I’ll Take One Tax Credit, Please
March 24, 2014 by Katherine Imp
If you are in any way affiliated with Chicago film production, you’ve probably heard the words ‘Illinois tax credit’ thrown around by your colleagues. And if you’re anything like me, you just nod and respond with, “Oh yeah, it’s awesome,” but in actuality you have no idea how or why this ‘tax credit’ is so important. Put your PBR down and listen up: The Illinois tax credit is the best thing to happen to the Illinois film industry in the last decade, and the only thing that stands between you and $30,000 is this column.
In December 2008, the Illinois General Assembly passed the Illinois Film Production Tax Credit Act. According to the Illinois Film Office (IFO) website, the Act “offers producers a credit of 30% on all qualified expenditures, including post-production.”
So how does that translate into $30,000? Simple. You spend at least $100K in the state of Illinois, the Illinois Film Office issues you a $30,000 ‘gift card’ (30% of $100K), and you sell that ‘gift card’ to a major corporation for 90 cents on the dollar. Boom. $27,000 right back into your pocket. Of course you can wait until your film has its own tax liability of $30,000 (so that you take advantage of the full $30,000 credit), but cough most films don’t make money cough so get rid of it.
Simple enough, but let’s face it, you can’t just order this tax credit off a restaurant menu. You have to read the fine print. In order to better understand the intricacies of this so-called ‘gift card’, I sat down with Emmy-nominated producer and director, Keaton Wooden. Keaton made use of the Illinois tax credit for his latest feature, NightLights.
Me: How and when do I apply for this Illinois tax credit? Keaton: Submit your application to the Illinois Film Office at least 5 business days before principal photography begins in Illinois.
NOTE: This requirement is for film/television applications only. Commercial applications can be submitted 24 hours prior to shooting. Proof of copyright or contract must be submitted with all applications, regardless of type.
Me: Is there a diversity requirement? Keaton: There are no percentage requirements. [The Illinois Film Office] just wants to make sure you are hiring a crew that is representative of the diversity of the city.
NOTE: You must show a ‘good-faith effort’ and provide IFO with a “Diversity Plan Tracking Sheet,” detailing the gender and ethnicity of your Illinois crew (women and racial minorities are assessed separately). The tracking sheet may include e-mail exchanges and interviews of diverse crew members that were contacted but not actually hired, so make sure you gather everyone’s information right away!
NOTE: Applicants will receive an additional 15% tax credit on salaries of individuals (making at least $1000 in total wages) that live in an economically disadvantaged area (at least 10.5% unemployment).
Me: What kind of expenditures qualify for this 30% tax credit? Keaton: The Illinois Film Office gives you a book of nuances. You have to carefully document spending, which can be difficult for indie filmmakers, but the payoff can be substantial.
Me: Once production ends, how do I get my tax credit certificate? Keaton: Give your financial records to one of the certified public accountants listed on IFO’s website. They’ll check the numbers and once you’ve got your final count, IFO will issue the tax credit certificate.
Me: Do I have to use the tax credit right away? Keaton: Nope, it can be carried forward for five years from the date of issuance.
Me: Why would a corporation buy my tax credit?
Keaton: Companies with huge tax liabilities will buy your credit because they have nothing to lose. If they’ve already got $30,000 in tax liabilities, and they buy your credit for 90 cents on the dollar, they save $3,000. It’s a win-win situation for everybody.
NOTE: The IFO website also provides a list of possible ‘tax credit buyers’ and a general description of how the transfer process works.
And there you have it. It’s no 50 Shades of Grey, but once you break it down, the whole tax credit thing is kind of interesting. And more importantly, with a little paperwork and a few phone calls to the Illinois Film Office, you could save yourself a whole lot of money.
Katherine (Kate) Imp is an entertainment attorney at Ramo Law PC and Chicago native. She specializes in film finance, production and distribution for clients in Illinois and across the country. Contact Kate at @KatherineImp or firstname.lastname@example.org.
Disclaimer: The information in this column is intended for general information purposes only and should not be construed as legal advice.