In August, the Georgia Legislature passed a bill phasing in mandatory audits of all film tax credits over the next three years. Starting in 2021, some credit certified by the Department of Economic Development (DECD) will require an audit. By 2023, all credits certified by the DECD will be subject to that requirement.
In the first year of the phase-in, only credits that exceed $2.5 million will have to be audited. In 2022, any credit exceeding $1.25 million will require an audit. In 2023, any credit, regardless of size, will require an audit.
In addition to having to open their books and records to an auditor to claim the credit, filmmakers will also have to pay the Department of Revenue for the cost of the audit itself.
In anticipation of the increased number of audits, the bill allows the Department of Revenue to certify certain third parties to conduct the mandatory audits as needed. The third-party must be a Georgia CPA, undergo specific training, and maintain other requirements set forth by the DOR.
The Georgia Film Tax Credit provides a 20% credit to companies with production and post-production expenses in Georgia of more than $500,000 across one or more projects. The credit has a 10% bonus if the company displays the state’s promotional logo in the finished product. The credit can be transferred or sold if the company has no Georgia liability to use the credit.
While the hassle and expense of the audit may not make much of a difference for the largest taxpayers, this will increasingly eat away at the benefit of the credit for smaller filmmakers and production houses. The bill’s stated goal is to reduce the amount of fraud and bad players claiming the credit. A study by the state argues that the benefits of the credit are grossly overstated, with many of the expenditures occurring outside of the state and the number of jobs being overstated by including non-related jobs to the project’s production. However, while the bill may achieve the desired result by auditing every credit claimed, it will also have a chilling effect on those companies that would benefit from it.
If you are current going through an audit of your film tax credit, or want to plan for a mandatory audit, contact us today.