The statute known as the “Georgia Entertainment Industry Investment Act”, passed in 2005, and simplified in 2008, is the vehicle driving the current production frenzy in the state. Qualified production companies are rewarded for producing their work in Georgia through the grant of tax credits against the company’s state tax liability. There is a qualification process with the State and minimum “spend” requirements ($500,000 in-state, with no cap) for the company to be eligible for the credits; an eligible company saves up to 30% on its state taxes. For an indie production company, this can mean some serious bucks to be plowed back into production.
And bonus: the production company may sell its unused credits (at a discount usually between 10-20%) to Georgia taxpayers. Like me. So, if I owed Georgia taxes of $5,000, I should be able to buy a $5,000 tax credit at a 10-20% discount – et voilá! – I’ve just saved $500-1,000 on my state taxes. Right? Well, not so fast. While it is possible for regular folks to buy tax credits, it’s not without its challenges.
It’s all about supply and demand. The credits are available only through certain accounting firms and tax credit brokers. So, first I’ve got to hook up with an accountant or broker that has access to the credits. The credits are priced (discounted) according to a number of factors. The financial strength of the seller is the primary determinant because – as with any investment – there is risk: if the State of Georgia later seeks to recapture my tax credits (typically because the production company failed to follow the rules), I will have to pay all the tax that’s due, plus penalties, interest, etc. Of course, I will look to the production company to indemnify me – and to actually pay me – for my loss. But an indemnity agreement is only as strong as the party agreeing to indemnify.
“Pricing depends heavily upon the strength of the company providing the indemnity and the timing of the transaction,” explains Chiquita W. Banks, an accountant and attorney with Atlanta-based accounting firm Bennett Thrasher, who focuses her practice in Georgia tax credits. “Large studios can command more than an independent filmmaker largely because they have the financial assets to back any of their indemnifications.” These more desirable tax credits are difficult – if not impossible – for the small-time taxpayer (like me) to acquire because the major producers have little incentive to sell their high-dollar tax credits in small lots. Time is money and it takes longer to liquidate these credits piecemeal. These credits generally find their way to companies or individuals with significant tax liabilities.
If I’m looking to buy tax credits on April 14, to satisfy my taxes due April 15, the indie producer may be able to command a higher price from me, even if it’s not as financially sound as a major. The good news is that the State’s recapture period to come after me is only three years (compared to up to 15 years for some other types of tax credits). And thus far, there doesn’t appear to be a lot of effort to recapture. But when asked about the recaptures that have come across her radar over the past few years, Ms. Banks replied, “I am aware of at least one.”