On October 22, 2014, the Michigan Senate passed Senate Bill 1103 (2014) (the “Bill”) amending Section 29h of the Michigan Strategic Fund Act (1984 PA 270) (the “Act”), which is sometimes colloquially referred to as the “film tax credit” or “film production incentive.” The Bill will now be sent to the Michigan House of Representatives for consideration.
Michigan Strategic Fund Act
Section 29h of the Michigan Strategic Fund Act, which sunsets on September 30, 2017, provides incentives for film and digital media production within the state of Michigan by authorizing the Michigan film office to provide funds to film production companies as reimbursement for direct production expenditures and/or personnel expenditures in the state of Michigan.
Any film or digital media production company with more than $100,000 of in-state expenditures may apply to the Michigan film office for funding, provided that the company is not delinquent in a tax or other obligation owed to the state. When determining whether to award funding to any particular production, the Act provides various criteria for the Michigan film office to consider, including the potential that the production will be produced outside of Michigan in the absence of such funding.
Under the Act, available funding is limited to 27 percent of production expenditures; 32 percent of expenditures related to resident personnel (which is reduced to 27 percent after December 31, 2014); 27 percent of expenditures related to nonresident actors, directors, producers and writers (which is reduced to 12 percent after December 31, 2014); and 15 percent of expenditures related to other nonresident personnel (which is reduced to 10 percent after December 31, 2014). Additional funding of up to 3 percent of expenditures is available with respect to expenditures at a production or postproduction facility located in Michigan.
To be eligible to receive funding, a film production company must also agree to various stipulations, including the following:
- The production company must commence work in Michigan within 90 days of an agreement to provide funding (subject to extensions that may be provided at the discretion of the film office).
- The production may not depict obscene matter or include an obscene performance.
- An acknowledgement promoting the “pure Michigan” campaign must be included in the distribution of certain film or digital media products.
Senate Bill 1103
Senate Bill 1103 deletes the sunset provision in the current law and makes the following changes which alter the way in which incentives may be paid:
- The Bill revises the state’s contribution limit to a maximum of 25 percent of production and personnel costs plus 3 percent of expenditures at permanent production facilities located in Michigan and 10 percent of expenditures at postproduction facilities located in Michigan.
- The Bill adds the following stipulations that must be agreed to in order for a film production company to be eligible to receive funding:
- Any residual payments must be subject to tax in Michigan.
- Any entity receiving payments under the Act must be organized in Michigan and must maintain active status in Michigan as long as residual payments are received (entities receiving less than $250,000 for the services of an actor, director, producer, writer or stunt performer are exempt from this requirement).
- Additional requirements provide that Michigan residents must be hired to work on any production that receives funds. The requirement is formulated as a ratio of resident to nonresident personnel, and is set to begin at 1/1 then increase over time to 3/1 after October 1, 2022.
- The Bill also permits the Michigan film office to consider whether a production company will hold a premier in Michigan and whether the production company will make film clips available for use in the “pure Michigan” tourism campaign when determining whether to make funds available.
Except for the removal of the sunset provision, the Bill does not constitute additional funding or a new expenditure, as it merely alters the way in which funds otherwise allocated to the incentive program are administered.