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Regular Session, 2013
SENATE BILL NO. 165
BY SENATOR MARTINY
TAX/TAXATION. Requires a qualified cost report prior to issuance of a motion picture
investor tax credit. (8/1/13)
AN ACT1
To amend and reenact R.S. 47:6007(B)(9), (10), (11), (12), (13), (14), (C)(4)(b), (D)(2)(c)2
and (d) and to enact R.S. 47:6007(B)(15) and (16), (D)(9), and 6007.1, relative to the3
motion picture investor tax credit; to provide for definitions; to provide for4
production audit reports and requirements; to provide for submission of a production5
audit report prior to being certified as a state-certified production for application for6
the credit; to provide for a production audit report; to provide relative to notification7
of transfer or sale of tax credits; and to provide for related matters.8
Be it enacted by the Legislature of Louisiana:9
Section 1. R.S. 47:6007(B)(9), (10), (11), (12), (13), (14), (C)(4)(b), (D)(2)(c) and10
(d) are hereby amended and reenacted and R.S. 47:6007(B)(15) and (16), (D)(9), and 6007.111
are hereby enacted to read as follows:12
§6007. Motion picture investor tax credit13
* * *14
B. Definitions. For the purposes of this Section:15
* * *16
(9) "Production audit report" means an audit report issued by a17 SB NO. 165
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qualified accountant who is unrelated to the motion picture production1
company and that is a report of the qualified accountant’s audit of the motion2
picture production’s cost report of production expenditures. The production3
audit report shall contain an opinion from the qualified accountant stating that4
the production’s cost report of production expenditures presents fairly, in all5
material aspects, the production expenditures expended in Louisiana pursuant6
to the provisions of this Section. The production audit shall be performed7
pursuant to the qualified sampling and verification procedures provided in R.S.8
47:6007.1 and shall require:9
(a) The production audit report to be performed in accordance with the10
auditing standards generally accepted in the United States of America.11
(b) The production audit report to be addressed to the party which has12
engaged the qualified accountant.13
(c) The production audit report to contain the qualified accountant's14
name, address, and telephone number.15
(d) The production audit report to contain a certification that the16
qualified accountant is unrelated to the motion picture production company.17
(e) The production audit report to be dated as of the date of completion18
of the qualified accountant's field work.19
(f) The production audit report to contain a statement of20
acknowledgment by the qualified accountant that the state is relying on the21
qualified cost report in the issuance of the tax credits under the provisions of22
this Section.23
(10) "Production expenditures" means preproduction, production, and24
postproduction expenditures in this state directly relating to a state-certified25
production, including without limitation the following: set construction and26
operation; wardrobes, makeup, accessories, and related services; costs associated27
with photography and sound synchronization, lighting, and related services and28
materials; editing and related services; rental of facilities and equipment; leasing of29 SB NO. 165
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vehicles; costs of food and lodging; digital or tape editing, film processing, transfer1
of film to tape or digital format, sound mixing, special and visual effects; and2
payroll. This term shall not include expenditures for marketing and distribution, non-3
production related overhead, amounts reimbursed by the state or any other4
governmental entity, costs related to the transfer of tax credits, amounts that are paid5
to persons or entities as a result of their participation in profits from the exploitation6
of the production, the application fee, or state or local taxes.7
(11) "Qualified accountant" means an independent certified public8
accountant authorized to practice in this state who has sufficient knowledge of9
accounting principles and practices generally recognized in the film and10
television industry.11
(10) (12) "Resident" or "resident of Louisiana" means a natural person12
domiciled in the state. A person who maintains a permanent place of abode within13
the state and spends in the aggregate more than six months of each year within the14
state shall be presumed to be domiciled in the state.15
(11) (13) "Secretary" means the secretary of the Department of Economic16
Development.17
(12) (14) "Source within the state" means a physical facility in Louisiana,18
operating with posted business hours and employing at least one full-time equivalent19
employee.20
(13) (15) "State" means the state of Louisiana.21
(14) (16) "State-certified production" shall mean a production approved by22
the office and the secretary which is produced by a motion picture production23
company domiciled and headquartered in Louisiana and which has a viable multi-24
market commercial distribution plan.25
* * *26
C. Investor tax credit; specific productions and projects.27
* * *28
(4) Transferability of the credit. Any motion picture tax credits not29 SB NO. 165
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previously claimed by any taxpayer against its income tax may be transferred or sold1
to another Louisiana taxpayer or to the office, subject to the following conditions:2
* * *3
(b) Transferors and transferees shall submit to the office, and to the4
Department of Revenue in writing, a notification of any transfer or sale of tax credits5
within thirty seven days after the transfer or sale of such tax credits. The notification6
shall include the transferor's tax credit balance prior to transfer, a copy of any tax7
credit certification letter(s) issued by the office and the secretary of the Department8
of Economic Development and, the transferor's remaining tax credit balance after9
transfer, all tax identification numbers for both transferor and transferee, the date of10
transfer, the amount transferred, a copy of the credit certificate, price paid by the11
transferee to the transferor, in the case when the transferor is a state-certified12
production, for the tax credits, and any other information required by the office or13
the Department of Revenue. For the purpose of reporting transfer prices, the term14
"transfer" shall include allocations pursuant to Paragraph (2) of this Subsection as15
provided by rule. The office may post on its website an average tax credit transfer16
value, as determined by the office and the secretary of the Department of Economic17
Development to reflect adequately the current average tax credit transfer value. The18
tax credit transfer value means the percentage as determined by the price paid by the19
transferee to the transferor divided by the dollar value of the tax credits that were20
transferred in return. The notification submitted to the office shall include a21
processing fee of up to two hundred dollars per transferee, and any pricing22
information submitted by a transferor or transferee shall be treated by the office and23
the Department of Revenue as proprietary to the entity reporting such information24
and therefore confidential. However, this shall not prevent the publication of25
summary data that includes no fewer than three transactions.26
* * *27
D. Certification and administration.28
* * *29 SB NO. 165
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(2)(a) * * *1
(c) The office and the secretary shall submit their initial certification of a2
project as a state-certified production to investors and to the secretary of the3
Department of Revenue indicating the total base investment which shall be expended4
in the state on the state-certified production within sixty days of their receipt of all5
required information. The initial certification shall include a unique identifying6
number for each state-certified production.7
(d)(i) Prior to any final certification of the state-certified production, the8
motion picture production company shall submit to the office and the secretary an9
audit of the production expenditures certified by an independent certified public10
accountant as determined by rule a production audit report. The office and the11
secretary shall review the audit, the production expense details, the production12
audit report and may require additional information needed to make a13
determination. Upon approval of the audit Within one hundred twenty days of the14
receipt of the production audit report, the office and the secretary shall issue a15
final tax credit certification letter indicating the amount of tax credits certified for16
the state-certified production to the investors for all amounts that are uncontested.17
If there remains a contested amount, the office and secretary shall diligently18
work to resolve the outstanding issues in a timely manner, and the office and19
secretary may subsequently issue a supplemental tax credit certification at the20
time of such resolution, if so warranted.21
(ii) The department may request an additional production audit report22
of the expenditures submitted by the motion picture production company with23
the cost of the additional report paid by the motion picture production24
company. The motion picture production company may submit an amended25
production audit report if additional expenditures are incurred or discovered26
after the approval of the initial production audit reports issued pursuant to27
Item (i) of this Subparagraph, and the office and secretary may issue a28
supplemental tax credit certification if so warranted. The rules required by this29 SB NO. 165
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Subparagraph shall, at a minimum, require that:1
(i) The auditor shall be a certified public accountant licensed in the state of2
Louisiana and shall be an independent third party, not related to the producer.3
(ii) The auditor's opinion shall be addressed to the party which has engaged4
the auditor (e.g., directors of the production company, producer of the production).5
(iii) The auditor's name, address, and telephone number shall be evident on6
the report.7
(iv) The auditor's opinion shall be dated as of the completion of the audit8
fieldwork.9
(v) The audit shall be performed in accordance with auditing standards10
generally accepted in the United States of America and the auditor shall have11
sufficient knowledge of accounting principles and practices generally recognized in12
the film and television industry.13
* * *14
(9) It is recognized that, while legitimate related party transactions often15
occur as production expenditures, some related party transactions may be16
conducted in such a manner as to abuse the purpose and intent of the program.17
Not later than January 1, 2014, the secretary of the Department of Economic18
Development and the office shall promulgate rules, in accordance with the19
Administrative Procedure Act, for the allowance of tax credits for production20
expenditures made in related party transactions.21
§6007.1. Motion picture investor tax credit; qualified sampling and verification22
procedures23
A. A qualified accountant, as defined in R.S. 47:6007, shall perform the24
following minimum sampling procedures when producing a production audit25
report required under the provisions of R.S. 47:6007:26
(1) Obtain the cost report of all production expenditures for the27
production of the motion picture production company and verify the28
mathematical accuracy of the report.29 SB NO. 165
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(2) Obtain the bank statements from the motion picture production1
company relevant to the applicable production for the period covered by the2
cost report of production expenditures.3
(3) Obtain the detailed payroll registers applicable to the production.4
This report should indicate the name, address, taxpayer identification number,5
permanent address, amount of compensation, and employee's state of residence.6
(4) Foot the payroll registers mentioned in Paragraph (3) of this7
Subsection for mathematical accuracy and agree the total to the cost report of8
production expenditures mentioned in Paragraph (1) of this Subsection.9
(5) Obtain the detailed listing of non-payroll expenditures for10
production of the motion picture production company. This report should11
indicate the payee, the date of payment, the date that the payment cleared the12
bank, and amount of the payment.13
(6) Foot the detailed listing of non-payroll expenditures mentioned in14
Paragraph (5) of this Subsection for mathematical accuracy and agree the total15
to the cost report of production expenditures mentioned in Paragraph (1) of this16
Subsection.17
B. A qualified accountant shall perform the following minimum18
verification procedures when producing a production audit report under the19
provisions of R.S. 47:6007:20
(1) From the detailed payroll registers referenced in Paragraph (A)(3)21
of this Section, segregate the gross payroll for all Louisiana residents and agree22
the total to the Louisiana payroll and salaries indicated on either the cost report23
of production expenditures or the footnotes to the cost report of production24
expenditures.25
(2) From the payroll registers for Louisiana residents contained in26
Paragraph (1) of this Subsection, select all disbursements to those individuals27
whose gross salaries during the period in question exceeded five percent of the28
total disbursements indicated on the cost report of production expenditures for29 SB NO. 165
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the production for further testing.1
(3) Excluding those individuals already selected for further testing in2
Paragraph (2) of this Subsection, select an additional sample consisting of the3
lesser of one-hundred twenty individual payroll disbursements or fifty percent4
of the payroll disbursements not already selected in Paragraph (2) of this5
Subsection from the payroll registers for Louisiana residents for further testing.6
(4) For each employee selected for testing in Paragraphs (2) and (3) of7
this Subsection, perform the following analysis, detailing any exceptions noted:8
(a) If the employee is a salaried employee, verify that the gross salary for9
the selected disbursement is supported by and agrees to an employment10
contract or other form of approved pay documentation.11
(b) If the employee is an hourly employee, verify that the hourly wage12
rate for the selected transaction is supported by and agrees to the approved pay13
rate documentation in the employee's personnel file.14
(c) If the employee is an hourly employee, verify that the hours paid for15
the selected transaction is supported by approved timesheets.16
(d) Verify that the disbursement of such funds is a qualifying17
expenditure given the operations of the motion picture production company.18
(e) Verify that the payroll expenditures were actually made by the19
motion picture production company as evidenced by deductions in the bank20
account statements maintained by the motion picture production company and21
that the disbursement cleared the bank during the period in question.22
(f) Review employee's personnel file, verifying that the individual is a23
natural person domiciled in or who maintains a permanent place of abode24
within this state and spends in the aggregate more than six months of each year25
within this state.26
(5) From the detailed payroll registers referenced in Paragraph (A)(3)27
of this Section, segregate the gross payroll for all non-Louisiana residents and28
agree the total to the non-Louisiana payroll indicated on either the cost report29 SB NO. 165
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of production expenditures or the footnotes to the cost report of production1
expenditures.2
(6) From the payroll registers for non-Louisiana residents, select all3
disbursements to those individuals whose gross salaries during the period in4
question exceeded five percent of the total disbursements indicated on the cost5
report of production expenditures for the period in question for further testing.6
(7) Excluding those individuals already selected for further testing in7
Paragraph (6) of this Subsection, select an additional sample consisting of the8
lesser of one-hundred twenty individual payroll disbursements or fifty percent9
of the payroll disbursements not already selected in Paragraph (6) of this10
Subsection from the payroll registers for non-Louisiana residents, for further11
testing.12
(8) For each employee selected for testing in Paragraphs (6) and (7) of13
this Subsection, perform the following procedures, detailing any exceptions14
noted:15
(a) If the employee is a salaried employee, verify that the gross salary for16
the selected disbursement is supported by and agrees to an employment17
contract or other form of approved pay documentation.18
(b) If the employee is an hourly employee, verify that the hourly wage19
rate for the selected transaction is supported by and agrees to the approved pay20
rate documentation in the employee's personnel file.21
(c) If the employee is an hourly employee, verify that hours paid for the22
selected transaction is supported by approved timesheets.23
(d) Verify that the disbursement of such funds is a qualifying24
expenditure given the operations of the motion picture production company.25
(e) Verify that the payroll expenditures were actually made by the26
motion picture production company as evidenced by deductions in the bank27
account statements maintained by the motion picture production company and28
that the disbursement cleared the bank during the period in question.29 SB NO. 165
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(9) From the detailed listing of non-payroll expenditures referenced in1
Paragraph (A)(5) of this Section, select all disbursements for a particular2
contract of purchase that exceeded five percent of the total disbursements3
indicated on the cost report of production expenditures for the period in4
question for further testing.5
(10) Excluding those expenditures already selected for further testing6
in Paragraph (9) of this Subsection, select an additional sample consisting of the7
lesser of one-hundred twenty individual disbursements or fifty percent of the8
non-payroll disbursements not already selected in Paragraph (9) of this9
Subsection from the detailed listing of non-payroll expenditures for further10
testing.11
(11) For each disbursement selected for testing in Paragraphs (9) and12
(10) of this Subsection, perform the following procedures, detailing any13
exceptions noted:14
(a) Verify that the transaction is supported by an original invoice or15
receipt and that the amounts are in agreement.16
(b) Verify that the expense category to which the disbursement was17
coded appears reasonable based on the invoice documentation.18
(c) Verify that the disbursement of such funds is a qualifying19
expenditure given the operations of the motion picture production company.20
(d) Verify that the expenditures were actually made by the motion21
picture production company as evidenced by deductions in the bank account22
statements maintained by the motion picture production company and that the23
disbursement cleared the bank during the period in question.24
C. Before submission of the production audit report, the qualified25
accountant shall ensure that these steps have been taken:26
(1) Redact all but the last four digits of any employee's social security27
number.28
(2) Separate expenditures by calendar year, as well as the aggregate29 SB NO. 165
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project totals.1
(3) Submit detailed list of all expenditures as a spreadsheet.2
D. The sampling or verification procedures contained in this Section are3
minimum sampling and verification procedures that an auditor shall perform.4
These minimum standards shall not relieve an auditor of any professional5
obligations associated with the issuance of the audit opinion according to6
auditing standards generally accepted in the United States as required by R.S.7
42:6007. Notwithstanding any provision of law to the contrary, if an auditor8
believes that additional sampling and verification of any transaction is9
necessary to enable the auditor to render an audit opinion, such additional10
sampling and verification shall be authorized. The Department of Economic11
Development and the office may require additional sampling and verification12
procedures. The Department of Economic Development may promulgate rules,13
in accordance with the Administrative Procedure Act, to implement the14
provisions of this Subsection.15
The original instrument was prepared by Thomas L. Tyler. The following
digest, which does not constitute a part of the legislative instrument, was
prepared by Nancy Vicknair.
DIGEST
Martiny (SB 165)
Present law provides for motion picture investor tax credits for certain state-certified
productions by a motion picture production company.
Proposed law defines a " production audit report" as an audit report issued by a qualified
accountant who is unrelated to the motion picture production company and that is a report
of the qualified accountant’s audit of the motion picture production’s cost report of
production expenditures. The production audit report shall contain an opinion from the
qualified accountant stating that the production’s cost report of production expenditures
presents fairly, the production expenditures expended in Louisiana. The production audit
shall require:
(1)The production audit report be performed in accordance with the auditing standards
generally accepted in the United States of America.
(2)The production audit report is addressed to the party which has engaged the qualified
accountant.
(3)The production audit report contains the qualified accountant's name, address, and
telephone number. SB NO. 165
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(4)The production audit report to contain a certification that the qualified accountant is
unrelated to the motion picture production company.
(5)The production audit report be dated as of the date of completion of the qualified
accountant's field work.
(6)The production audit report contains a statement of acknowledgment by the qualified
accountant that the state is relying on the qualified cost report in the issuance of the
tax credits.
With respect to the transferability of motion picture tax credits, present law authorizes any
credits not previously claimed by any taxpayer against its income tax to be transferred or
sold to another La. taxpayer or to the office.
Proposed law retains present law.
Present law requires transferors and transferees to submit to the office and to the Dept. of
Revenue in writing, a notification of any transfer or sale of tax credits within 30 days after
the transfer or sale of such tax credits.
Proposed law changes the time frame for providing such notification from 30 days to seven
days.
Present law requires the office of entertainment industry development and the secretary of
the Department of Economic Development (DED) submit their initial certification of a
project as a state-certified production to investors and to the secretary of the Department of
Revenue indicating the total base investment which is to be expended in the state on the
state-certified production. Proposed law retains these provisions but requires that the initial
certification be submitted within 60 days of receipt of all required information.
Present law requires that prior to any final certification of the state-certified production, the
motion picture production company submit to the office of entertainment industry
development and the secretary of DED an audit of the production expenditures certified by
an independent certified public accountant. Requires that the office and the secretary review
the audit, the production expense details, and may require additional information needed to
make a determination.
Proposed law requires a production audit report by a qualified accountant.
Present law requires that upon approval of the audit, that a final tax credit certification letter
be sent to the investors indicating the amount of tax credits certified for the state-certified
production. Proposed law requires that this letter be issued within 120 days after receipt of
the qualified cost report and that it indicate the credits certified which are uncontested and
if there is a contested amount, then the office and the secretary of DED are required to
diligently work to resolve the outstanding issues in a timely manner.
Proposed law requires DED and the office to promulgate rules in accordance with the APA
not later than Jan. 1, 2014, for the allowance of tax credits for production expenditures made
in related party transactions.
Proposed law requires that when producing the production audit report, the qualified
accountant perform certain minimum sampling and verification procedures enumerated in
proposed law.
Proposed law requires authorization of additional sampling and verification of any
transaction if an auditor believes it is necessary in order to render an audit opinion.
Authorizes DED and the office to require additional sampling and verification procedures,
and authorizes DED to promulgate rules, in accordance with the Administrative Procedure SB NO. 165
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Act, in order to implement the provisions of proposed law.
Effective August 1, 2013.
(Amends R.S. 47:6007(B)(9), (10), (11), (12), (13), (14), (C)(4)(b), (D)(2)(c) and (d); adds
R.S. 47:6007(B)(15) and (16), (D)(9) and 6007.1)
Summary of Amendments Adopted by Senate
Committee Amendments Proposed by Senate Committee on Revenue and Fiscal
Affairs to the original bill
1. Changed "qualified cost report" to "production audit report" and provided for
definition.
2. Removed requirements of qualified cost report and added requirements of
production audit reports.
3. Changed qualifications for a "qualified accountant", requiring the accountant
to be authorized to practice instead of licensed.
4. Changed the number of individual payroll disbursements needed for an
additional sample from the lesser of 60 to the lesser of 120 disbursements,
or 50 percent of the payroll disbursements, not already selected for further
testing.
Senate Floor Amendments to engrossed bill
1. Make technical changes.
2. Require the production audit report to contain a certification specifying that
the qualified accountant is unrelated to the motion picture production
company.
3. Require transferors and transferees to provide written notification to the
Dept. of Revenue and the office of any transfer or sale of tax credits within
7 days after such transfer or sale.
4. Require the secretary of DED and the office to promulgate rules in
accordance with the Administrative Procedure Act not later than Jan. 1, 2014,
for the allowance of tax credits for production expenditures in related party
transactions.
5. Remove requirements prohibiting motion picture investor tax credits from
being used for financing fees, interest, or payments of a similar nature paid
to related parties.
6. Remove requirement that motion picture investor tax credits be allowed only
if received by investors who own 20% or less of the financial rewards based
on certain criteria.
7. Remove requirement that motion picture investor tax credits not be allowed
for any percentage of the financial awards, but only be allowed for actually
paid financing fees and interest.
8. Change the time frame for submission of the initial certification of a project SB NO. 165
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as a state-certified production from within 30 days to within 60 days of
receipt of all required information.
9. Change the time frame for issuance of a final tax credit certification letter to
investors from 60 days to 120 days after receipt of the qualified cost report.