Law Provides Tax Credits for Film and Digital Media Projects in New Jersey

Governor Phil Murphy has signed legislation that provides tax credits for film and digital media projects in New Jersey. The credits are available to taxpayers that are subject to the corporation business tax and taxpayers that are subject to the gross income tax effective 07/03/2018.

Film and digital media tax credit. Film tax credit: A taxpayer, upon approval of an application to the New Jersey Economic Development Authority, is allowed a credit against the corporation business tax in an amount equal to 30% of the qualified film production expenses of the taxpayer during a privilege period commencing on or after July 1, 2018 but before July 1, 2023, provided that: (a) at least 60% of the total film production expenses, exclusive of post-production costs, of the taxpayer are incurred for services performed, and goods purchased through vendors authorized to do business, in New Jersey, or the qualified film production expenses of the taxpayer during the privilege period exceed $1 million per production; (b) principal photography of the film commences within the earlier of 180 days from the date of the original application for the tax credit, or 150 days from the date of approval of the application for the tax credit; (c) the film includes, when determined to be appropriate by the commission, at no cost to New Jersey, marketing materials promoting New Jersey as a film and entertainment production destination; (d) the taxpayer submits a tax credit verification report prepared by an independent certified public accountant licensed in New Jersey; and (e) the taxpayer complies with the withholding requirements provided for payments to loan out companies and independent contractors. The term “qualified film production expenses” refers to wages and salaries of individuals employed in the production of a film on which the tax imposed by the New Jersey Gross Income Tax has been paid or is due; and the costs for tangible personal property used, and services performed, directly and exclusively in the production of a film, such as expenditures for film production facilities, props, makeup, wardrobe, film processing, camera, sound recording, set construction, lighting, shooting, editing, and meals. Payment made to a loan out company or to an independent contractor do not constitute a qualified film production expense unless the payment is made in connection with a trade, profession, or occupation carried on in New Jersey or for the rendition of personal services performed in New Jersey and the taxpayer has made the required withholding payments. Qualified film production expenses do not include expenses incurred in marketing or advertising a film and payment in excess of $500,001 to a highly compensated individual for costs for a story, script, or scenario used in the production of a film and wages or salaries or other compensation for writers, directors, including music directors, producers, and performers, other than background actors with no scripted lines. The term “loan out company” refers to a personal service corporation or other entity that is contracted with by the taxpayer to provide specified individual personnel, such as artists, crew, actors, producers, or directors for the performance of services used directly in a production and does not include entities contracted with by the taxpayer to provide goods or ancillary contractor services such as catering, construction, trailers, equipment, or transportation. The credit is increased to 35% of the qualified film production expenses for services performed and tangible personal property purchased through vendors whose primary place of business is located in Atlantic, Burlington, Camden, Cape May, Cumberland, Gloucester, Mercer or Salem County.

Digital media tax credit: A taxpayer, upon approval of an application to the NJEDA, is allowed a credit against the corporation business tax in an amount equal to 20% of the qualified digital media content production expenses of the taxpayer during a privilege period commencing on or after July 1, 2018 but before July 1, 2023, provided that: (a) at least $2 million of the total digital media content production expenses of the taxpayer are incurred for services performed, and goods purchased through vendors authorized to do business, in New Jersey; (b) at least 50% of the qualified digital media content production expenses of the taxpayer are for wages and salaries paid to full-time or full-time equivalent employees in New Jersey; (c) the taxpayer submits a tax credit verification report prepared by an independent certified public accountant licensed in New Jersey; and (d) the taxpayer complies with the withholding requirements provided for payments to loan out companies and independent contractors. The term “qualified digital media content production expense” refers to an expense incurred in New Jersey for the production of digital media content and includes wages and salaries of individuals employed in the production of digital media content on which New Jersey gross income tax has been paid or is due; the costs of computer software and hardware, data processing, visualization technologies, sound synchronization, editing, and the rental of facilities and equipment. Payment made to a loan out company or to an independent contractor do not constitute a “qualified digital media content production expense” unless the payment is made in connection with a trade, profession, or occupation carried on in New Jersey or for the rendition of personal services performed in New Jersey and the taxpayer has made the required withholding. The credit is increased to 25% of the qualified digital media expenses for services performed and tangible property purchased through vendors whose primary place of business is located in Atlantic, Burlington, Camden, Cape May, Cumberland, Gloucester, Mercer or Salem County.

Enhanced credit for diversity:  A taxpayer, upon approval of an application to the NJEDA is allowed a credit against the corporation business in an amount equal to 2% of the qualified film or digital media content production expenses of the taxpayer during the above mentioned privilege periods provided that: (a) the application is accompanied by a diversity plan outlining specific goals, which may include advertising and recruitment actions, for hiring minority persons and women; (b) the NJEDA has approved the plan; and (c) the NJEDA has verified that the applicant has met or made good-faith efforts in achieving those goals.