43-1163

43-1163. Credit for motion picture production
costs; definitions

A. Beginning from and after December 31, 2005 through December 31, 2010, a credit
is allowed against the taxes imposed by this title for motion picture production costs
paid by a motion picture production company in this state that are directly attributable
to the production of one or more motion pictures in this state. The amount of the credit
is equal to a percentage of the amount of motion picture production costs paid in this
state as follows:


 Production costs Percentage credit
 $250,000 - $1,000,000 20%
 More than  $1,000,000 30%

B. The department shall not allow in any year tax credits that exceed the aggregate
amount prescribed in section 41-1517.

C. The department shall not allow a credit under this section to a taxpayer that
has a delinquent tax balance owing to the department under this title or title 42.

D. To qualify for a credit under this section, the motion picture production
company must:

1. Employ residents of this state in production as follows:

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

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

2. Include in the production credits for each commercial motion picture, other than
a commercial advertisement or music video, an acknowledgement that the production was
filmed in Arizona.

3. Receive preapproval and postapproval from the department of commerce pursuant to
section 41-1517.

E. Beginning with tax credits allocated for 2006 pursuant to section 41-1517,
subsection J, a motion picture production company, at its expense, may voluntarily enter
into a limited managed audit agreement pursuant to title 42, chapter 2, article 7 that
includes an audit of its production costs and other requirements prescribed by section
41-1517 and by this section to confirm the amount of any credit under this section. The
request to enter into the audit must be made after the motion picture production company
receives postcertification for the credit pursuant to section 41-1517, subsection O. The
audit must be conducted by the taxpayer's authorized representative, as defined by
section 42-2301, who is an independent certified public accountant licensed in this
state. The certified public accountant and the firm the certified public accountant is
affiliated with shall not regularly perform services for the motion picture production
company or its affiliates. If the director accepts the findings of the audit and issues a
notice of determination pursuant to section 42-2303 and the taxpayer timely files its
income tax return with the appropriate credit claim forms, the credit amount accepted is
not subject to recapture, disallowance, reduction or denial with respect to either the
motion picture production company or any subsequent transferee of the credit, and
subsection H, paragraph 4 of this section does not apply. The director's notice of
determination shall include a written certificate to the taxpayer stating the amount of
the credit and that the credit is not subject to recapture from a transferee. This
subsection does not prohibit the recapture of a credit from a motion picture production
company if the company failed to disclose material information during the audit or
falsified its books or records or otherwise engaged in an action that prevented an
accurate audit.

F. Co-owners of a motion picture production company, including corporate partners
in a partnership and members of a limited liability company, may allocate the credit
allowed under this section among the co-owners on any basis without regard to their
proportional ownership interest. The total of the credits allowed all such owners of the
motion picture production company may not exceed the amount that would have been allowed
for a sole owner of the company.

G. If the allowable tax credit for a taxpayer exceeds the taxes otherwise due under
this title on the claimant's income, or if there are no taxes due under this title, the
taxpayer may carry the amount of the claim not used to offset the taxes under this title
forward for not more than five consecutive taxable years' income tax liability.

H. All or part of any unclaimed amount of credit under this section may be sold or
otherwise transferred under the following conditions:

1. A single sale or transfer may involve one or more transferees, and a transferee
may in turn resell or transfer the credit subject to the same conditions of this
subsection.

2. Both the transferor and transferee must submit a written notice of the transfer
to the department within thirty days after the sale or transfer. The transferee's notice
shall include a processing fee equal to one per cent of the transferee's tax credit
balance or two hundred dollars, whichever is less. The notice shall include:

(a) The name of the motion picture production company.

(b) The date of the transfer.

(d) The transferor's tax credit balance before the transfer and the remaining
balance after the transfer.

(e) All tax identification numbers for both transferor and transferee.

(f) Any other information required by rule.

3. A sale or transfer of the credit does not extend the time in which the credit
can be used.

4. Except as provided by subsection E of this section, if a transferor was not
qualified or was disqualified from using the credit at the time of the transfer, the
department shall either disallow the credit claimed by a transferee or recapture the
credit from the transferee through any authorized collection method. The transferee's
recourse is against the transferor.

5. In the case of any failure to comply with this subsection, the department shall
disallow the tax credit until the taxpayer is in full compliance.

I. The department shall maintain annual data on the total amount of monies credited
pursuant to this section, and shall provide those data to the department of commerce on
request.

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

K. A taxpayer that claims a credit for motion picture costs under this section
shall not claim a credit under section 43-1163.01 for the same costs.

L. The credit allowed by this section is in lieu of any allowance for state tax
purposes of a deduction of those expenses allowed by the internal revenue code.

M. For the purposes of this section, "commercial advertisement", "motion picture",
"motion picture production company" and "music video" have the same meanings prescribed
in section 41-1517.