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43-1163. Credit for motion picture production costs; definitions

A. Beginning from and after December 31, 2005 through December 31, 2010, a credit is allowed against the taxes imposed by this title for motion picture production costs paid by a motion picture production company in this state that are directly attributable to the production of one or more motion pictures in this state. The amount of the credit is equal to a percentage of the amount of motion picture production costs paid in this state as follows:

      Production costs                          Percentage credit
      $250,000 - $1,000,000                           20%
      More than  $1,000,000                           30%
 

B. The department shall not allow in any year tax credits that exceed the aggregate amount prescribed in section 41-1517.

C. The department shall not allow a credit under this section to a taxpayer that has a delinquent tax balance owing to the department under this title or title 42.

D. To qualify for a credit under this section, the motion picture production company must:

1. Employ residents of this state in production as follows:

(a) In 2006, twenty-five per cent of full-time employees working in this state must be residents of this state.

(b) In 2007, thirty-five per cent of full-time employees working in this state must be residents of this state.

(c) In 2008 and every subsequent taxable year, fifty per cent of full-time employees working in this state must be residents of this state.

2. Include in the production credits for each commercial motion picture, other than a commercial advertisement or music video, an acknowledgement that the production was filmed in Arizona.

3. Receive preapproval and postapproval from the department of commerce pursuant to section 41-1517.

E. Beginning with tax credits allocated for 2006 pursuant to section 41-1517, subsection J, a motion picture production company, at its expense, may voluntarily enter into a limited managed audit agreement pursuant to title 42, chapter 2, article 7 that includes an audit of its production costs and other requirements prescribed by section 41-1517 and by this section to confirm the amount of any credit under this section. The request to enter into the audit must be made after the motion picture production company receives postcertification for the credit pursuant to section 41-1517, subsection O. The audit must be conducted by the taxpayer's authorized representative, as defined by section 42-2301, who is an independent certified public accountant licensed in this state. The certified public accountant and the firm the certified public accountant is affiliated with shall not regularly perform services for the motion picture production company or its affiliates. If the director accepts the findings of the audit and issues a notice of determination pursuant to section 42-2303 and the taxpayer timely files its income tax return with the appropriate credit claim forms, the credit amount accepted is not subject to recapture, disallowance, reduction or denial with respect to either the motion picture production company or any subsequent transferee of the credit, and subsection H, paragraph 4 of this section does not apply. The director's notice of determination shall include a written certificate to the taxpayer stating the amount of the credit and that the credit is not subject to recapture from a transferee. This subsection does not prohibit the recapture of a credit from a motion picture production company if the company failed to disclose material information during the audit or falsified its books or records or otherwise engaged in an action that prevented an accurate audit.

F. Co-owners of a motion picture production company, including corporate partners in a partnership and members of a limited liability company, may allocate the credit allowed under this section among the co-owners on any basis without regard to their proportional ownership interest. The total of the credits allowed all such owners of the motion picture production company may not exceed the amount that would have been allowed for a sole owner of the company.

G. If the allowable tax credit for a taxpayer exceeds the taxes otherwise due under this title on the claimant's income, or if there are no taxes due under this title, the taxpayer may carry the amount of the claim not used to offset the taxes under this title forward for not more than five consecutive taxable years' income tax liability.

H. All or part of any unclaimed amount of credit under this section may be sold or otherwise transferred under the following conditions:

1. A single sale or transfer may involve one or more transferees, and a transferee may in turn resell or transfer the credit subject to the same conditions of this subsection.

2. Both the transferor and transferee must submit a written notice of the transfer to the department within thirty days after the sale or transfer. The transferee's notice shall include a processing fee equal to one per cent of the transferee's tax credit balance or two hundred dollars, whichever is less. The notice shall include:

(a) The name of the motion picture production company.

(b) The date of the transfer.

(c) The amount of the transfer.

(d) The transferor's tax credit balance before the transfer and the remaining balance after the transfer.

(e) All tax identification numbers for both transferor and transferee.

(f) Any other information required by rule.

3. A sale or transfer of the credit does not extend the time in which the credit can be used.

4. Except as provided by subsection E of this section, if a transferor was not qualified or was disqualified from using the credit at the time of the transfer, the department shall either disallow the credit claimed by a transferee or recapture the credit from the transferee through any authorized collection method. The transferee's recourse is against the transferor.

5. In the case of any failure to comply with this subsection, the department shall disallow the tax credit until the taxpayer is in full compliance.

I. The department shall maintain annual data on the total amount of monies credited pursuant to this section, and shall provide those data to the department of commerce on request.

J. The department, with the cooperation of the department of commerce, shall adopt rules and publish and prescribe forms and procedures as necessary to effectuate the purposes of this section.

K. A taxpayer that claims a credit for motion picture costs under this section shall not claim a credit under section 43-1163.01 for the same costs.

L. The credit allowed by this section is in lieu of any allowance for state tax purposes of a deduction of those expenses allowed by the internal revenue code.

M. For the purposes of this section, "commercial advertisement", "motion picture", "motion picture production company" and "music video" have the same meanings prescribed in section 41-1517.