Effective for tax years beginning on or after July 1, 2021, Public Chapter 70 (2021) authorizes a franchise and excise tax credit for qualified payroll expenses incurred by taxpayers engaging in qualified productions in Tennessee.
The credit amount is 40% of qualified payroll expenses. For qualified payroll expenses paid to individuals who reside in a tier 2, 3, or 4 enhancement county, the credit amount is 50% of such qualified payroll expenses. The credit taken on the return (including credit carryforwards) cannot exceed 50% of the combined franchise and excise tax liability. Any unused credit may be carried forward up to 15 years.
To qualify for the credit, the taxpayer must be engaged in a “qualified production” in this state and incur “qualified payroll expenses.”
A “qualified production” means:
- The production of a film, pilot episode, series, esports event, or other episodic content;
- The creation of computer-generated imagery, video games, or interactive digital media; or
- Stand-alone audio or visual post-production scoring and editing; and
- Includes activities by a third party that are necessary to and performed on behalf of a person engaging in a qualified production in this state.
“Qualified payroll expenses” means compensation paid in this state, as determined pursuant to Tenn. Code Ann. § 67-4-2111(f), for services performed by an employee or an independent contractor during the applicable tax period and that are necessary to and primarily for a qualified production in this state.
To apply for the credit, the taxpayer must first apply to the Tennessee Film, Entertainment and Music Commission (“Commission”), describing the taxpayer’s basis for the credit, including the nature of the production activities involved and number of employment positions the taxpayer estimates to be deemed qualified positions. If the Commission determines that the taxpayer is engaging in a qualified production in this state, the Commission will notify the taxpayer and the Department of Revenue of such determination. The taxpayer may then apply to the Department of Revenue for the credit. The taxpayer’s credit application will be subject to the approval of the Commissioner of Revenue and the Commissioner of Economic and Community Development.