Membership in an organization can have all kinds of different benefits. I want to share a specific story highlighting the importance of membership with The Georgia Society of CPAs as it pertains to their advocacy efforts. For me, GSCPA’s advocacy efforts are a top member benefit and a big part of why I renew year after year.
In the state of Georgia, production companies receive a tax credit of up to 30 percent of reported in-state expenditures if they have qualified in-state expenditures of at least $500,000. Credits can be used to offset the production company’s income taxes, withholding taxes, or sold to other taxpayers. Obtaining the credits begins with the Georgia Department of Economic Development pre-approving and certifying the film project. After the project is complete, the production company earns the credit by filing, completing, and attaching Form IT-FC to the Georgia Department of Revenue’s tax return. Although there is no formal requirement, production companies generally get a Georgia Department of Revenue (GA DOR) audit, have agreed-upon procedures performed by a CPA firm, or both to sell the tax credits to other taxpayers. The tax credit is uncapped for film production companies and can be sold one time to other taxpayers.
In early January 2020, the Georgia Department of Audits and Accounts (DOAA) Performance Audit Division issued two critical reports focused on the Georgia film tax credits administration and impact. The review was performed because the film tax credit is Georgia’s largest tax credit. The report indicated that more than $3 billion in credits were generated from 2013-2017. In 2016, more than $667 million in film tax credits were generated, with the amount growing to more than $915 million in 2017. The audits evaluated the extent to which production companies that received the credit met statutory and regulatory eligibility requirements. They also assessed the extent to which companies were entitled to the credit amount received. The report findings indicated:
- The statute does not require audits, and current audits do not identify and disallow all ineligible expenses.
- GA DOR requires limited documentation to receive the credit, and the many production companies that fail to provide the documentation still receive the credit.
- The Georgia Department of Economic Development conducts limited verification of credit eligibility and has certified projects with questionable eligibility, depending on state law interpretation.
- The economic impact of the credit has been overstated.
- Credit caps could reduce the state’s fiscal risk from revenue losses and increasing credit amounts.
The reports made headlines, and state legislators needed to gather more information from experts on reacting to them. Don Cook, vice president, legislative affairs with The Georgia Society of CPAs, set up a meeting with three state legislators and representatives from three CPA firms with experience in the film industry. On January 23, 2020, representatives from Mauldin & Jenkins, Frazier & Deeter, and Bennett Thrasher met with key legislators, including House Ways and Means Chairman. We had open and honest discussions about the reports, the positives, and the issues we saw with the film tax credits. The legislators requested this meeting since they view CPAs in Georgia as a valuable resource to be included in these conversations to understand the issues better. Being in this room was very important because we were given the opportunity to be an unbiased resource where legislators could ask us questions in a very safe environment.
On August 4, 2020, Governor Kemp signed the HB 1037 Georgia Entertainment Industry Investment Act into law. One of our primary suggestions to the
state legislators was introducing a new requirement that requires audits for the film tax credit by eligible auditors, which is common practice in other states with large film industries. The new law enacts our suggestion of required audits, which will begin phasing in from 2021-2023, depending on the amount of the tax credits. Previously, audits were not required, and the GA DOR could have audited film tax credits after usage. There were some other changes in the act, including a narrower definition of production expenditures.
It was a great experience to collaborate with other leaders from top firms and assist in the legislative response.
Click HERE to contact Bob Heuel, CPA.
