Member Article

On April 7, 2008, Michigan’s governor Granholm signed into law a package of fourteen bills designed to make

Michigan a destination for filmmakers by offering a collection of incentives that have been characterized as the most generous in the nation. The package of bills provides bold incentives aimed at diversifying Michigan’s economy by encouraging the production of motion pictures, television programs, music videos, interactive games, and similar productions in Michigan. The bills provide tax credits for production costs, job training and investment in production infrastructure. In addition, the bills provide for state financed loans and the possibility of the free use of state and local government property for production purposes. Note: In general, a production company should apply for and enter into an agreement with the appropriate State agency before conducting or announcing an intention to conduct any activity in Michigan. The cornerstone of these incentives is a 40-42% tax credit which is available on production related expenditures. This tax credit is refundable so an eligible production company will realize the full benefit of the credit even if its amount exceeds the company’s Michigan tax liability. This credit is also assignable. While much of the attention has been focused on the 40-42% tax credit for production  expenditures, there are other incentives available to production companies wishing to do a project in Michigan as well as to those who would like to invest in permanent production facilities in Michigan. Below are some of the highlights of the incentives.

Tax Incentives

Production Expenditures Tax Credit

¨    Production companies will be eligible to receive a refundable and transferable (assignable) tax credit against the Michigan Business Tax (“MBT”) or the Michigan income tax for qualified film or digital media pre-production, production, and postproduction costs incurred in Michigan.

¨    Qualified productions include motion pictures, documentaries, television programming, music videos, interactive games, video games, commercials, internet programming, sound recordings, videos, digital animation and interactive websites.

¨    The credit is not available for productions of television news or sports programs, awards shows, political propaganda, employee training films and productions with the primary purpose of fund-raising.

¨    Credits are available in the following amounts:

¨    - 40% of “direct production expenditures” (which exclude “qualified personnel expenditures”); - 42% if the expenditures are made in any of 103 designated Michigan “core communities;” and - 30% of qualified personnel expenditures (generally compensation paid to non- Michigan residents working on production activities other than a producer, director, writer, actor or similar personnel).

¨    Direct production expenditures are those related to development, preproduction, production or postproduction and include expenditures for purchases of equipment,  material or services; use of facilities, soundstages or studios and location fees; catering, food and lodging; use of vehicles, including chartered aircraft based in Michigan used for transportation in the State; commercial airfare purchased through a Michigan-based travel agency for travel for travel to and from and within the state; insurance coverage or bonding if purchased from a Michigan-based insurance agent; compensation paid to employees, including wages, benefits and fees for talent, management or labor who performed services in Michigan (capped at $2 million per person); distribution, including costs related to creation of trailers, marketing videos, commercials, point-of-purchase videos and purchase of equipment relating to the duplication or market distribution of any content created or produced in Michigan; and other production costs in accordance with generally accepted entertainment industry practices.

¨    The production company must spend at least $50,000 in Michigan and production must  begin within 90 days of the date of the agreement (can be extended for an additional 90 days for good cause).

Infrastructure Investment Tax Credit

¨    Persons may receive a nonrefundable 25% tax credit against the MBT for “base investment” in a “qualified film or digital media infrastructure project” in Michigan.

¨    A qualified film or digital media infrastructure project is a film, video, television, or digital media production and postproduction facility as well as property, equipment and any other support facility related to the primary facility.

¨    Base investment is the cost, including fabrication and installation, paid or accrued in the taxable year of tangible, depreciable assets physically located in Michigan for use in a business activity in Michigan. It excludes expenditures that qualify for the production expenditure tax credit.

¨    In order to be eligible for the credit, a person must spend in excess of $100,000 (increased to $250,000 beginning January 1, 2009).

¨    This credit is assignable or may be carried forward to offset MBT liability for up to 10 years.

¨    Aggregate annual maximum amount of infrastructure investment tax credits to be granted by the State in any given year is $20 million.

¨    The taxpayer may not file a claim for the credit until at least 25% of the base investment in the project has been spent; construction on the project must begin within 180 days of the date of the agreement (can be extended for an additional 90 for good cause; and if the Taxpayer sells the assets acquired by the base investment, the taxpayer must repay an amount equal to 25% of the gross proceeds adjusted as prescribed.

Job Creation Tax Credit

¨    Michigan Economic Growth Authority (“MEGA”) may enter into an agreement with a business that proposes to maintain retained jobs or create qualified new jobs in film and digital media production for a refundable credit against the MTB under the existing MEGA tax incentive programs.

¨    To be eligible, a business must create and maintain a minimum number of qualified new jobs in Michigan, retain a minimum number of jobs, and/or make a certain level of new capital investment. These new job minimums range from five in the first year and 25 by the fifth year for certain high-technology jobs to 100 new jobs for companies previously based out-of-state.

¨    The tax credits may be awarded for up to 20 years and up to an amount equal to 100% of the Michigan personal income tax generated by the new workers.

¨    This credit is not tie-barred to the other credits offered under these bills so expenditures for which these credits are received may also be eligible for credits under the other bills.

 

Film & Digital Media Worker Job Training Tax Credit

¨    Production companies may be eligible for a 50% nonrefundable, nonassignable MBT tax credit for expenditures incurred for salary and other expenditures paid to provide “qualified personnel” with on-the-job training as a below the line crew member for a qualified production intended to upgrade or enhance the skills of such personnel and address deficiencies in skills among Michigan residents, as determined by the Film Office.

¨    “Qualified personnel” means a person who has resided in Michigan for at least 12 months and who demonstrates prior experience or training in the film and digital media industry, as certified by the Film Office.