BILL ANALYSIS

Senate Research Center	S.B. 1613
88R13304 CJD-F	By: Perry
	Natural Resources & Economic Development
	4/17/2023
	As Filed

AUTHOR'S / SPONSOR'S STATEMENT OF INTENT

S.B. 1613 creates a transferable tax credit that becomes available to productions after they have a direct spend of $15 million or more in multimedia productions in the state.

The credit can be sold (likely at a discount) to other Texas businesses to be used against their Texas franchise or insurance premiums tax liabilities. This will provide those existing businesses with a reduced tax liability, as well as acting as a catalyst for increasing multimedia productions in Texas.

The basic tax credit of 30 percent of non-wage spending will require:

Non-wage spending:

� Hiring a minimum percentage of 25 percent Texas residents

� Twenty-five percent minimum percentage of filming time in Texas, promotional materials provided that can be used in economic development and tourism, and Texas logo in the production credits.

Tax Credit eligibility amount can be increased depending on:

Wage component:

� Wages of non-residents working here (20 percent)

� Texas residents (35 percent), unless they live in underutilized or economically distressed areas (UEDAs)

� Texas residents who live in UEDA (38 percent)

Complete spending of non-wage and wage spending:

Both non-wage and wage spending component:

� Location of filming (if at least 25 percent is filmed in UEDAs) an additional 2.5 percent

� Television/pilot with three or more episodes and distribution agreement (10 percent)

� Post-production spending for activities in Texas (3 percent)

Other elements:

Tax credits can be sold before, but are not redeemable until, September 1, 2025.

The program is modeled after programs in other states, but uses the existing Texas Historic Structures tax credit program as the model for administration.

As proposed, S.B. 1613 amends current law relating to the establishment of the Texas Multimedia Production Program, provides tax credits, and authorizes fees.

RULEMAKING AUTHORITY

Rulemaking authority is expressly granted to the Music, Film, Television, and Multimedia Office in SECTION 1 (Sections 485B.051 and 485B.053, Government Code).

Rulemaking authority is expressly granted to the Comptroller of Public Accounts of the State of Texas in SECTION 2 (Section 171.758, Government Code) of this bill.

SECTION BY SECTION ANALYSIS

SECTION 1. Amends Subtitle F, Title 4, Government Code, by adding Chapter 485B, as follows:

CHAPTER 485B.� TEXAS MULTIMEDIA PRODUCTION PROGRAM

SUBCHAPTER A.� GENERAL PROVISIONS

Sec. 485B.001. DEFINITIONS. (a) Provides that terms used in this chapter have the meanings assigned by Chapters 485 (Music, Film, Television, and Multimedia Industries) and 485A (Media Production Development Zones), and rules adopted under those chapters, as those chapters and rules existed on January 1, 2022, except as otherwise provided by this chapter.

(b) Defines "moving image project" and "production company."

SUBCHAPTER B.� TAX CREDIT FOR CERTAIN MULTIMEDIA PRODUCTIONS

Sec. 485B.051. TAX CREDIT PROGRAM.� (a) Requires the Music, Film, Television, and Multimedia Office (office) to implement and administer a tax credit program for production companies that produce moving image projects in this state.

(b) Requires the office to develop a procedure by which a production company is authorized to apply to the office for a certificate of eligibility for the tax credit program authorized by this subchapter. Requires that the procedure:

(1) specify the method by which an applicant is required to demonstrate that an individual is a Texas resident; and

(2) require the submission, before production of a moving image project begins, of:

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

(B) the shooting script or story board, as applicable, for the project;

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

(c) Authorizes the office to award a certificate of eligibility to a production company based only on in-state spending by the company that has been verified by the office.

(d) Provides that the office is not required to act on an application, and is required to deny an application, for a production that the office finds to be obscene, as defined by Section 43.21 (Definitions), Penal Code. Requires the office to provide written notice of the finding to the applicant not later than the seventh business day after the date the office makes the finding.

(e) Prohibits the office from awarding a certificate of eligibility under this subchapter unless the office:

(1) reviews a copy of the final script of the moving image project to which the certificate of eligibility relates; and

(2) determines whether a substantial change occurred during production of the moving image project such that the production is ineligible for the certificate under Subsection (d).

(f) Requires the office to include the amount of the tax credit, as determined under Sections 485B.053 and 485B.054, on the face of a certificate of eligibility.� Requires an applicant who receives a certificate of eligibility to provide the certificate to the Comptroller of Public Accounts of the State of Texas (comptroller), along with any other information required by the comptroller, to receive a tax credit under Subchapter O, Chapter 171, Tax Code.

(g) Authorizes the office by rule to impose an application fee in an amount sufficient to offset the administrative costs to the office and to the comptroller in administering this chapter.

Sec. 485B.052. QUALIFICATION.� (a)� Requires a production company, to qualify for a certificate of eligibility under this subchapter for a moving image project, to:

(1) demonstrate to the office that the production company made at least $15 million in in-state spending for the project;

(2) film at least 25 percent of the project in this state, including additional pick-up days and second unit days;

(3) 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 the production company's in-state spending; and

(4) meet the requirements of Subsection (b).

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

Sec. 485B.053. AMOUNT OF TAX CREDIT.� (a) Requires the office to adopt rules prescribing the method the office will use to calculate the amount of credit to list on a certificate of eligibility awarded to a production company under this subchapter for a moving image project.� Requires the office to publish a written summary of the method the office develops to determine the amount of credit before the date the office begins to award certificates of eligibility.

(b) Requires that the method adopted by the office under Subsection (a) provide that the amount of credit listed on a certificate of eligibility awarded to a production company for a moving image project is equal to the sum of:

(1) subject to Subsection (c), 30 percent of the production company's in-state spending for the project, not including wages;

(2) 20 percent of the wages paid by the production company to individuals who are not Texas residents while working in this state on the project;

(3) 35 percent of the wages paid by the production company to Texas residents who do not reside in underutilized and economically distressed areas;

(4) 38 percent of the wages paid by the production company to Texas residents who reside in underutilized and economically distressed areas;

(5) 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;

(6) 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

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

(c) Prohibits the office from considering the amount described by Subsection (b)(1) when calculating the amount of credit to list on a certificate of eligibility awarded to a production company for a moving image project under Subsection (b) unless the production company provides to the office promotional materials that are authorized to be used by the office to promote economic development and tourism in this state, including a promotional video that:

(1) uses an image of this state in its end credits; and

(2) includes at least:

(A) 30 behind-the-scenes stills of the production during principal photography for the project;

(B) 10 behind-the-scenes stills of the lead actors during principal photography for the project; and

Sec. 485B.054. REDUCTION OF TAX CREDIT FOR STATE DEBT. Requires the office, notwithstanding Section 485B.053, to reduce the amount of credit listed on a certificate of eligibility awarded to a production company by an amount equal to any delinquent amount owed by the production company to this state.

SECTION 2. Amends Chapter 171, Tax Code, by adding Subchapter O, as follows:

SUBCHAPTER O.� TAX CREDIT FOR CERTIFIED TEXAS MULTIMEDIA PRODUCTION PROGRAM

Sec. 171.751. DEFINITIONS. Defines "certified production," "office," and "production company."

Sec. 171.752. ELIGIBILITY FOR CREDIT.� Provides that an entity is eligible to apply for a credit in the amount and under the conditions provided by this subchapter against the tax imposed under Chapter 171 (Franchise Tax).

Sec. 171.753. QUALIFICATION.� (a) Provides that an entity qualifies for a credit under this subchapter if the entity submits to the comptroller with the application required by Section 171.756:

(1) a certificate of eligibility awarded by the office;

(2) an audited cost report prepared by a certified public accountant, as defined by Section 901.002 (General Definitions), Occupations Code, 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

(3) an attestation from the production company as to the total costs and expenses incurred to make the certified production.

(b) Requires an entity that sells or assigns a credit under this subchapter to another entity to provide a copy of the certificate of eligibility, audited cost report, and attestation to the purchaser or assignee.

Sec. 171.754. AMOUNT OF CREDIT; LIMITATIONS.� (a)� Provides that the amount of the credit under this subchapter, subject to Subsection (b), is the amount listed by the office on the certificate of eligibility awarded to a production company for a certified production.

(b) Prohibits the total credit claimed for a report, including the amount of any carryforward under Section 171.755, from exceeding the amount of franchise tax due for the report after any other applicable tax credits.

(c) Prohibits an entity from claiming a credit under this subchapter on a report that is originally due before September 1, 2025.� Authorizes an entity, however, before September 1, 2025, to sell or assign a credit for which the entity qualifies under Section 171.753.

Sec. 171.755. CARRYFORWARD. (a) Authorizes an entity, if the entity is eligible for a credit that exceeds the limitation under Section 171.754(b), to carry the unused credit forward for not more than five consecutive reports.

(b) Provides that a carryforward is considered the remaining portion of a credit that cannot be claimed in the current year because of the limitation under Section 171.754(b).

Sec. 171.756. APPLICATION FOR CREDIT.� (a) Requires an entity to apply to the comptroller for a credit under this subchapter on or with the report for the period for which the credit is claimed.

(b) Requires an entity to submit with an application the information required under Section 171.753 and any other information the comptroller determines is necessary to determine whether the entity qualifies for the credit.

Sec. 171.757. SALE OR ASSIGNMENT OF CREDIT. (a) Authorizes an entity awarded a certificate of eligibility by the office to sell or assign all or part of the credit to one or more entities. 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. Provides that there is no limit on the total number of transactions for sale or assignment of all or part of the total credit authorized under this subchapter.

(b) Requires that an entity that sells or assigns a credit under this section, and the entity to which the credit is sold or assigned, to jointly submit written notice of the sale or assignment to the comptroller on a form prescribed by the comptroller not later than the 30th day after the date of the sale or assignment. Requires that the notice include:

(1) the date of the sale or assignment;

(2) the amount of the credit sold or assigned;

(3) the names and federal tax identification numbers of:

(A) the entity that sold or assigned the credit or part of the credit; and

(B) the entity to which the credit or part of the credit was sold or assigned;

(4) the amount of the credit owned by the selling or assigning entity before the sale or assignment; and

(5) the amount of the credit the selling or assigning entity retained, if any, after the sale or assignment.

(c) Provides that the sale or assignment of a credit under this section does not increase the total amount of the credit that is authorized to be claimed. Prohibits another entity, after an entity claims a credit for a production company expenditure that formed the basis for the certificate of eligibility awarded by the office, from using the same expenditure as the basis for another certificate of eligibility or credit.

(d) Authorizes a credit earned or purchased by, or assigned to, a partnership, limited liability company, S corporation, or other pass-through entity, notwithstanding the requirements of this subchapter, to be allocated to the partners, members, or shareholders of that entity and claimed under this subchapter in accordance with the provisions of any agreement among the partners, members, or shareholders, and without regard to the ownership interest of the partners, members, or shareholders in the certified production, provided that the entity that claims the credit is required to be subject to the tax imposed under this chapter.

(e) Authorizes an entity to which all or part of a credit is sold or assigned and that is subject to a premium tax imposed under certain chapters of the Insurance Code to claim all or part of the credit against that tax.� Provides that the provisions of this subchapter, including provisions relating to the total amount of the credit that is authorized to be claimed for a report, the carryforward of the credit, and the sale or assignment of the credit, apply with respect to a credit claimed against a tax imposed under certain chapters of the Insurance Code to the same extent those provisions apply to a credit claimed against the tax imposed under this chapter.� Provides that an entity claiming all or part of a credit as authorized by this subsection is not required to pay any additional retaliatory tax levied under Chapter 281 (Retaliatory Provisions), Insurance Code, as a result of claiming that credit.

Sec. 171.758. RULES. Requires the comptroller to adopt rules and forms necessary to implement this subchapter.

SECTION 3. Makes application of Subchapter O, Chapter 171, Tax Code, as added by this Act, prospective to September 1, 2025.

SECTION 4. Effective date: September 1, 2023.