BILL ANALYSIS

H.B. 3600

By: Price

Culture, Recreation & Tourism

Committee Report (Unamended)

BACKGROUND AND PURPOSE

Texas has a media production incentive program, but it relies on biennial appropriations and, as such, does not provide long-term predictability for large investment productions. Past appropriations have been oversubscribed, and as a consequence, larger multimedia productions go to other states that have more predictable funding. According to public policy consulting firm TXP, Georgia, California, New Jersey, and other states have robust media production programs, and these have resulted in billions of dollars of investment and spending in those states. Even most surrounding states have programs that dwarf Texas' program. Texas has fallen to the bottom quarter of states in media production, and many Texans in the industry are forced to work outside of the state. Many productions that tell Texas stories are forced to film in Oklahoma or New Mexico, simply because these states offer better benefits for media production.

H.B. 3600 seeks to capture the massive amounts of multimedia production investment — capital investment, economic development, and jobs—that Texas is passing over. The legislation creates a complementary Multimedia Production Program to move Texas from the bottom quarter of states to a leadership position in multimedia productions, bringing capital investment, jobs, and economic development to areas across Texas. Specifically, the bill provides for a transferable tax credit applicable to multimedia productions that spend more than $15 million in Texas and meet employment, filming, and other requirements. The bill establishes a procedure for proving to the Music, Film, Television, and Multimedia Office and the comptroller of public accounts that the minimum expenditure amount and other requirements have been met.

CRIMINAL JUSTICE IMPACT

It is the committee's opinion that this bill does not expressly create a criminal offense, increase the punishment for an existing criminal offense or category of offenses, or change the eligibility of a person for community supervision, parole, or mandatory supervision.

RULEMAKING AUTHORITY

It is the committee's opinion that rulemaking authority is expressly granted to the Music, Film, Television, and Multimedia Office in SECTION 1 of this bill and to the comptroller of public accounts in SECTION 2 of this bill.

ANALYSIS

Texas Multimedia Production Program

Tax Credit Program

H.B. 3600 amends the Government Code to require the Music, Film, Television, and Multimedia Office to implement and administer a tax credit program for a film production company, television production company, or film and television production company that produces moving image projects in Texas. The bill defines "moving image project" as a visual and sound production, including a film, television program, national or multistate commercial, or education or instructional video, but excluding a production that is obscene, and additionally provides that terms used in these bill provisions regarding the program have the meanings assigned by the statutes governing the office, the Media Production Development Zone Act, and rules adopted under those provisions, that act, and those rules as the provisions, act, and rules existed on January 1, 2022.

H.B. 3600 requires the office to develop a procedure by which such a production company may apply to the office for a certificate of eligibility for the program and requires the procedure to do the following:

· specify the method by which an applicant must demonstrate that an individual is a Texas resident; and

· require the submission of the following, before production of a moving image project begins:

o an estimate of the applicant's total in-state spending related to the project;

o the shooting script or story board, as applicable, for the project;

o the estimated number of jobs for cast and production crew during the production and completion of the project; and

o any other information required by the office to determine the amount of in-state spending by the applicant.

Certificate of Eligibility

H.B. 3600 authorizes the office to award a certificate of eligibility to a production company based only on in-state spending that has been verified by the office. The office is not required to act on an application and must deny an application for a production that the office finds to be obscene. The office must provide written notice of such a finding to the applicant not later than the seventh business day after the date of the finding. The bill requires the office, before awarding a certificate of eligibility, to review a copy of the project's final script and determine whether a substantial change occurred during production such that the production is now ineligible.

H.B. 3600 requires the office to include the amount of the tax credit on the face of the certificate of eligibility and requires an applicant who receives a certificate to provide it to the comptroller of public accounts, along with any other information required by the comptroller, in order to receive a franchise tax credit under the bill's provisions. The bill authorizes the office by rule to impose an application fee in an amount sufficient to offset the costs to the office and to the comptroller in administering the program.

Qualification

H.B. 3600 requires a production company to do the following to qualify for a certificate of eligibility:

· demonstrate to the office that the company made at least $15 million in in-state spending for the project;

· film at least 25 percent of the project in Texas, including additional pick-up days and second unit days;

· submit to the office a ledger of expenses, in a format prescribed by the office, that lists all in-state spending and includes all receipts, invoices, pay orders, and other documentation required by the office to determine the amount of in-state spending; and

· meet certain principal photography requirements.

Unless the office determines and certifies in writing that a sufficient number of qualified crew, actors, and extras are not available to a company at the time principal photography begins, the bill requires at least 25 percent of the total number of individuals employed or used as production crew, actors, and extras for a project to be Texas residents.

Calculating the Amount of Tax Credit

H.B. 3600 requires the office to adopt rules prescribing the method the office will use to calculate the amount of credit to list on a certificate awarded to a company for a project and requires the office to publish a written summary of the method before the date the office begins to award certificates. The method must provide that the amount of credit listed on a certificate is equal to the sum of the following:

· 30 percent of the production company's in-state spending for the project, not including wages, subject to certain restrictions;

· 20 percent of the wages paid by the production company to individuals who are not Texas residents while working in Texas on the project;

· 35 percent of the wages paid by the production company to Texas residents who do not reside in underutilized and economically distressed areas;

· 38 percent of the wages paid by the production company to Texas residents who reside in underutilized and economically distressed areas;

· if applicable, 10 percent of the production company's in-state spending for an episodic television series of three or more episodes for which a completed distribution agreement is provided to the office;

· if the production company spends at least 25 percent of the project's filming days in an underutilized and economically distressed area, 2.5 percent of the production company's in-state spending for the project; and

· three percent of the production company's in-state spending for post-production activities.

H.B. 3600 requires a company to provide promotional materials that may be used to promote economic development and tourism in Texas to the office before the office may consider the 30 percent of the production company's in-state spending for the project, not including wages, when calculating the total amount of credit to award. The production company must also provide a promotional video that uses an image of Texas in its end credits and includes at least 30 behind-the-scenes stills of the production during principal photography for the project, 10 behind-the-scenes stills of the lead actors during principal photography, and three minutes of behind-the-scenes video footage of principal photography.

Reduction of Tax Credit for State Debt

H.B. 3600 requires the office to reduce the amount of credit listed on a certificate by an amount equal to any delinquent amount owed by the production company to the state.

Franchise Tax Credit

Eligibility for Credit

H.B. 3600 amends the Tax Code to establish a franchise tax credit for a production company that has a certificate of eligibility awarded under the Texas Multimedia Production Program, as provided by the bill. Such an entity qualifies for a franchise tax credit if it submits the following documents with the required application to the comptroller, including any information the comptroller determines is necessary to determine whether the company qualifies for the credit:

· a certificate of eligibility awarded by the office;

· an audited cost report prepared by a certified public accountant that itemizes the costs and expenses incurred by a production company to make the certified production and on which the amount of the credit is based; and

· an attestation from the production company as to the total costs and expenses incurred to make the production.

The bill requires an entity that sells or assigns the credit to another entity to provide a copy of the certificate of eligibility, audited cost report, and attestation to the purchaser or assignee.

Amount of Credit; Limitations

H.B. 3600 limits the amount of the franchise tax credit to which a qualified entity is entitled to the amount on the certificate of eligibility and caps the total credit claimed for a report, including the amount of any carryforward, at the amount of franchise tax due for the report after any other applicable tax credits. The bill prohibits an entity from claiming a credit on a report that is originally due before September 1, 2025, but authorizes an entity to sell or assign a credit for which the entity qualifies before September 1, 2025.

Carryforward

H.B. 3600 authorizes an entity eligible for a credit that exceeds that limitation to carry the unused credit forward for not more than five consecutive reports and establishes that a carryforward is considered the remaining portion of a credit that cannot be claimed in the current year because of the limitation.

Application for Credit

H.B. 3600 requires an entity to apply to the comptroller for the franchise tax credit on or with the report for the period for which the credit is claimed and provides that the burden for establishing eligibility for and the amount of the credit is on the entity.

Sale or Assignment of Credit

H.B. 3600 authorizes an entity awarded a certificate of eligibility to sell or assign all or part of the credit to one or more entities and authorizes an entity to which all or part of a credit is sold or assigned to sell or assign all or part of the credit to another entity. The bill establishes that there is no limit on the total number of transactions for sale or assignment of all or part of the total credit and that the sale or assignment of credit does not increase the total amount of credit that may be claimed. The bill provides for the following with respect to the sale or assignment of a credit:

· the required notification of the sale or assignment to the comptroller;

· the prohibited repeated use of a credit for a single expenditure;

· the allocation of a credit to partners, members, or shareholders of certain business entities; and

· the ability to claim the credit against certain premium taxes and the exclusion of an entity claiming all or part of a credit from the requirement to pay any additional retaliatory tax levied as a result of claiming that credit.

Comptroller Rules; Tax Report Applicability

H.B. 3600 requires the comptroller to adopt rules and forms necessary to implement the franchise tax credit. The bill's provisions relating to the franchise tax credit apply only to a report originally due on or after September 1, 2025.

EFFECTIVE DATE

September 1, 2023.