2005 Arizona Revised Statutes - Revised Statutes §41-1517  Motion picture production tax incentives; duties; definitions

A. From and after December 31, 2005 through December 31, 2010, the department of commerce shall qualify motion picture production companies that produce one or more motion pictures in this state for motion picture production tax incentives, subject to the following requirements and conditions:

1. A motion picture production company must incur production costs in this state of at least two hundred fifty thousand dollars in producing one or more motion pictures during each twelve month period for which it is qualified for the tax incentives.

2. For the purpose of this section, production costs are limited to and subject to the following conditions:

(a) Salaries and other compensation for talent, management and labor paid to residents of this state, as defined by section 43-104.

(b) A story and scenario to be used for a motion picture.

(c) Set construction and operations, wardrobe, props, accessories and related services in this state. Expenses paid for construction contracts are limited to contractors who are licensed under title 32, chapter 10.

(d) Photography, sound synchronization, lighting and related costs incurred in this state.

(e) Editing and related services performed in this state.

(f) Rental of facilities and equipment in this state.

(g) Catered food, drink and condiment purchased in this state.

(h) Other direct in-state costs of producing the motion picture, pursuant to rules adopted by the department of revenue that follow generally accepted accounting standards for the motion picture industry.

(i) Payments for penalties and fines do not qualify as production costs.

3. A motion picture production company or its authorized payroll service company must employ residents of this state in its production activities as follows:

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

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

4. A motion picture production company must submit a completed application pursuant to subsection B or I of this section. An application is complete on receipt of all requested information.

5. A motion picture production company must include in the credits for each motion picture, other than a commercial advertisement, an acknowledgement that the production was filmed in this state.

B. A motion picture production company initially applying for qualification under this section must report the following to the department of commerce on a form and in a manner prescribed by the department, with the cooperation of the department of revenue:

1. The name, address, telephone number and web site of the motion picture production company.

2. The name and address of an individual who will maintain records of expenditures in this state.

3. The projected first preproduction date and last production date in this state.

4. The production office address and office telephone number in this state.

5. The estimated total budget of the production.

6. The estimated total expenditures in this state.

7. The estimated total percentage of the production taking place in this state.

8. The estimated level of employment of residents of this state in the cast and crew.

9. A script, including a synopsis, the proposed director and a preliminary list of the cast and producer.

10. A signed affirmation from the applicant that:

(a) The motion picture production company agrees to furnish records of expenditures in this state to the department of revenue on request.

(b) Any items purchased with a certification issued under section 42-5009, subsection H are intended for use by the applicant directly in motion picture production.

C. The department of commerce shall review all applications within thirty days after submission pursuant to subsection B or I of this section to determine whether the motion picture production company satisfies all of the criteria provided in subsection A of this section and shall establish the process by which the department qualifies and preapproves a company for motion picture production tax incentives. This process shall preapprove a company for motion picture production tax incentives based on priority placement established by the date that such motion picture production company filed its initial application for qualification with the department.

D. If a company fails to begin production within four months after the department preapproves the company or fails to provide notice pursuant to this subsection, the preapproval lapses, the application is void and the amount of the preapproved incentives does not apply to the dollar limit prescribed by subsection E of this section for that year. The department of commerce may conduct a site visit to verify that production has begun. Within four months after the department preapproves the company's initial application, the company must submit notice to the department of commerce that production has begun and provide at least one of the following:

1. A copy of a contract, loan out agreement or deal memo with a cameraman and crew.

2. A copy of the crew call sheet for the first day of production.

3. Evidence that residents of this state have been paid a total of at least five thousand dollars for work on the preapproved motion picture.

4. A copy of a contract or agreement directly attributable to the preapproved motion picture.

E. The department shall not preapprove income tax credits exceeding a total of:

1. Thirty million dollars in 2006.

2. Forty million dollars in 2007.

3. Fifty million dollars in 2008.

4. Sixty million dollars in 2009.

5. From and after December 31, 2009, seventy million dollars in a single year.

6. Five million dollars for an individual motion picture application.

F. After October 31 of each year, if the department has preapproved the maximum calendar year tax credit amount pursuant to subsection E of this section, the department may accept initial applications for the next calendar year. The preapproval of any application pursuant to this subsection shall not be effective prior to the first business day of the following calendar year.

G. The department of commerce shall deny an application submitted pursuant to subsection B or I of this section if it determines that:

1. The motion picture production company does not meet all of the established criteria provided in subsection A of this section.

2. The production would constitute an obscene motion picture film or obscene pictorial publication under title 12, chapter 7, article 1.1.

3. The production depicts sexual activity as defined in title 13, chapter 35.

4. The production would constitute sexual exploitation of a minor or commercial sexual exploitation of a minor under title 13, chapter 35.1.

H. On a determination by the department of commerce that a motion picture production company qualifies for motion picture production tax incentives, the department shall issue the company a written letter of qualification and transmit a copy of the letter to the department of revenue. A letter of qualification is effective for twelve consecutive months as stated in the letter.

I. A motion picture production company that applies for requalification must continue to meet all of the eligibility criteria provided under subsection A of this section and must provide the department of commerce with updated information on the location, ownership and operations of the business. For purposes of efficiency and reducing duplicative or redundant reporting duties, the department may establish a streamlined process for requalification.

J. Upon completion of the motion picture production, a motion picture production company that qualifies for the motion picture tax incentives shall certify to the department the total amount of eligible production costs associated with the project incurred from and after December 31, 2005. From and after June 30, 2006, the department shall provide approval to a motion picture production company that it has met the eligibility requirements of this section and shall notify the department of revenue that a motion picture production company may claim the tax credits pursuant to sections 43-1075 and 43-1163. If the eligible production costs actually incurred are less than the amount preapproved for income tax credits, the preapproved amount not incurred lapses and does not apply to the dollar limit prescribed by subsection E of this section for that year.

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

L. Any information gathered from motion picture production companies for the purposes of this section shall be considered confidential taxpayer information and shall be disclosed only as provided in section 42-2003, subsection B, paragraph 12.

M. The department of commerce shall:

1. Keep annual records of the information provided on applications for motion picture production tax incentives. These records shall reflect a percentage comparison of the annual amount of monies exempted or credited to qualifying motion picture production companies to the estimated amount of monies spent on in-state production costs by motion picture production companies.

2. Maintain annual data on growth in Arizona-based motion picture industry companies and motion picture industry employment and wages.

3. Not later than December 1 of each year, prepare and publish a report summarizing the information collected pursuant to this subsection. The department shall make copies of the annual report available to the public on request.

N. For the purposes of this section:

1. "Motion picture" means a single medium or multimedia program, including a commercial advertising message, that:

(a) Is created by production activities conducted in whole or in part in this state.

(b) Can be viewed or reproduced.

(c) Is intended for commercial distribution or licensing in the delivery medium used.

2. "Motion picture production company" means any person primarily engaged in the business of producing motion pictures and that has a physical business office and bank account in this state.

3. "Motion picture production tax incentives" means the tax deductions for transaction privilege and use taxes listed in section 42-5009, subsection H and the credit against income taxes provided under section 43-1075 or 43-1163.