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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 highly recommended that you consult a tax specialist, a tax attorney or the Office of the Comptroller of Maryland regarding filing the tax credit certificate and the potential impacts of receiving a Maryland Film Production Activity Tax Credit on your taxes or your company's taxes.
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Please contact Catherine Batavick of the Maryland Film Office at 443-865-9000 or catherine.batavick@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 28% of the total authorized direct costs of a film production activity, or 30% of the total authorized direct costs for a 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 28% of the total authorized direct costs 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, a film production entity will not receive more tax credits than the amount specified in the Letter of Qualification from the Department.
Timing of Applications:
It is highly recommended that a qualified film production entity review the correct Application for Final Tax Credit Certification for your production prior to the start of production so that you are aware, in advance, of ALL documentation REQUIRED to be submitted along with the application.
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Timing of Additional Required Forms:
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 a 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 demonstrate financing.
• The film production entity must provide 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 if any delay is caused by facts and circumstances beyond the control of the film production entity
• The total of authorized direct costs 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 (3) 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 shares 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 Department of Commerce
401 East Pratt Street, 14th Floor
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; 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:
NO LATER THAN 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 the required final documentation. The completion date is (1) the date on which the applicant expects to complete all in-State production on a film production activity or (2) the date on which the applicant intends to complete the in-State production of the current season of an ongoing series. This timeline may be extended by the Department at the discretion of the Department if any delay is caused by facts and circumstances beyond the control of the qualified film production entity. Costs incurred after the completion date cannot be included as direct costs. Applications for final tax credit certification that are materially incomplete will not be considered received, nor will they be reviewed, 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 and proof of payment for ALL expenses 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, if required, the independent auditor’s report for completeness, accuracy, and to confirm the total amount of authorized direct costs. Based on the final total of authorized direct costs as confirmed 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 Letter of Qualification.
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.
General Tax Credit Rules:
Direct costs must be directly incurred by the film production entity, provided by a qualified vendor, for time or use in Maryland
ONLY and PRO-RATED for time in Maryland
ONLY.
To remain eligible to receive the tax credits reserved for the production activity at the conclusion of the production activity in the State, the total of authorized direct costs 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 if any delay is caused by facts and circumstances beyond the control of the film production entity.
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 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 and services to the film production entity which are provided in the vendor’s historic ordinary course of business; and, (4) The goods and 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 and/or services are bought and/or rented directly by the production company.
• The total direct costs may not include any salary, wages or "other compensation" paid to an individual who receives more than $500,000 in total compensation 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," qualify. 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.
• 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. Costs such as insurance premiums 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 (filming in Washington, DC,
does not qualify). 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.
• 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 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.
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 (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 (MarylandFilm.org) on the project’s website.
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.
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