HF 4373

as introduced - 91st Legislature (2019 - 2020) Posted on 03/11/2020 11:38am

A bill for an act
relating to taxation; providing a refundable film production tax credit; requiring
reports; appropriating money; amending Minnesota Statutes 2018, section 297I.20,
by adding a subdivision; proposing coding for new law in Minnesota Statutes,
chapters 116U; 290.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA:

Section 1.

new text begin [116U.261] FILM PRODUCTION TAX CREDIT PROGRAM.
new text end

new text begin Subdivision 1. new text end

new text begin Definitions. new text end

new text begin (a) For the purposes of this section and section 290.068, the
following definitions apply.
new text end

new text begin (b) "Affiliated person" means a person who directly or indirectly owns or controls, is
owned or controlled by or is under common ownership or control with another person
through ownership of voting securities or other ownership interests representing a majority
of the total voting power of the entity.
new text end

new text begin (c) "Background artist" means a person who is:
new text end

new text begin (1) not a performing artist but is a person of atmospheric business whose work includes
atmospheric noise, normal actions, gestures and facial expressions of that person's
assignment;
new text end

new text begin (2) of atmospheric business whose work includes special abilities that are not stunts; or
new text end

new text begin (3) a substitute for another actor, whether photographed as a double or acting as a stand-in.
new text end

new text begin (d) "Commercial audiovisual product" means a film or a video game intended for
commercial exploitation.
new text end

new text begin (e) "Commissioner" means the commissioner of the Department of Employment and
Economic Development.
new text end

new text begin (f) "Department" means the Department of Employment and Economic Development.
new text end

new text begin (g) "Direct production expenditure" means a transaction that is subject to taxation in
Minnesota and is certified by the department under this section. Direct production
expenditures include:
new text end

new text begin (1) payment of wages, fringe benefits, or fees for talent, management, or labor to a person
who is a Minnesota resident;
new text end

new text begin (2) payment for standard industry craft inventory when provided by a resident industry
crew in addition to its industry crew services;
new text end

new text begin (3) payment for wages and per diem for a performing artist who is not a Minnesota
resident and who is directly employed by the film production company, provided that the
film production company deducts and remits, or causes to be deducted and remitted, income
tax from the first day of services rendered in Minnesota at the maximum rate under section
290.92; and
new text end

new text begin (4) production costs as defined in section 116U.26.
new text end

new text begin (h) "Direct production expenditure" does not include an expenditure for:
new text end

new text begin (1) a gift with a value greater than $100;
new text end

new text begin (2) artwork or jewelry, except that a work of art or a piece of jewelry may be a direct
production expenditure if:
new text end

new text begin (i) it is used in the film production; and
new text end

new text begin (ii) the expenditure is less than $2,500;
new text end

new text begin (3) entertainment, amusement, or recreation;
new text end

new text begin (4) hidden or other indirect service fees, costs, commissions, or other remuneration
received by third parties and that are not directly paid by the film production company or
expressly enumerated on a film production company's filing to claim a new film production
tax credit;
new text end

new text begin (5) wages for a person who is not a Minnesota resident; or
new text end

new text begin (6) which the film production company receives funding pursuant to section 116U.26.
new text end

new text begin (i) "Film" means a single medium or multimedia program, excluding advertising messages
other than national or regional advertising messages intended for exhibition, that is:
new text end

new text begin (1) fixed on film, a digital medium, videotape, computer disc, laser disc, or other similar
delivery medium;
new text end

new text begin (2) able to be viewed or reproduced;
new text end

new text begin (3) not intended to and does not violate any provision in Minnesota law; and
new text end

new text begin (4) intended for reasonable commercial exploitation for the delivery medium used.
new text end

new text begin (j) "Film production company" means a person that produces one or more films or any
part of a film.
new text end

new text begin (k) "Industry crew" means a person in a position that is off-camera and who provides
technical services during the physical production of a film. Industry crew does not include
a writer, director, producer, background artist, or performing artist.
new text end

new text begin (l) "Performing artist" means a person: (1) who is an actor, on-camera stuntperson,
puppeteer, pilot who is a stuntperson or actor, or specialty foreground performer or narrator;
and (2) who speaks a line of dialogue, is identified with the product, or reacts to narration
as assigned. Performing artist does not include a background artist.
new text end

new text begin (m) "Postproduction expenditure" means an expenditure for editing, Foley recording,
automatic dialogue replacement, sound editing, special effects. Postproduction expenditure
includes computer-generated imagery or other effects, scoring and music editing, beginning
and end credits, negative cutting, soundtrack production, dubbing, subtitling, or addition of
sound or visual effects. Postproduction expenditure does not include an expenditure for
advertising, marketing, distribution, or expense payments.
new text end

new text begin (n) "Principal photography" means the production of a film during which the main visual
elements are created.
new text end

new text begin (o) "Qualified production facility" means a building, or complex of buildings, building
improvements, and associated back-lot facilities in which films are or are intended to be
regularly produced and that contain at least one:
new text end

new text begin (1) sound stage with contiguous, clear-span floor space of at least 7,000 square feet and
a ceiling height of no less than 21 feet; or
new text end

new text begin (2) standing set that includes at least one interior, and at least five exteriors, built or
repurposed for film production use on a continual basis and is located on at least 50 acres
of contiguous space designated for film production use.
new text end

new text begin Subd. 2. new text end

new text begin Certification of credit; application; limitations. new text end

new text begin (a) A film production company
may apply to the commissioner for certification of a film production tax credit to be claimed
under section 290.0683. The commissioner must prescribe the form of the application. The
application must be accompanied by an application fee of $500. Application fees are
deposited in the account in the special revenue fund created under section 116U.50.
Applications for certification must be made available on the commissioner's website by .....
of the year prior to the taxable year for which the tax credit will be claimed.
new text end

new text begin (b) The commissioner must certify the amount of a film production company's budget
for direct production expenditures and postproduction expenditures during a preproduction
meeting and must allocate any allowed credit amounts, as provided in this section, on a
credit certificate to the film production company. The commissioner must not certify a film
production company's budget if the total expected claim exceeds $210,000,000.
new text end

new text begin (c) The commissioner must not allocate more than $110,000,000 in credit certificates
for any taxable year, except as provided in paragraph (e). If a film production company
submits a claim for certification and $110,000,000 in credit certificates has already been
issued, the claims must be considered in order of date of application for certification in the
following taxable year.
new text end

new text begin (d) Claims must be placed in order of the date on which the application is filed. All
applications filed with the department on the same day must be treated as having been filed
contemporaneously. If two or more applications are filed on the same day, and the aggregate
amount of credit allocation claims exceeds the aggregate limit of credits under this section
or the lesser amount of credits that remain unallocated on that day, then the credits must be
allocated among the film production companies who filed on that day on a pro rata basis
with respect to the amounts claimed, and any excess must be allocated as provided in
paragraph (c).
new text end

new text begin (e) Any unallocated amounts for taxable years 2021 to 2023 not in excess of $20,000,000
must be added to the aggregate amount of claims that may be authorized for payment for
the following taxable year.
new text end

new text begin (f) The commissioner must post monthly on the department's website the aggregate
amount of credits certified for each taxable year.
new text end

new text begin Subd. 3. new text end

new text begin Additional requirements; eligibility. new text end

new text begin (a) A film production company that
submits an application under this section must also confirm that the film will contain an
acknowledgment to the state of Minnesota in the end screen credits that the production was
filmed in Minnesota, and a state logo provided by the department embedded in the end
screen credits of long-form narrative film productions and television episodes, unless
otherwise agreed upon in writing by the film production company and the department.
new text end

new text begin (b) To be eligible for the film and television tax credit, a film production company must
submit to the commissioner information required by the commissioner to demonstrate
conformity with the requirements of this section and section 290.0683, including detailed
information on each direct production expenditure and each postproduction expenditure. A
film production company must provide to the commissioner a projection of the film and
television tax credit claim the film production company plans to submit under section
290.0683. In addition, the film production company must agree in writing:
new text end

new text begin (1) to pay all obligations the film production company has incurred in Minnesota;
new text end

new text begin (2) to provide a notice at completion of principal photography, posted on the department's
website, that:
new text end

new text begin (i) contains production company information, including the name of the production, the
address of the production company, and contact information that includes a working
telephone number, fax number, and e-mail address for both the local production office and
the permanent production office to notify the public of the need to file creditor claims against
the film production company; and
new text end

new text begin (ii) remains posted on the website until all financial obligations incurred in the state by
the film production company have been paid;
new text end

new text begin (3) that outstanding obligations are not waived if a creditor fails to file;
new text end

new text begin (4) to delay filing of a claim for the film and television tax credit until the commissioner
delivers written notification to the commissioner of revenue that the film production company
has fulfilled all requirements for the credit; and
new text end

new text begin (5) to submit a completed application for the film and television tax credit and supporting
documentation to the commissioner within one year of the close of the film production
company's taxable year in which the expenditures in Minnesota were incurred for the
registered project and that are included in the credit claim.
new text end

new text begin Subd. 4. new text end

new text begin Credit allowed. new text end

new text begin (a) A taxpayer issued a credit certificate under this section is
allowed a tax credit as provided in section 290.0683.
new text end

new text begin (b) The credit amount equals 25 percent of the amount of:
new text end

new text begin (1) direct production expenditures made in Minnesota that:
new text end

new text begin (i) are directly attributable to the production in Minnesota of a film or commercial
audiovisual product;
new text end

new text begin (ii) are subject to taxation by the state of Minnesota;
new text end

new text begin (iii) exclude direct production expenditures for which another taxpayer claims the film
and television tax credit; and
new text end

new text begin (iv) do not exceed the usual and customary cost of the goods or services acquired when
purchased by unrelated parties. The commissioner may determine the value of the goods
or services for purposes of this section when the buyer and seller are affiliated persons or
the sale or purchase is not an arm's length transaction; and
new text end

new text begin (2) postproduction expenditures made in Minnesota that:
new text end

new text begin (i) are directly attributable to the production of a commercial film or audiovisual product;
new text end

new text begin (ii) are for postproduction services performed in Minnesota;
new text end

new text begin (iii) are subject to taxation by the state of Minnesota;
new text end

new text begin (iv) exclude postproduction expenditures for which another taxpayer claims the film
and television tax credit; and
new text end

new text begin (v) do not exceed the usual and customary cost of the goods or services acquired when
purchased by unrelated parties.
new text end

new text begin (c) The commissioner may determine the value of the goods or services for purposes of
this section when the buyer and seller are affiliated persons or the sale or purchase is not
an arm's length transaction.
new text end

new text begin (d) If a film production company receives a tax credit under the federal new markets tax
credit program for expenditures that also qualify for the credit under this section, the credit
amount is reduced to 20 percent of the amounts as described in paragraph (b).
new text end

new text begin Subd. 5. new text end

new text begin Additional credit; television pilots and series. new text end

new text begin (a) The commissioner must
allocate an additional amount in calculating the credit equal to five percent of direct
production expenditures on:
new text end

new text begin (1) a standalone pilot intended for series television in Minnesota; and
new text end

new text begin (2) series television productions intended for commercial distribution with an order for
at least six episodes in a single season, provided that the Minnesota budget for each of those
six episodes is $50,000 or more.
new text end

new text begin (b) Direct production expenditures that are payments to a nonresident performing artist
in a standalone pilot are not eligible for the additional credit under this subdivision.
new text end

new text begin (c) Payments to a nonresident performing artist for a television series may be eligible
for the additional credit pursuant to this section, provided that:
new text end

new text begin (1) a television series completes at least one season of the scheduled episodes for that
series in Minnesota;
new text end

new text begin (2) the film production company certifies the intention to produce a subsequent season
to the series described in clause (1) in Minnesota; and
new text end

new text begin (3) the film production company or its parent company produces or begins production
of an additional eligible television series in Minnesota during the same film production
company's taxable year as the television series.
new text end

new text begin (d) Payments to a nonresident performing artist for the additional television series are
also eligible for the additional credit under this subdivision.
new text end

new text begin (e) A film production company applying for an additional credit under this subdivision
is not eligible for the additional credit under subdivision 6.
new text end

new text begin Subd. 6. new text end

new text begin Additional credit; qualified production facilities. new text end

new text begin (a) The commissioner must
allocate an additional amount in calculating the credit equal to five percent of direct
production expenditures that are directly attributable and paid to a Minnesota resident who:
new text end

new text begin (1) is hired as industry crew or as a producer, writer, or director working directly with
the physical production; and
new text end

new text begin (2) has filed a Minnesota income tax return as a resident in the two previous taxable
years.
new text end

new text begin (b) Direct production expenditures allowed for the additional credit under this subdivision
must be on a production with a total new budget of:
new text end

new text begin (1) not more than $30,000,000 that shoots at least ten principal photography days in
Minnesota at a qualified production facility, provided that a film production company shall:
new text end

new text begin (i) shoot at least seven of those days at a sound stage that is a qualified production facility
and the remaining number of required days, if any, at a standing set that is a qualified
production facility; and
new text end

new text begin (ii) for each of the ten days, include industry crew working on the premises of those
facilities for a minimum of eight hours within a 24-hour period; or
new text end

new text begin (2) $30,000,000 or more that shoots at least 15 principal photography days in Minnesota
at a qualified production facility, provided that a film production company shall:
new text end

new text begin (i) shoot at least ten of those days at a sound stage that is a qualified production facility
and the remaining number of required days, if any, at a standing set that is a qualified
production facility; and
new text end

new text begin (ii) for each day of the 15 days, include industry crew working on the premises of the
facility for a minimum of eight hours within a 24-hour period.
new text end

new text begin (c) A film production company applying for an additional credit under this subdivision
is not eligible for the additional credit under subdivision 5.
new text end

new text begin Subd. 7. new text end

new text begin Restrictions on payments for performing artists; credit limitation. new text end

new text begin The
amount of the credit certificate issued under this section for the total payments of direct
production expenditures for the services of performing artists must include more than
$5,000,000 of payment for services rendered by nonresident performing artists and featured
resident principal performing artists in a production. This limitation does apply to the services
of background artists and resident performing artists who are not cast in industry standard
featured principal performer roles.
new text end

new text begin Subd. 8. new text end

new text begin Data privacy. new text end

new text begin In addition to any provisions in chapter 13, the provisions
classifying data in chapter 270B apply to data contained in an application submitted to the
commissioner under this section.
new text end

new text begin Subd. 9. new text end

new text begin Annual reports. new text end

new text begin (a) By February 1 of each year, a film production company
that was issued a credit certificate under this section for the prior taxable year must submit
a report to the commissioner with at least the following information:
new text end

new text begin (1) the total aggregate wages of the members of the Minnesota resident crew;
new text end

new text begin (2) the number of Minnesota residents employed;
new text end

new text begin (3) the total number of hours worked by Minnesota residents;
new text end

new text begin (4) the total expenditures made in Minnesota that do not qualify for the credit; and
new text end

new text begin (5) the aggregate wages paid to the members of the nonresident crew while working in
Minnesota.
new text end

new text begin (b) The commissioner of employment and economic development must prescribe the
form for the report.
new text end

new text begin Subd. 10. new text end

new text begin Report to legislature. new text end

new text begin (a) By March 15 of each year, the commissioner of
employment and economic development must report to the chairs and ranking minority
members of the legislative committees with jurisdiction over taxes and economic
development, in compliance with sections 3.195 and 3.197, on the tax credits issued under
this section.
new text end

new text begin (b) The report must include:
new text end

new text begin (1) the number and amount of the credits issued;
new text end

new text begin (2) the recipients of the credits;
new text end

new text begin (3) for each credit issued, the total amount of additional investment that did not qualify
for the tax credit; and
new text end

new text begin (4) any other information relevant to evaluating the effect of these credits.
new text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for film production companies that begin
principal photography after December 31, 2020.
new text end

Sec. 2.

new text begin [290.0683] FILM PRODUCTION CREDIT.
new text end

new text begin Subdivision 1. new text end

new text begin Definitions. new text end

new text begin For purposes of this section, the definitions in section
116U.261 apply.
new text end

new text begin Subd. 2. new text end

new text begin Credit allowed. new text end

new text begin (a) A film production company issued a credit certificate under
section 116U.261 is allowed a credit against the taxes due under this chapter equal to the
amount on the credit certificate.
new text end

new text begin (b) The commissioner must prescribe the form for a film production company to claim
a film production tax credit. The application must include a certification from the
commissioner of employment and economic development and the film production company
of the amount of direct production expenditures and postproduction expenditures made in
Minnesota with respect to the film production for which the film production company is
seeking the credit. Applications must be submitted within one year of the date of the last
direct production expenditure in Minnesota or the last postproduction expenditure in
Minnesota incurred within the film production company's taxable year, whichever is later.
If the amount of the requested tax credit exceeds $5,000,000, the application must also
include the results of an audit, conducted by a certified public accountant licensed to practice
in Minnesota, verifying that the expenditures have been made in compliance with the
requirements of this section and section 116U.261.
new text end

new text begin Subd. 3. new text end

new text begin Applicable tax year. new text end

new text begin (a) A credit claim of less than $2,000,000 for a taxable
year is allowed immediately for the current taxable year.
new text end

new text begin (b) A credit claim of $2,000,000 or more per taxable year, but less than $5,000,000 per
taxable year, must be divided into two equal amounts, with the first amount allowed
immediately for the current taxable year and the second amount allowed for the following
taxable year.
new text end

new text begin (c) A credit claim amount of $5,000,000 or more per taxable year must be divided into
three equal amounts, with the first amount allowed immediately for the current taxable year,
the second amount allowed for the following taxable year, and the third amount allowed in
the second taxable year following the current taxable year.
new text end

new text begin Subd. 4. new text end

new text begin Credit refundable. new text end

new text begin If the amount of the credit under this section exceeds the
taxpayer's tax liability under this chapter for any taxable year, the amount of the excess
must be refunded to the taxpayer.
new text end

new text begin Subd. 5. new text end

new text begin Partnerships; multiple owners. new text end

new text begin Credits granted to a partnership, limited
liability company taxed as a partnership, S corporation, or multiple owners of property are
passed through to the partners, members, shareholders, or owners, respectively, pro rata to
each partner, member, shareholder, or owner based on the partner's, member's, shareholder's,
or owner's share of the entity's assets or as specially allocated in the partner's, member's,
shareholder's, or owner's organizational documents or any other executed, as of the last day
of the taxable year.
new text end

new text begin Subd. 6. new text end

new text begin Assignment of credit. new text end

new text begin A film production company that is issued a credit
certificate may assign the certificate to another taxpayer and that taxpayer is then allowed
the credit under this section or section 297I.20, subdivision 4. An assignment is not valid
unless the assignee notifies the commissioner within 30 days of the date that the assignment
is made. The commissioner must prescribe the forms necessary for notifying the
commissioner of the assignment of a credit certificate and for claiming a credit by assignment.
new text end

new text begin Subd. 7. new text end

new text begin Audit powers. new text end

new text begin Notwithstanding the credit certificate issued under section
116U.261, the commissioner may use any audit and examination powers under chapter
270C or 289A to the extent necessary to verify that the taxpayer is eligible for the credit
and to assess for the amount of any improperly claimed credit.
new text end

new text begin Subd. 8. new text end

new text begin Appropriation. new text end

new text begin The amount necessary to pay the refunds under this section is
appropriated annually from the general fund to the commissioner.
new text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for taxable years beginning after December
31, 2020.
new text end

Sec. 3.

Minnesota Statutes 2018, section 297I.20, is amended by adding a subdivision to
read:

new text begin Subd. 4. new text end

new text begin Minnesota film production tax credit. new text end

new text begin A taxpayer assigned a credit under
section 290.0683, subdivision 6, may claim a credit against the premiums tax imposed under
this chapter equal to the amount indicated on the credit certificate statement issued under
section 290.0683. If the amount of the credit exceeds the liability for tax under this chapter,
the excess is a credit carryover to each of the ten succeeding taxable years. The entire amount
of the excess unused credit for the taxable year must be carried first to the earliest of the
taxable years to which the credit may be carried and then to each successive year to which
the credit may be carried. This credit does not affect the calculation of fire state aid under
section 477B.03 and police state aid under section 477C.03.
new text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for taxable years beginning after December
31, 2020.
new text end

Sec. 4. new text begin PURPOSE STATEMENT; TAX EXPENDITURES.
new text end

new text begin Subdivision 1. new text end

new text begin Authority. new text end

new text begin This section is intended to fulfill the requirement under
Minnesota Statutes, section 3.192, that a bill creating, renewing, or continuing a tax
expenditure must include a statement of intent that clearly provides the purpose for the tax
expenditure and a standard or goal against which its effectiveness may be measured.
new text end

new text begin Subd. 2. new text end

new text begin Minnesota film production tax credit. new text end

new text begin The provisions of sections 1 and 2
allowing a Minnesota film production tax credit are intended to:
new text end

new text begin (1) establish the film industry as a permanent component of the economic base of
Minnesota;
new text end

new text begin (2) develop a pool of trained professionals and businesses in Minnesota to supply and
support the film industry in the state;
new text end

new text begin (3) increase employment of Minnesota residents;
new text end

new text begin (4) improve the economic success of existing businesses in Minnesota; and
new text end

new text begin (5) develop the infrastructure in the state necessary for a thriving film industry.
new text end