Could a Louisiana LLC earn the former motion-picture investor credit using prepaid distributor funds, and when would the credit pass through to its members?

Plain-English summary

The Louisiana LLC could be the investor and its payment to the production LLC could be the investment even though the money originated as a distributor's prepayment.

The result assumed that the production was approved as state-certified and that the investing LLC put at least $300,000 into each production. The Department said the source of the investment capital did not prevent the credit.

Official numbering conflict

The PDF's opening header and filename identify this document as PLR 02-015. Its second- and third-page footers say PLR 02-014. This page follows the opening self-citation while preserving both versions in the original text below.

Proposed structure

Three out-of-state distributors would prepay a Louisiana LLC, X, for a production. X would invest all of those funds in a Louisiana production LLC, Y. After production, the film, music video, or commercial would be delivered to the distributors, and X would rebate them a percentage of Louisiana credits it earned.

The ruling assumed the Film Commission and Department of Economic Development had approved the work as a state-certified production. It also assumed X and its members were Louisiana residents and X met the minimum investment.

Entity tax election controlled the claimant

If X elected federal corporate tax treatment, X would claim the credit on its Louisiana corporation income tax return and the credit would not pass through.

If X elected federal partnership tax treatment, its members could claim the credit on their Louisiana income tax returns. Allocation followed the membership agreement or, without one, each member's distributive share.

Membership timing

The statute earned the credit when the investment was made. Under the ruling, persons who were members at any time during that taxable year shared in the credit unless the membership agreement provided otherwise.

Common questions

Q: Did using distributor-prepayment money prevent X from being an investor?

A: No, under the ruling's facts and assumptions.

Q: Was production certification optional?

A: No. The ruling assumed approval by the Film Commission and Department of Economic Development.

Q: What minimum investment did the ruling require?

A: At least $300,000 in each state-certified production.

Q: Did the credit always pass through to members?

A: No. It passed through under partnership tax treatment, but remained with X under corporate tax treatment.

Citations and references

• La. R.S. 47:6007 — former Motion Picture Investor Tax Credit provisions applied in the ruling
• La. R.S. 47:287.11 — corporation income-tax treatment cited for X's corporate election
• Senate Bill 108 of the 2002 First Extraordinary Session
• LAC 61:III.101 — Private Letter Ruling authority and reliance statement

Source

• Landing page: Louisiana Department of Revenue Policies
• Original PDF: LA PLR 02-015 (page footers say 02-014)

Original ruling text

STATE OF LOUISIANA

DEPARTMENT OF REVENUE

M. J. "MIKE" FOSTER, JR.

CYNTHIA BRIDGES

Governor

Secretary

Private Letter Ruling
Redacted Version
No. 02-015
December 13, 2002
Corporation Income Tax and Individual Income Tax
Availability of the Motion Picture Investor Tax Credit

This is in reply to your request for a private letter ruling concerning the availability of the
Louisiana motion picture investor tax credit to the transactions proposed by the ABC Group, X,
LLC and the Y, LLC.
You provided the following facts:
Three corporations, A Corporation, a duly organized New York corporation, B Corporation, a
duly organized New York Corporation and C Corporation, a duly organized California
Corporation, (the ABC Group) are in the business of distributing motion pictures, music videos
and television commercials. Due to the incentives of Senate Bill 108, the ABC Group is willing
to order a portion of its productions from Louisiana companies.
Louisiana residents will form a Louisiana limited liability company (LLC), X. The members of
X will all be Louisiana citizens who are subject to Louisiana income tax.
Y, LLC (Y) is a Louisiana limited liability company and is in the business of producing motion
pictures, music videos and television commercials.
The ABC Group, X, and Y will enter into an agreement wherein upon the certification of a
production as a “state-certified production” the ABC Group will transfer funds to X in order to
pre-pay for purchase of this production. X then will then invest all of said funds in Y, as
consideration for the production of a motion picture, music video and/or television commercial.
Once the motion picture, music video and/or television commercial is produced the production
shall be delivered to the ABC Group for distribution.
X will owe to the ABC Group a rebate equal to a percentage of any Louisiana state tax credits it
earns pursuant to Senate Bill 108.
Attached to your request for a private letter ruling is a document entitled “Purchase and
Distribution Agreement”, dated 2002, and signed by representatives of the ABC Group, X and Y.
This document outlines the proposed transaction in detail and is incorporated by reference.
You asked the following questions:
1.

Is X an investor in accordance with the meaning of Senate Bill 108?

2.
Is the payment by X to Y (the pre-payment received from ABC) considered an
investment by X in accordance with Senate Bill 108?
Policy Services Division
Post Office Box 44098 • Baton Rouge • 70804-4098• Telephone 225-219-2780 • 225-219-2759 (Fax)
www.rev.state.la.us
An Equal Opportunity Employer

Private Letter Ruling 02-014
Page 2 of 3
December 13, 2002
3.
Will the Louisiana tax credits of Senate Bill 108 be available to the members of X based
on these proposed transactions?
4.
Will the Louisiana tax credits be available to all members of X, notwithstanding when a
person becomes a member of X? That, is, if a Louisiana citizen is a member of X by December
of year-end, will that person be entitled to his/her share of all credits available to X pursuant to
Senate Bill 108?
Discussion:
Senate Bill 108 of the 2002 First Extraordinary Session of the Louisiana Legislature amended
La. Rev. Stat. § 47:6007, the Motion Picture Investor Tax Credit. Prior to these amendments, the
credit was only applicable to productions produced by motion picture production companies that
were corporations. The amendment expanded the availability of the credit by allowing the
production company to be any legal entity structure, including a limited liability company.
To be able to earn the credit, a taxpayer must be domiciled in the state of Louisiana and must
invest a minimum three hundred thousand dollars in a state-certified production. See La. Rev.
Stat. § 47:6007(C). To qualify as a state-certified production, the production must meet several
tests that are set forth in the definition section of La. Rev. Stat. § 47:6007(B).
A “state-certified production” is defined in La. Rev. Stat. § 47:6007(B)(5) as “a production
approved by the Louisiana Film and Video Commission and the Department of Economic
Development produced by a motion picture production company domiciled and
headquartered in Louisiana which has signed a distribution agreement with either a major
theatrical exhibitor, television network, or cable television programmer.” La. Rev. Stat. §
47:6007 defines a “motion picture production company” as “a company engaged in the
business of producing nationally distributed motion pictures.” A “motion picture” is defined as
“a nationally distributed feature length film, video, television series, or commercial made in
Louisiana, in whole or in part for theatrical or television viewing or as a television pilot. The
term ‘motion picture’ shall not include the production of television coverage of news and athletic
events.” A motion picture production company is “headquartered in Louisiana” if it is “a
corporation incorporated in Louisiana or a membership, limited liability company, or other
business entity domiciled and headquartered in Louisiana for the purpose of producing nationally
distributed motion pictures. (Emphasis added.)
The statute gives the Louisiana Film and Video Commission (the Film Commission) and the
Department of Economic Development (DED) joint authority to determine if a production
qualifies as a state-certified production. Therefore, if the Film Commission and DED approve a
production as a state-certified production, the Department of Revenue will abide by their
determination.
For purposes of this private letter ruling, it will be assumed that any production made under the
Purchase and Distribution Agreement will meet all of the above requirements and has been
determined by the Film Commission and DED to be a “state-certified production.” It will also be
assumed that X will make at least the minimum required investment of three hundred thousand
dollars in each production. Because X and its members are Louisiana residents, X will be
considered an investor and entitled to earn the credit on an investment made in a “state-certified
production” that meets or exceeds the threshold amount, regardless of the source of the capital
used to make the investment.

Private Letter Ruling 02-014
Page 3 of 3
December 13, 2002
If X elects to be taxed as a corporation for federal income tax purposes, X will be an entity
subject to Louisiana corporation income tax under La. Rev. Stat. § 47:287.11. In this situation,
the credit must be claimed on X’s Louisiana corporation income tax return and will not flow
through to its members, La. Rev. Stat. § 47:6007(C)(3)(a). If X elects to be taxed as a partnership
for federal income tax purposes it will not be an entity subject to Louisiana corporation income
tax, and the members of X will be entitled to claim the credit on their Louisiana income tax
returns as set forth in La. Rev. Stat. § 47:6007(C)(3)(c). The amount of the credit that will flow
through to each member will depend on the terms of the membership agreement, or if there is no
membership agreement, then it will flow through according to each member’s distributive share.
The motion picture investor tax statute provides that “the tax credit shall be earned by investors
at the time of such investment in such state-certified productions...” See La. Rev. Stat. §
47:6007(C)(1). Credits that are earned by X will flow through to all members of X who were
members at any time during the taxable year in which the investment was made unless otherwise
provided in the membership agreement.
Ruling:
Based upon the facts provided and the necessary assumptions set forth, for purposes of the credit
authorized by La. Rev. Stat. § 47:6007, X will be considered an investor, the payment by X to Y
will be considered an investment, and the credit will be available to the members of X that are
Louisiana residents. If X elects to be taxed as a partnership for federal income tax purposes
persons who are members of X at any time during the taxable year in which the credit is earned
will be entitled to a share of the credit as provided in the membership agreement.
Cynthia Bridges
Secretary
By:

Leonore F. Heavey
Attorney
Policy Services Division

This correspondence constitutes a private letter ruling (PLR) by the Louisiana Department of Revenue, as provided
for by section 61:III.101 of the Louisiana Administrative Code. A PLR provides guidance to a specific taxpayer at
the taxpayer's request. It is a written statement that applies principles of law to a specific set of facts or a particular
tax situation. A PLR does not have the force and effect of law, and is not binding on the person who requested it or
on any other taxpayer. This PLR is binding on the department only as to the taxpayer to whom it is addressed, and
only if the facts presented were truthful and complete and the transaction was carried out as proposed. It continues
as authority for the department's position unless a subsequent declaratory ruling, rule, court case, or statute
supersedes it.