
09       regulations. At the request of the film office, a producer shall provide any information                          
10       necessary for the film office to determine the producer's and production's compliance                             
11       with this subsection.                                                                                             
12            (g)  In determining the amount of a tax credit awarded under this section, the                               
13       film office may reduce the amount of the tax credit by any amount the film office                                 
14       considers necessary to allow the state, or a political subdivision of the state, to recover                       
15       the cost of any damages caused by any act or omission of the producer or production.                              
16            (h)  The film office, in cooperation with the Department of Revenue, may                                     
17       withhold the award of a tax credit under this section if the office determines that there                         
18       are filed, but unresolved, legal actions in the state involving the producer or                                   
19       production.                                                                                                       
20            Sec. 44.33.236. Determination of qualified expenditures. (a) Expenditures                                  
21       made by a production company in connection with a film production approved by the                                 
22       film office that shall be considered qualified expenditures must be directly related to                           
23       the production and be incurred in the state. Only expenditures that are ordinary,                                 
24       reasonable, and not in excess of fair market value and that are for real or tangible                              
25       property, fees, services, or state or municipal taxes shall be considered. Expenditures                           
26       may include                                                                                                       
27                 (1)  costs of set construction and operation;                                                           
28                 (2)  costs of wardrobes, make-up, accessories, and related services;                                    
29                 (3)  costs associated with photography and sound synchronization;                                       
30                 (4)  costs of lighting and related services and materials;                                              
31                 (5)  costs of editing and related services;                                                             
01                 (6)  rental of facilities and equipment;                                                                
02                 (7)  leasing of vehicles;                                                                               
03                 (8)  costs of food and lodging;                                                                         
04                 (9)  costs of digital or tape editing, film processing, transfer of film to                             
05       tape or digital format, sound mixing, and special and visual effects;                                             
06                 (10)  the total aggregate payroll for services performed in Alaska,                                     
07       including all salaries, wages, compensation, and related benefits provided to                                     
08       producers, directors, writers, actors, and other personnel that are directly attributable                         
09       to services performed in Alaska;                                                                                  
10                 (11)  the costs of the use of an Alaska business for processing qualified                               
11       payroll and related expenditures;                                                                                 
12                 (12)  costs of music, if performed, composed, or recorded by an Alaska                                  
13       musician, or released or published by an Alaska business;                                                         
14                 (13)  costs of intrastate travel, if provided by an Alaska business;                                    
15                 (14)  costs relating to the design, construction, improvement, or repair                                
16       of a film, video, television, or digital production or postproduction facility or related                         
17       property, infrastructure, or equipment, except commercial exhibition facilities, as                               
18       determined by the film office;                                                                                    
19                 (15)  costs of state or municipal taxes levied in Alaska on the lease or                                
20       rental of passenger or recreational vehicles or the rental of rooms or other lodging; or                          
21                 (16)  other similar production expenditures as determined by the film                                   
22       office in cooperation with the Department of Revenue.                                                             
23            (b)  Production costs that may not be considered qualified expenditures include                              
24                 (1)  costs related to the acquisition, determination, transfer, or use of a                             
25       film production tax credit under AS 43.98.030;                                                                    
26                 (2)  postproduction expenditures for marketing and distribution;                                        
27                 (3)  production financing, depreciation, and amortization costs, and                                    
28       other costs that are not cash or cash equivalent expenditures directly attributable to                            
29       production costs incurred in the state;                                                                           
30                 (4)  amounts that are later reimbursed or reasonably anticipated to be                                  
31       reimbursed, resulting in a reduction in production costs;                                                         
01                 (5)  amounts that are reasonably anticipated to be recovered through                                    
02       subsequent sale or other realization of value by disposal of an asset that has been                               
03       claimed as a qualified expenditure;                                                                               
04                 (6)  amounts that are paid to a person or entity as a result of                                         
05       participation in profits from the exploitation of the production;                                                 
06                 (7)  costs incurred in the purchase of real or tangible property for which                              
07       a qualified expenditure has, at any time, been claimed.                                                           
08            Sec. 44.33.237. Recovery of film production tax credit. (a) The film office,                               
09       in cooperation with the Department of Revenue, may review, audit, and bring legal                                 
10       proceedings to recover any amount of a tax credit awarded under AS 44.33.235 from a                               
11       producer or production to which a credit was awarded if the film office determines                                
12       that the film producer or production is liable for damages to the state, or any political                         
13       subdivision of the state.                                                                                         
14            (b)  Legal proceedings may not be brought under (a) of this section more than                                
15       one year after the date the tax credit was awarded under AS 44.33.235.                                          
16            Sec. 44.33.238. Regulations. The film office, in cooperation with the                                      
17       Department of Revenue, may adopt procedures and regulations to carry out its                                      
18       functions under AS 44.33.231 - 44.33.239.                                                                         
19            Sec. 44.33.239. Definitions. In AS 44.33.231 - 44.33.239,                                                  
20                 (1)  "Alaska business" means                                                                            
21                      (A)  a person who holds a current Alaska business license;                                         
22                      (B)  a person who provides goods or services under the name as                                     
23            appearing on the person's current Alaska business license;                                                   
24                      (C)  a person who has maintained a place of business within the                                    
25            state staffed by the person or an employee of the person for a period of six                                 
26            months immediately preceding the date of the goods or services provided;                                     
27                      (D)  a person who is                                                                               
28                           (i)  incorporated or qualified to do business under the                                       
29                 laws of the state;                                                                                      
30                           (ii)  a sole proprietorship, and the proprietor is a resident                                 
31                 of the state;                                                                                           
01                           (iii)  a limited liability company organized under                                            
02                 AS 10.50, and all members are residents of the state; or                                                
03                           (iv)  a partnership under former AS 32.05, AS 32.06, or                                       
04                 AS 32.11, and all partners are residents of the state; and                                              
05                      (E)  a joint venture composed entirely of ventures that qualify                                    
06            under (A) - (D) of this subsection;                                                                          
07                 (2)  "commissioner" means the commissioner of commerce,                                                 
08       community, and economic development;                                                                              
09                 (3)  "department" means the Department of Commerce, Community,                                          
10       and Economic Development;                                                                                         
11                 (4)  "film" includes television, commercials, and videos;                                               
12                 (5)  "film office" means the film office created under AS 44.33.231;                                    
13                 (6)  "producer" means a person who arranges financing for or                                            
14       supervises the production of a film, video, commercial, or television production or                               
15       pilot;                                                                                                            
16                 (7)  "rural area" means a community with a population of 1,500 or less                                  
17       or a community with a population of 5,500 or less that is not connected by road or rail                           
18       to Anchorage or Fairbanks.                                                                                        
19    * Sec. 3. AS 43.98.030; AS 44.33.231(a)(5), 44.33.231(b), 44.33.232, 44.33.233, 44.33.234,                         
20 44.33.235, 44.33.236, and 44.33.239(6) are repealed.                                                                    
21    * Sec. 4. AS 44.33.237 is repealed.                                                                                
22    * Sec. 5. The uncodified law of the State of Alaska is amended by adding a new section to                          
23 read:                                                                                                                   
24       TRANSITION. (a) Subject to AS 43.98.030(f), enacted by sec. 1 of this Act, secs. 3                                
25 and 7 of this Act do not prevent the film office from determining a film production's qualified                         
26 expenditures, awarding a tax credit, or reviewing a tax credit under the provisions repealed by                         
27 secs. 3 and 4 of this Act to a film production that has received a notice of qualification under                        
28 AS 44.33.234(b), enacted by sec. 2 of this Act, before July 1, 2013.                                                    
29       (b)  A film production tax credit may be used to offset taxes imposed under AS 43.20                              
30 (Alaska Net Income Tax Act) or sold, assigned, exchanged, conveyed, or otherwise                                        
31 transferred, in whole or in part, within three years after being provided by the Department of                          
01 Revenue under AS 43.98.030, enacted by sec. 1 of this Act, notwithstanding the repeal of                                
02 AS 43.98.030 in sec. 3 of this Act.                                                                                     
03       (c)  A film production tax credit that is being withheld by the film office in                                    
04 cooperation with the Department of Revenue under AS 44.33.235(h) may continue to be                                     
05 withheld by the office, notwithstanding the repeal of AS 44.33.235 in sec. 3 of this Act.                               
06    * Sec. 6. The uncodified law of the State of Alaska is amended by adding a new section to                          
07 read:                                                                                                                   
08       NOTIFICATION. When the number of tax credits provided under AS 43.98.030(f),                                      
09 enacted by sec. 1 of this Act in the aggregate and the estimated amount of tax credits that                             
10 could be claimed based on notices of qualification issued by the film office under                                      
11 AS 44.33.234(b), together equal $100,000,000, the commissioner shall notify the presiding                               
12 officers of each house of the legislature and the revisor of statutes in writing.                                       
13    * Sec. 7. Section 3 of this Act takes effect on the earlier of the following:                                      
14            (1)  July 1, 2013; or                                                                                        
15            (2)  the date of the commissioner of revenue's notification to the presiding                                 
16 officers of each house of the legislature and to the revisor of statutes under sec. 6 of this Act.                      
17    * Sec. 8. Section 4 of this Act takes effect on the earlier of the following:                                      
18            (1)  July 1, 2014; or                                                                                        
19            (2)  one year after the date of the commissioner of revenue's notification to the                            
20 legislature and to the revisor of statutes under sec. 6 of this Act.