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Film Production Activity Tax Credit
A film production entity may be entitled to a refundable tax credit against the State of Maryland (the State) income tax for certain costs incurred in the State that are necessary to carry out a film production activity in the State.
The statute creating the Maryland Film Production Activity Tax Credit and defining qualified film production activities can be found here.
Current Availability of Tax Credit:
Prior to applying, it is recommended that you consult a tax specialist, a tax attorney or the Office of the Comptroller of Maryland regarding filing the tax credit and the potential tax impacts of receiving a Maryland Film Production Activity Tax Credit on your taxes or your company's taxes.
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Please contact Jack Gerbes, Director of the Maryland Film Office, at 443-865-9002 or at Jack.Gerbes@maryland.gov with questions regarding the status of the tax credit program and to discuss your production.
Calculating the Tax Credit:
Except for Maryland Small Films, a qualified film production entity may receive a refundable income tax credit of up to 25% of the total direct costs (authorized costs only) of a film production activity, or 27% of the total direct costs (authorized costs only) for a television series with a maximum tax credit amount per project of $10,000,000. A qualified Maryland Small Film may receive a refundable income tax credit of up to 25% of the total direct costs (authorized costs only) of a film production activity, with a maximum tax credit amount per project of $125,000.
A Letter of Qualification will be issued based upon the film production entity’s estimated total of authorized direct costs in Maryland. Because the Maryland Film Production Activity Tax Credit is limited and capped, the film production entity will not receive more tax credits than the amount specified in the Letter of Qualification from the Department.
Timing of Applications:
Timing of Additional Required Forms:
1) BEFORE the start of principal photography in the State, a Form for Additional Documentation & Information must be submitted to the Department along with ALL required attachments. (This form is NOT required for Maryland Small Films.)
2) BEFORE the conclusion of principal photography in the State, the Department must approve the draft engagement letter for the independent, third-party CPA outlining sample sizes and percentages for the Agreed Upon Procedures. The Department will determine sample sizes and percentages. (Film production entities with the total of authorized direct costs less than $250,000 are NOT required to complete a third-party AUP.)
Qualification Criteria:
Each applicant must meet all of the following criteria to be eligible to receive a Letter of Qualification:
• All statutory requirements must be met.
• The submitted Application for Qualification must be complete and signed.
• The film production entity must be able to demonstrate financing.
• The film production entity must be able to show acceptable evidence of national distribution.
• 50% of principal photography must occur in the State.
• Principal photography must be scheduled to begin within 120 days of receiving the Letter of Qualification from the Department, which may be extended by the Department, at the discretion of the Department, based on facts and circumstances beyond the control of the film production entity.
• The total direct costs (authorized costs only) projected to be incurred in the State must exceed $250,000; or, $25,000 for Maryland Small Films.
Additional Qualification Criteria for Maryland Small Films:
• The film production entity must have been organized in Maryland for at least three months prior to the date of application; or, for an individual, unincorporated association, sole proprietorship, or general partnership which is not registered with the Maryland State Department of Assessment and Taxation, has been in active business in Maryland for at least three (3) months prior to the date of application.
• The film production entity must be independently owned and operated.
• The film production entity may not be a subsidiary of another entity. A subsidiary is defined as an entity in which more than 50% of the voting interests are owned or controlled by, either directly or indirectly, another entity.
• The film production entity may not be dominant in its field of operation.
• The film production entity may not employ more than 25 full-time employees.
Application Process:
Or, in person or via US Mail/Courier to:
Maryland Film Office Maryland Department of Commerce 401 East Pratt Street, 14th Floor Baltimore, MD 21202
Applications will be reviewed and approved in the order that complete applications are received. Applications that are materially incomplete will not be considered. Applications received prior to the time and date specified above will be ineligible and not reviewed. The date and time for applications received by email will be the date and time specified by the email system currently in use by the Department.
Within 30 days after receiving a complete application, the Department will (1) issue a Letter of Qualification confirming the applicant as a qualified film production entity and stating the maximum amount of tax credits available for this film production activity and the fiscal year from which the credits will be drawn; or, (2) notify the film production entity that it is not eligible for a tax credit.
Any decision made by the Department during the application process is considered final.
Final Certification Process:
Within 180 days after the completion date established by the applicant and the Department, the film production entity must submit an Application for Final Tax Credit Certification or a Maryland Small Film - Application for Final Tax Credit Certification, along with all of the required final documentation. This timeline may be extended by the Department, at the discretion of the Department, based on facts and circumstances beyond the control of the qualified film production entity. The review of applications for final tax credit certification that are materially incomplete will not be considered until all documentation is submitted and the application is complete.
All film production entities with total authorized direct costs greater than
$250,000, must include a copy of an independent, third-party auditor’s report which meets the following minimum criteria:
NOTE: A draft engagement letter outlining sample sizes and percentages must be approved by the Department prior to the conclusion of principal photography on the film production activity in the State. The Department will determine sample sizes and percentages.
Maryland
Small Films must submit copies of
receipts of payment for ALL costs submitted to qualify as a direct cost in their final documentation.
The Maryland Film Office will review the Application for Final Tax Credit Certification, all closing documentation, receipts, and the independent auditor’s report for completeness, accuracy, and to confirm the total amount of direct costs. Based on the actual total of direct costs (authorized costs only) as established by the Film Office’s review, the Department will issue a Final Tax Credit Certificate to the film production entity which will not exceed the amount of tax credits specified in the original Letter of Qualification.
General Tax Credit Rules:
The total direct costs (authorized costs only) incurred in the State must exceed $250,000; or, $25,000 for Maryland Small Films.
Qualification for Tax Credits is subject to rescission for failure to meet any deadline or requirement of the program.
Principal photography must begin within 120 days after the issuance of the Letter of Qualification from the Department, which may be extended by the Department, at the discretion of the Department, based on facts and circumstances beyond the control of the film production entity.
Direct costs are for time or use in Maryland and must be provided by a qualified vendor. Expenditures that are eligible as direct costs are outlined in the Authorized Direct Costs list. This list is provided for guidance and is subject to interpretation and change by the Department at any time.
Additional guidelines regarding authorized direct costs are:
• ALL goods and services must be provided by a qualified vendor. A qualified vendor is a vendor that (1) Is qualified to do business in the State and, if applicable, registered and in good standing with the State’s Department of Assessments and Taxation; (2) Maintains a physical location in the State from which employees of the vendor are based; (3) Provides goods or services to the film production entity which are provided in the vendor’s historic ordinary course of business; and, (4) The goods or services provided by the vendor to the film production entity are generated from the vendor’s physical location in the State, unless generated from an on-line order. Goods or services which are specialized or technical in nature and are not reasonably available from a qualified vendor may be provided by a non-qualified vendor with the prior approval of the Department. This requirement must be met if the goods or services are bought or rented directly by the production company or through another entity.
• The total direct costs may not include any salary, wages or "other compensation" of an individual who receives more than $500,000 for personal services in connection with the film production activity. Compensation includes any payments of wages and/or benefits made to the individual whether paid directly to the individual through cash or a payroll company OR paid to the individual as a loan out or personal services corporation. "Other compensation" includes employer fringes and payments made directly to the employee (i.e., per diem, housing allowance, travel allowance, meal allowance, car allowance, cell phone allowance, kit/box rental, relocation fees, etc.). Salary, wages and "other compensation" are included in calculating the $500,000 threshold. If that $500,000 threshold is reached, then no costs, including the "other compensation," are authorized. In addition, the $500,000 in salary, wages or "other compensation" is for the length of the production activity (prep, pre-production, principal, post); not just for time in Maryland.
• The total direct costs may not include any salary, wages or "other compensation" for writers, directors or producers, which are defined as crew members whose credited position contains either writer, director or producer in the title. Those positions include, but are not limited to, Directors, 2nd Unit Directors, 1st ADs, 2nd ADs, Executive Producers, Associate Producers, etc. For crew members whose credited position is a strictly technical role, such as Lighting Director, Casting Director, Director of Photography and Art Director, and assistants whose credited position contains writer, director or producer in the title, their wages, salary and other compensation are authorized direct costs. "Other compensation" includes employer fringes and payments made directly to the employee (i.e., per diem, housing allowance, travel allowance, meal allowance, car allowance, cell phone allowance, kit/box rental, relocation fees, etc.).
• Direct costs must be PRO-RATED based upon the time personnel or materials are IN Maryland and working or used in connection with the film production activity. Insurance premiums, and the like, will be considered as authorized direct costs for the portion allocable to the time spent in Maryland.
• The total direct costs may not include costs associated with filming outside of Maryland borders, including Washington, DC. Costs paid in a lump sum for activities occurring both in and out of the State must be PRO-RATED for the time and costs allocable to the time in Maryland only.
• The total direct costs must be reasonable and negotiated at arms-length.
• Only direct costs directly incurred by the film production entity are authorized.
• Direct costs may only be attributed to the film production activity once.
• Direct costs must be the NET cost of the goods or services, i.e., security deposits must be netted out, etc.
• For all materials or goods with an initial cost greater than $1,000, the direct cost will be the initial cost of the material or good less its value, or resale, upon the completion of the film production activity in the State.
• Only travel expenses INTO Maryland are authorized as a direct cost. Thus, the end point of that leg of travel must be in Maryland. The cost of round trip fares into Maryland would be divided in half.
• Either a relocation fee OR housing/living allowance is authorized as a direct cost, not both.
• The total direct costs may not include costs for Entertainment, Gifts or Gratuities or any costs coded as such.
• The total direct costs may not include costs for the purchase of vehicles, or other items, which are used primarily for personal use.
• The total direct costs may not include costs for any materials, goods or services that have been recouped by any insurance policies.
• The total direct costs may not include costs for taxes and fees paid to other jurisdictions, including the Federal Government.
• The total direct costs may not include costs for penalties, fines, overages or similar costs.
Please note that as part of the Application for Final Tax Credit Certification, the film production entity must certify that there are no amounts owed to any Maryland entity which provided goods or services in connection with the film production activity. If amounts are outstanding, the Department will not issue a Final Tax Credit Certificate. A Final Tax Credit Certificate will not be issued until the Maryland Film Office receives confirmation that all outstanding amounts have been paid.
Closing Credits and Acknowledgements:
As required by statute, a feature film project shall contain a 5-second long static or animated logo that promotes the State in the end credits before the below-the-line crew crawl for the life of the project and a link to the State’s website (www.MarylandFilm.org) on the project’s website.
As required by statute, a television series project shall contain an embedded 5-second long static or animated logo that promotes the State during each broadcast worldwide for the life of the project and a link to the State’s website (www.MarylandFilm.org) on the project’s website.
For any other project, per the statute, the State logo or animated logo at the end of each project and in online promotions.
Download the logo here.
In lieu of including a State logo as required, the film production entity may offer alternative marketing opportunities to be evaluated by the Department to ensure that those opportunities offer equal or greater promotional value to the State.
Cast & Crew Screening:
All film production entities shall work with the Maryland Film Office to secure a cast & crew screening of the film production activity in Maryland before the general release of the project.
Compliance with Maryland Law:
The film production company must comply with all applicable Maryland laws, rules, and regulations. In addition, all loan out and personal services companies are subject to Maryland laws, rules, and regulations, including all applicable withholding requirements. Each film production company will be required, as part of the Application for Final Tax Credit Certification, to provide the Department with a list of all loan out and personal services companies paid in connection with the film production activity.
Claiming the Tax Credits:
The film production entity may claim a credit against the State income tax in an amount equal to the amount stated in the Final Tax Credit Certificate. If the tax credit allowed in any taxable year exceeds the total tax otherwise payable by the film production entity for that taxable year, the film production entity may a claim a refund in the amount of excess. In order to claim the credit, the film production entity must file the applicable Maryland state income tax return, must complete the Form 500CR section of the return, and must include a copy of the final certificate issued by the Department. The credit is only available with electronically-filed returns. Information regarding filing can be found on the Comptroller of Maryland’s website.
Resources:
Maryland Film Office logo
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