No. 42232 (Amendment): Rule R357-5. Motion Picture Incentive

(Amendment)

DAR File No.: 42232
Filed: 10/16/2017 06:20:23 PM

RULE ANALYSIS

Purpose of the rule or reason for the change:

The purpose for the change is to clarify the procedures required for program compliance when hiring a CPA to conduct the required audits for the program.

Summary of the rule or change:

This change clarifies frequent questions that have been asked by participants of the program. More specifically, it outlines a definition for what counts as "dollars left in the state" and provides a more detailed explanation for what is required of a CPA when hired by a production company to perform the statutorily required CPA audit of the dollars left in the state.

Statutory or constitutional authorization for this rule:

• Subsection 63N-8-104(1)

Anticipated cost or savings to:

the state budget:

There is no impact to the state budget because the program is already limited to an annual fiscal year allocation of tax credits and cash rebates it can issue. This rule change does not apply to any state agencies because they are not allowed to participate in the program.

local governments:

There is no impact to local governments because they are not allowed to participate in the program.

small businesses:

This rule change only clarifies already existing requirements and practices within the program and therefore should not create any new or additional costs to the small businesses that are approved to participate in the program. This amendment simply clarifies what is required of a participant if they are approved to receive a tax credit or cash rebate under the requirements laid out in statute.

persons other than small businesses, businesses, or local governmental entities:

As with small businesses, this rule change only clarifies already existing requirements and practices within the program and therefore should not create any new or additional costs to the larger businesses that are approved to participate in the program. This amendment simply clarifies what is required of a participant if they are approved to receive a tax credit or cash rebate under the requirements laid out in statute.

Compliance costs for affected persons:

There is no new compliance costs for any affected persons because the rule only clarifies already existing requirements provided for in statute for the program.

Comments by the department head on the fiscal impact the rule may have on businesses:

There should be no anticipated costs to businesses generally because a business must be approved for a tax credit to even participate in the program. Furthermore, those that are approved are already required to live by these requirements. This amendment is simply clarifying those requirements.

Val Hale, Executive Director

The full text of this rule may be inspected, during regular business hours, at the Office of Administrative Rules, or at:

Governor
Economic Development
60 E SOUTH TEMPLE 3RD FLR
SALT LAKE CITY, UT 84111

Direct questions regarding this rule to:

• Jeffrey Van Hulten at the above address, by phone at 801-538-8694, by FAX at 801-538-8888, or by Internet E-mail at [e-mail]

Interested persons may present their views on this rule by submitting written comments to the address above no later than 5:00 p.m. on:

12/01/2017

This rule may become effective on:

12/08/2017

Authorized by:

Val Hale, Executive Director

RULE TEXT

R357. Governor, Economic Development.

R357-5. Motion Picture Incentive.

R357-5-1. Authority.

(1) Subsection 63N-8-104(1) requires the office to make rules establishing the standards that a motion picture company, and digital media company must meet to qualify for a motion picture incentive and the criteria for determining the amount of the motion picture incentive.

 

R357-5-2. Definitions.

(1) The definitions below are in addition to or serve to clarify the definitions found in Utah Code Section 63N-8-102.

(2) ["Low Budget Film Production"]"Community Film Incentive Program" means a production where a motion picture company has a maximum budget of under $500,000.

(3) "Dollars Left in the State" means in addition to 63N-8 does NOT include:

(a) Salary for any individual earning more than 500,000

(b) Marketing and distributions expenditures

(c) 50% of shipping or airfare charges with one destination point within Utah and all shipping or airfare outside of Utah

(d) any value beyond the depreciated amount for capital expenditures, rentals, and any purchases made where the item is used for only a portion of its useful life

(e) any per diem value beyond 120 percent of the current federal rate for the area

(4) "Independent Utah CPA" means, a Certified Public Accountant (CPA) holding an active license in the state of Utah that is independent of the production and production activities.

([3]5) "Motion Pictures" means, but is not limited to, narrative or documentary films or high definition digital production, and originally intended for commercial distribution to motion picture theaters, directly to the home video and/or DVD markets, cable television, broadcast television or video on demand.

(a) The term "Motion Picture" does not include:

(i) News;

(ii) Commercials;

(iii) Live Broadcasts;

(iv) Digital Media Products;

(v) Discrete Sporting events;

(vi) Live Coverage of other theatrical or entertainment events; or

(vii) Programs that solicit funds.

([4]6) "Rural Utah" means all counties [of the 4th, 5th, and 6th class, and municipalities in a county of the 3rd class that has a population under 20,000 and a median household income under $70,000 as reflected in the most recently available data collected and reported by the United States Census Bureau.]outside of Davis County, Salt Lake County, Utah County, and Weber County.

([5]7) "Significant Percentage of cast and crew from Utah" means

(a) For productions that have less than $500,000 dollars left in state: that at least 85% of the cast and crew are Utah residents.

(b) For productions that have more than $500,000 dollars left in state: that at least 75% of the cast and crew are Utah residents excluding extras and five principal cast.

(c) "Utah Resident" means that the individual files a Utah Resident tax return.

([6]8) "State-approved production" means a production that is:

(a) approved by the office and ratified by the Governor's Office of Economic Development Board; and

(b) all or a portion of the production is produced in the state.

([7]9) "Total budget for the product" means the total budget for Dollars left in state of pre-production, production and post-production.

([8]10) "Treatment" means: A written description of the production.

([9]11) "UFC" means: the Utah Film Commission, a sub-entity of the Utah Governor's Office of Economic Development.

([10]12) "Utah Resident" means a person who files a Utah State Tax Return as a resident of Utah.

 

R357-5-3. Motion Picture Incentive Applications: Procedures and Minimum Requirements for a Motion Picture Company.

(1) A motion picture company's application may be approved [may qualify ]for a motion picture incentive only if all of the following requirements are met in addition to those listed throughout 63N-8:

(a) The motion picture company is making all or a portion of a motion picture in the state of Utah;

(b) The motion picture is a state approved production;

(c) The motion picture company guarantees UFC access to production's behind the scenes footage, interviews and still photography or allow the office to produce its own;

(d) The motion picture company guarantees the production will display the Utah logo as outlined in the incentive agreement and provide a screen shot of the logo as it appears in the credits.

(e) The motion picture company has obtained financing for at least 75% of the anticipated Dollars left in state for the project, and the applicant provides proof of financing in a form specified in the application documents.

(f) The motion picture company must retain financing as set forth in subsection (e) for the life of the contract with the State.

(g) The motion picture company intends to report at least $500,000 dollars left in state if applying for a film incentive pursuant to R357-5-5(1) or a maximum of under $500,000 if applying for an incentive pursuant to R357-5-5(2);

(h) As of the date that the Office receives a completed motion picture incentive application, the motion picture production company has not started principle photography of the production in the state.

(i) If a production has initiated principal photography prior to the Office's receipt of a completed application, the application for incentive shall be denied.

[(ii) An application for incentive may be submitted if the motion picture production company has initiated pre-production activities in the State of Utah, as long as principal photography has not been initiated.

](2) The motion picture incentive application shall not be construed as a property right and neither the Office nor the Board is required to approve an application.

(3) In order to receive state approval for an incentive application, a production must, in the State's sole discretion, reflect positively on the image of state of Utah.

(a) In determining whether or not a production reflects positively on the image of the state of Utah, the Office and Board may take into consideration:

(i) Whether and to what extent the motion picture promotes Utah as a tourist destination;

(ii) the overall strength and viability of the script of the production;

(iii) the industry reputation of the production or motion picture company;

(iv) the record of the motion picture company in matters of safety and responsible filmmaking; and

(v) the existence of any legal action or the likelihood of any legal action in relation to either the production or the motion picture company;

(vi) general standards of decency and respect for the diverse beliefs and values of Utahns; and

(vii) any other factors related to the production or the motion picture company that may reasonably affect the image of the state of Utah.

(4) The Office and Board may consider the relative merit of applications, and the need to reserve its allocations for future applications.

(a) Factors that contribute to the relative merit will be weighted by a point system available on the Utah Film Commission's website and include, but are not limited to:

(i) Number of anticipated jobs in Utah;

(ii) Number of production days in Utah;

(iii) Length of employment for Utah cast and crew;

(iv) Local cast and crew wages;

(v) Other economic development that the film contributes in the State of Utah;

(b) Applications shall be made in the form prescribed by the Office, including required attachments or additional information.

(i) Incomplete applications will not be considered received until the application is deemed complete by the UFC.

(ii) A script is required as part of the application.

(1) A treatment may only be submitted where a script for a project type is not possible for example, because the project is a documentary or reality based television show. The Utah Film Commission will determine in its sole discretion if a treatment can be substituted for a script.

(5) A production company may file more than one application if it has more than one production in the state, but a separate application must be filed for each production.

(6) Applications will be subject to submission deadlines, which will be posted on the Utah Film Commission Website and are available in other formats upon request.

(a) If the applicant fails to submit a completed application prior to the submission deadline, the application may be considered with the next round of submissions.

(7) Submitting an application does not guarantee approval of a film incentive.

(a) All film incentives are subject to and contingent upon the amount of available funding and/or tax credit allocation available in the Motion Picture Restricted account;

(b) Lack of state approval shall not be construed as prohibiting a production or prohibiting a motion picture company from filming in Utah.

 

R357-5-4. Motion Picture Incentive Applications: Award for a Motion Picture Production.

(1) Upon receipt of a completed application, the Office will align each project into incentive categories as set forth in R357-5-5.

 

R357-5-5. Film Categories and Conditions.

(1) Utah Motion Picture Incentive Program

(a) The Utah motion Picture Incentive program will have an incentive cap of 20% the dollars left in state, unless a higher cap is awarded pursuant to subsection (c).

(b) Incentives will only be awarded if the motion picture company meets criteria listed in statute, R357-5-3

(c) An additional cap of up to 5% may be granted if the motion picture company:

(i) Motion picture company has at least $1,000,000 in qualified dollars left in state, and

(ii) 75% of cast and crew are Utah residents excluding extras and five principal cast members, or

(iii) 75% of Dollars left in state occurs in rural Utah

(2) [Low Budget Film Production Incentive]"Community Film Incentive Program"

(a) The [Low Budget Film Production Incentives Program]"Community Film Incentive Program" will provide a maximum of a 20% post performance cash rebate or tax incentive for dollars left in state by a low budget production.

(b) [Low Budget Film Production Incentive Program]"Community Film Incentive Program" incentives will only be awarded if the motion picture company meets criteria listed in statute, R357-5-3, has a maximum budget of under $500,000, and meets following criteria:

(i) Minimum wage of 60% of area standard rates for each cast and crew member; and

(ii) 85% of cast and crew must be Utah residents;

(c) Applications for the [Low Budget Film Production Incentive Program]"Community Film Incentive Program" will be reviewed quarterly beginning in August of each calendar year.

(d) Awards will be made to motion picture companies based upon the scoring system outlined in the [Low Budget Film Production Incentive Program]"Community Film Incentive Program" application provided by UFC.

(3) For applications made under either (1) or (2), the motion picture company must provide all information and documentation to show measureable outcomes as outlined in the application for any incentive listed in R357-5-5.

 

R357-5-6. Funding -- Post-Performance Compliance.

(1) A motion picture company may qualify for issuance of either a Post-Performance Refundable Tax Credit or Post-Performance Cash award based on the method outlined in their contract if all of the following requirements are met in addition to those listed throughout 63N-8:

(a) The motion picture company must follow the Agreed-Upon Procedures, which will be posted on the Utah Film Commission Website.

(i) If the motion picture company has residency requirements, the motion picture company will be responsible for providing sufficient documentation to the CPA for residency verification, this includes:

(A) A copy of a Utah driver's license; or

(B) A copy of government issued identification (from any state or foreign government or student ID/Report card), and (2) documentation showing residency, covering at least 183 days, matching the name, or parent or guardian, on the submitted government ID.

(b) The motion picture company must submit a completed final application to the Governor's Office of Economic Development's Compliance team, in the form prescribed by the Office, including required attachments or additional information.

(2) A CPA when conducting a review of a motion picture company's expenses and contract requirements, the CPA must follow the Agreed-Upon Procedures, which will be posted on the Utah Film Commission Website.

(3) The CPA must retain work papers related to performing these Agreed-Upon Procedures for at least two years. The Governor's Office of Economic Development, at its own discretion, shall have the right to review the CPA's work to ensure consistency amoung the various CPAs, to find areas for improvement to the Agreed-Upon Procedures, and as an internal control.

 

R357-5-8. Funding -- Post-Performance Refundable Tax Credit.

(1) Post-performance refundable tax credits are nontransferable and can only be issued to the state-approved motion picture that submits the motion picture incentive application and is approved by the office with advice from the Board.

 

R357-5-9. Funding -- Post-Performance Cash.

(1) The office may only issue funds appropriated by the state legislature to the Motion Picture Incentive Account to a motion picture company

(2) Post-performance cash can only be issued to the state-approved motion picture company who submits the motion picture incentive application and is approved by the office with advice from the Board.

 

R357-5-10. Request for Incentive Amendment.

(1) A motion picture company may request an incentive amendment only under the conditions listed in the incentive application.

(2) Amendments will be reviewed and approved by the UFC on a case by case basis with a written explanation for the approval or denial provided to the applicant.

 

KEY: economic development, motion picture, digital media, new state revenue

Date of Enactment or Last Substantive Amendment: [July 22, 2016]2017

Notice of Continuation: June 9, 2016

Authorizing, and Implemented or Interpreted Law: 63N-8-104

---