C.R.S. § 39-22-559 — Film incentive tax credit - tax preference performance statement - review - legislative declaration - definitions - repeal

(1) (a) The general assembly hereby finds and declares that: (I) Colorado is home to many talented film industry members, many of whom travel out of state for work as they cannot find enough work locally to support them; (II) With a competitive film incentive that is comparable to surrounding western states with similar beautiful landscapes, Colorado will have the ability to attract high-profile projects that will bring in more film tourism and increase Colorado's impact on the global film industry; and (III) Colorado's film industry has the ability to be a true economic driver in the state. (b) In accordance with section 39-21-304 (1), which requires each bill that creates a new tax expenditure to include a tax preference performance statement as part of a statutory legislative declaration, the general assembly finds and declares that the purpose of the tax credit provided for in this section is to induce certain designated behavior by taxpayers and to provide a reduction in income tax liability for certain business or individuals by allowing production companies to receive a credit against income tax for qualified expenditures if certain criteria are met. Specifically, this tax expenditure is intended to incentivize production companies to film in Colorado and attract more film projects, in particular high-budget film projects, that will employ more Coloradans. (c) The general assembly and the state auditor shall measure the effectiveness of the tax credit in achieving the purposes specified in subsection (1)(b) of this section based on the number and value of the credits claimed and, when available, taking into consideration the results of the review performed by the office of economic development and the office pursuant to subsection (8) of this section. (2) As used in this section, unless the context otherwise requires: (a) Credit means the credit against income tax created in this section. (b) Film has the same meaning as set forth in section 24-48.5-114 (1). (c) Obscene has the same meaning as set forth in section 18-7-101 (2). (d) Office has the same meaning as set forth in section 24-48.5-114. (e) Office of economic development means the office of economic development created in section 24-48.5-101 (1). (f) Originates means that a production company has been a resident of the state or registered with the secretary of state for at least twelve consecutive months and, as of the date of applying for a tax credit as specified in subsection (3) of this section, has engaged in production activities in the state for other projects in the past twelve consecutive months; except that if the production company creates a business entity for the sole purpose of conducting production activities in the state, then such business entity need not be registered with the secretary of state for twelve consecutive months, but the manager of the business entity must be a resident of the state for at least twelve consecutive months as of the date of applying for a tax credit as specified in subsection (3) of this section. As used in this subsection (2)(f), manager of the business entity means a manager with decision-making authority to make financial or legal commitments on behalf of the production company or business entity. (g) Production activities means the shooting of a film, support activities related to such shooting, and any preshooting or postshooting activities that commence on or after January 1, 2024, and that are necessary to produce a finished film, including but not limited to editing and the creation of sets, props, costumes, and special effects. (h) Production company means a person, including a corporation or other business entity, that engages in production activities for the purpose of producing all or any portion of a film in Colorado. (i) Qualified local expenditure means a payment made by a production company operating in Colorado to a person or business in Colorado in connection with production activities in Colorado. Qualified local expenditure includes, but need not be limited to: (I) Payments made in connection with developing or purchasing the story and scenario to be used for a film; (II) Payments made for the costs of set construction and operations, wardrobe, accessories, and related services; (III) Payments made for the costs of photography, sound recording and synchronization, lighting, and related services; (IV) Payments made for the costs of editing, postproduction, music, and related services; (V) Payments made for the costs of renting facilities and equipment, including location fees, leasing vehicles, and providing food and lodging to people working on the film production; (VI) Payments for airfare purchased through a Colorado-based travel agency or company; (VII) Payments for insurance and bonding purchased through a Colorado-based insurance agent; (VIII) Payments for other direct costs incurred by the film production company that are deemed appropriate by the office; (IX) Payments of up to one million dollars per employee or contractor, made by a production company to pay the wages or salaries of employees or contractors who participate in the production activities. In order for any wage or salary to be considered a qualified local expenditure, all Colorado income taxes shall be withheld and paid either by the production company or the individual. Any payments in excess of one million dollars per employee or contractor shall be excluded. (X) Payments of up to one million dollars per calendar year per personal service corporation, as defined in section 24-48.5-114 (4.5)(a), made by a production company to a personal service corporation to pay the wages or salaries of an employee-owner of a personal service corporation, as defined in section 24-48.5-114 (4.5)(b), who participates in the production activities. In order for any wage or salary to be considered a qualified local expenditure, the production company must file an information return pursuant to section 39-22-604 (21) regarding the payments made to the personal service corporation. Any payments in excess of one million dollars per personal service corporation are excluded. (3) Subject to the limitations set forth in subsections (5) and (6) of this section, for income tax years commencing on or after January 1, 2024, but before January 1, 2032, there shall be allowed a film incentive tax credit with respect to income taxes imposed pursuant to this article 22 to any production company making at least one hundred thousand dollars in actual qualified local expenditures and employing a workforce for any in-state production activity made up of at least fifty percent Colorado residents in an amount not to exceed twenty-two percent of the actual qualified local expenditures. (a) to (c) (Deleted by amendment, L. 2024.) (4) The director of the office of economic development may, in the director's discretion, approve a tax credit in an amount that exceeds twenty percent or twenty-two percent, as applicable, of qualified local expenditures for a production company that qualifies for a tax credit under subsection (3) of this section. (5) (a) For the 2024 calendar year, and for each calendar year thereafter, the maximum aggregate amount of all tax credits that the office may reserve pursuant to subsection (6) of this section is five million dollars per calendar year. (b) Repealed. (c) A production company shall not apply for and the office shall not approve a tax credit allowed under subsection (3) of this section for any qualified local expenditures for which the production company has applied or been awarded a performance-based incentive pursuant to section 24-48.5-116. (6) (a) For a production company to claim a tax credit pursuant to subsection (3) of this section, the production company must apply to the office for a tax credit reservation, in a manner to be determined by the office prior to beginning production activities in the state for the project for which the production company is seeking a tax credit. The application for a tax credit reservation must include a statement of intent by the production company to produce a film in Colorado for which the production company will be eligible to receive the tax credit. The production company must submit, in conjunction with the application, any documentation necessary to demonstrate that: (I) The production company's projected qualified local expenditures will satisfy the minimum expenditure requirement specified in subsection (3) of this section; and (II) If the production company seeks a tax credit specified in subsection (3) of this section, the production company will originate production activities in Colorado, including copies of income tax forms, proof of voter registration, or copies of utility bills, to provide documentary evidence that, as of the date of applying for a tax credit: (A) The production company engaged in production activities in the state for other projects in the past twelve consecutive months; or (B) If the production company created a business entity for the sole purpose of conducting production activities in the state, the manager of the business entity was a resident in the state for the past twelve consecutive months. (b) (I) The office shall review each application for a tax credit reservation submitted by a production company before the production company begins work on a film in Colorado. Based on the information provided in the production company's application for a tax credit reservation, the office may determine that a production company is entitled to a tax credit reservation in accordance with the provisions of this section. The office shall issue tax credit reservations subject to the limitations set forth in this subsection (6) and in subsection (5) of this section. The office shall not issue tax credit reservations after December 31, 2029. (II) If the office reserves a tax credit for the benefit of a production company, the office shall notify the production company in writing of the reservation and the amount reserved. The reservation of a tax credit by the office for a production company does not entitle the production company to the issuance of a tax credit certificate until the production company complies with all of the other requirements specified in this section for the issuance of the tax credit certificate. When the office approves a tax credit reservation, the office may also impose additional requirements, which a production company shall satisfy as part of completing the production activities before a tax credit certificate is issued to the production company. (III) If approved, the office may issue a tax credit reservation to a production company in an amount not to exceed twenty-two percent of the estimated qualified local expenditures. (c) (I) (A) A production company shall complete the production activities in Colorado on or before December 31, 2031. Upon completion of the production activities in Colorado, a production company that received a tax credit reservation from the office must retain a certified public accountant licensed to practice in the state or a certified public accounting firm that is registered in the state to review and report in writing, and in accordance with professional standards, regarding the accuracy of the financial documents that detail the expenses incurred in the course of the film production activities in Colorado. The certified public accountant's written report must include documentation of the production company's actual expenditures, including its actual qualified local expenditures, and any documentation necessary to show that the production company employed a workforce for the in-state production activities made up of at least fifty percent Colorado residents. When the production company provides a copy of the certified public accountant's written report and the production company certifies in writing to the office that the amount of the production company's actual qualified local expenditures equals or exceeds the applicable minimum total amount of the production company's qualified local expenditures as specified in subsection (3) of this section, the office shall conduct a review of the certified public accountant's written report to ensure the requirements of this section are met. If the office is satisfied that the requirements of this section are met, and the office confirms that the certified public accountant who provided the written report is from the list described in subsection (6)(c)(II)(B) of this section, then the office shall issue to the production company a tax credit certificate that evidences the production company's right to claim the tax credit allowed under subsection (3) of this section. The tax credit certificate must include the taxpayer's name, the taxpayer's social security number or federal employer identification number, the approved tax credit amount, the income tax year for which the tax credit is being allowed, and any other information that the executive director of the department of revenue may require. (B) If the office determines that a production company has failed to comply with the requirements of this subsection (6), the office shall notify the production company and may rescind the tax credit reservation. If the office rescinds the tax credit reservation, the production company may submit a new tax credit reservation application pursuant to this subsection (6). When the office rescinds a tax credit reservation in a calendar year, the maximum aggregate amount of all tax credits that the office may reserve in that calendar year set forth in subsection (5)(a) of this section is increased by the amount of the rescinded tax credit reservation. (II) (A) Any services provided by a certified public accountant to meet the requirements of this subsection (6)(c) must be performed in Colorado. (B) The office shall develop a list of certified public accountants that meet the requirements of this section. Such list must be made available to all production companies and must be posted on the office of economic development's website. (d) The office shall develop procedures for the administration of this section, including application guidelines for production companies applying to receive a tax credit reservation. (7) (a) A production company shall claim the credit allowed under subsection (3) of this section by including the credit certificate issued to the production company by the office pursuant to subsection (6)(c)(I) of this section with its income tax return for the income tax year for which the certificate was issued. If the amount of the tax credit exceeds the production company's income taxes due on the income of the production company for the income tax year, the excess credit is not carried forward and shall be refunded to the taxpayer. (b) The office shall, in a sufficiently timely manner to allow the department to process returns claiming the income tax credit allowed in this section, provide the department with an electronic report of each production company to which the office issued a tax credit certificate for the preceding income tax year that includes the following information: (I) The production company's name; (II) The amount of the income tax credit; and (III) The production company's social security number or the production company's Colorado account number and federal employer identification number. (8) The office of economic development and the office shall jointly review the effectiveness of the credit and report the results of the review to the house of representatives finance committee and the senate finance committee, or their successor committees, no later than July 1, 2028. (9) This section is repealed, effective December 31, 2034. Source: L. 2023: Entire section added, (HB 23-1309), ch. 379, p. 2271, § 1, effective August 7. L. 2024: (2)(i)(VIII), (2)(i)(IX), (3), (5)(a), IP(6)(a), (6)(a)(I), IP(6)(a)(II), (6)(b), (6)(c)(I), (6)(c)(II)(A), (6)(d), (7), and (8) amended, (2)(i)(X) added, and (5)(b) repealed, (HB 24-1358), ch. 260, p. 1722, § 1, effective August 7; (6)(c)(II)(A) amended, (HB 24-1450), ch. 490, p. 3426, § 85, effective August 7.