Purchasing Georgia Film Credits, A primer
Purchasing Georgia film credits only requires a simple contract with the seller. The purchaser should ensure the seller’s credit calculation is evaluated by a third party and the credits are guaranteed. While there is no recapture provision for film credits, the validity of the credit being transferred can be challenged if the original credit computation is incorrect.
Purchasing Georgia film credits through an experienced and reputable broker, such as Monarch Private Capital, is highly recommended to make the process of buyer film credits as easy as possible. Once purchased, film credits may not be resold.
Film credits offset any taxpayer’s Georgia income tax liability. Any entity – partnership, LLC or S corporation – may purchase Georgia film credits, which flow to the owners of the pass-through entity based on the current year profit and loss sharing ratios.
Georgia film credits in excess of a buyer’s liability may be carried forward for five years. For example, an individual purchases $1,000 of Georgia film credits and had a $600 Georgia income tax liability for the year and had $500 Georgia withholding from their wages. The credit would offset the Georgia liability of $600, while $400 of the credit would carry forward to the subsequent tax year. The $500 of withholding would be eligible for a refund.
Selling Georgia Film Credits
While selling Georgia film credits may not appear difficult, there are unforeseen traps and much for which to be aware. We recommend engaging an experienced broker, such as Monarch Private Capital, to help facilitate the sale of film credits in an effort to avoid potential issues. A seller of credits must first apply with the Georgia Department of Economic Development for a code for the tax credits they intend to produce on the project they are working. Production expenditures on this project must be properly accounted for and appropriate records retained to support these expenditures.
Once the eligible credit has been calculated, the calculation itself should be reviewed by a third party accountant. A resulting review letter can be obtained fairly inexpensively. The credits may then be sold to one or more buyers. Georgia has relaxed its regulations, now permitting multiple sales of credits during the year in any amount.
Typically, the sale of the credits is guaranteed by the production company and/or its owners depending upon the financial strength and history of the selling production company.
Taxation of Georgia Film Credits
Proceeds from the sale of film credits are treated as ordinary income.
The buyer of a credit is deemed to make a tax deductible state tax payment equal to the face value of the credit at the time the buyer of the credit files its income tax return claiming the credit against a tax obligation. The difference between the face value of the credits actually offsetting a Georgia income tax liability and the amount paid for those credits is treated as a capital gain.
Courtesy Monarch Private Capital
Monarch Private Capital invests in projects which qualify for federal and state tax credits and passes the benefits of those credits on to taxpayers through investment programs.Founded in 2005 as State Tax Credit Exchange (STCE), Monarch Private Capital is a financial services company, providing federal and state tax credit solutions to Fortune 500 companies, high-net-worth individuals and businesses to lower their federal and/or state tax liabilities.
The Monarch Private Capital team represents the best in class within their respective fields, which include big five accounting, investment banking and underwriting, real estate development, tax incentives and economic development. Monarch Private Capital is headquartered in Atlanta, and has offices in Charlotte, St. Louis, Nashville and Sarasota. Visit MonarchPrivate.com to learn more or call 404.596.8019.