FISCAL NOTE
Date Requested: February 08, 2019
Time Requested: 11:28 AM |
| Agency: |
Tax & Revenue Department, WV State |
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| CBD Number: |
Version: |
Bill Number: |
Resolution Number: |
| 2979 |
Introduced |
HB2941 |
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| CBD Subject: |
|
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FUND(S):
General Revenue Fund
Sources of Revenue:
General Fund
Legislation creates:
Decreases Existing Revenue, Increases Existing Expenses
Fiscal Note Summary
Effect this measure will have on costs and revenues of state government.
The stated purpose of this bill is to reinstate the West Virginia Film Investment Tax Credit and to provide for direct involvement and coordination with the West Virginia Development Office.
According to our interpretation of this bill, the Film Tax Credit that was terminated by legislation enacted last year would be reinstated and the maximum amount of annual tax credits allocated would be increased from $5 million to $20 million and be allocated by the West Virginia Development Office. The bill adds a definition of “development office” and removes the definition of “film office”. The bill amends the definition of “direct production expenditure” so that it would not include depreciation of any item that has less than one full year of depreciable life. The bill also updates the definition of “qualified project” to include promotional videos and raises the amount of direct production expenditures and post-production expenditures that a qualified project must incur from $25,000 to $50,000. If this proposed bill were to pass, beginning on the third taxable year after passage and every two years thereafter, the West Virginia Film Development Office would provide a Tax Credit Review and Accountability report evaluating the cost effectiveness of the Film Industry Investment Act during the most recent two-year period for which information is available.
Prior law had allocated up to $5 million per year in tax credits for qualified film production. The average cost of the former Film Tax Credit between calendar years 2011 and 2017 was $1.8 million per year with a maximum credit amount during this same period of $4 million per year. The provisions of this bill also attempt to stimulate use of tax credits by requiring those procuring contracts for government commercials (e.g., lottery promotions) to seek contracts with producers who would qualify for tax credit for producing such commercials. There is often significant delay between the allotment of tax credits and their utilization on tax returns given that most of these tax credits are sold to third parties because tax credits ranging between 27 percent and 31 percent of qualified expenditure greatly exceed any tax liability of the qualified filmmaker. Passage of this bill could eventually result in a loss to the General Revenue Fund of up to a maximum of $20 million per year.
Additional administrative costs incurred by the State Tax Department would be $5,000 in FY2020 and thereafter.
Fiscal Note Detail
| Effect of Proposal |
Fiscal Year |
2019
Increase/Decrease
(use"-") |
2020
Increase/Decrease
(use"-") |
Fiscal Year
(Upon Full
Implementation) |
| 1. Estmated Total Cost |
0 |
5,000 |
5,000 |
| Personal Services |
0 |
5,000 |
5,000 |
| Current Expenses |
0 |
0 |
0 |
| Repairs and Alterations |
0 |
0 |
0 |
| Assets |
0 |
0 |
0 |
| Other |
0 |
0 |
0 |
| 2. Estimated Total Revenues |
0 |
0 |
0 |
Explanation of above estimates (including long-range effect):
According to our interpretation of this bill, the Film Tax Credit that was terminated by legislation enacted last year would be reinstated and the maximum amount of annual tax credits allocated would be increased from $5 million to $20 million and be allocated by the West Virginia Development Office. The bill adds a definition of “development office” and removes the definition of “film office”. The bill amends the definition of “direct production expenditure” so that it would not include depreciation of any item that has less than one full year of depreciable life. The bill also updates the definition of “qualified project” to include promotional videos and raises the amount of direct production expenditures and post-production expenditures that a qualified project must incur from $25,000 to $50,000. If this proposed bill were to pass, beginning on the third taxable year after passage and every two years thereafter, the West Virginia Film Development Office would provide a Tax Credit Review and Accountability report evaluating the cost effectiveness of the Film Industry Investment Act during the most recent two-year period for which information is available.
Prior law had allocated up to $5 million per year in tax credits for qualified film production. The average cost of the former Film Tax Credit between calendar years 2011 and 2017 was $1.8 million per year with a maximum credit amount during this same period of $4 million per year. The provisions of this bill also attempt to stimulate use of tax credits by requiring those procuring contracts for government commercials (e.g., lottery promotions) to seek contracts with producers who would qualify for tax credit for producing such commercials. There is often significant delay between the allotment of tax credits and their utilization on tax returns given that most of these tax credits are sold to third parties because tax credits ranging between 27 percent and 31 percent of qualified expenditure greatly exceed any tax liability of the qualified filmmaker. Passage of this bill could eventually result in a loss to the General Revenue Fund of up to a maximum of $20 million per year.
Additional administrative costs incurred by the State Tax Department would be $5,000 in FY2020 and thereafter.
Memorandum
The stated purpose of this bill is to reinstate the West Virginia Film Investment Tax Credit and to provide for direct involvement and coordination with the West Virginia Development Office.
Since the Film Tax Credit has been eliminated and is being reinstated, the language of the bill would be more precise if the bill provided a start date for when the Film Tax Credit would be reinstated. If this bill intends for the bill to be retroactive to Tax Year 2018 when the credits were terminated, this needs to be clear in the bill and the bill title. Also, given the other changes in the West Virginia Film Industry Investment Act in this bill, it is unclear how retroactivity of this credit would work.
This bill states that every agency of the State that contracts for video production of advertising, promotional material, educational programs, or dramatic work is to obtain bids from West Virginia production companies and marketing businesses in the solicitation of vendors for such projects. However, the bill does not state how the agencies are to accomplish this or what happens if no bids are available from West Virginia production companies or marketing businesses. There may also be constitutional concerns regarding this provision of the bill.
Person submitting Fiscal Note: Mark Muchow
Email Address: kerri.r.petry@wv.gov