How does Louisiana's Motion Picture Investor Tax Credit work — who can earn it, can it be transferred and sold, and how is it applied to a tax bill?

Plain-English summary

This ruling is a set of frequently asked questions the Louisiana Department of Revenue answered about the Motion Picture Investor Tax Credit under La. R.S. 47:6007 — the state's incentive for people who invest in Louisiana film, video, and television productions. Using a sample fact pattern, it explains who can earn the credit, how the credit can be transferred or sold, what counts as an "investment," and how a taxpayer can apply the credit to a tax bill.

The big-picture answers: an investor earns the credit by putting money into a certified production company (the credit is earned by the investor, not by the production company itself); the credit can be freely transferred or sold as long as it has not already been claimed; and once the Film Office and the Department of Economic Development issue a credit-certification letter, the Department of Revenue will honor it and will not claw the credit back except from someone who claims more than was certified or who commits fraud.

Who can earn the credit, and on what production

• A "motion picture production company" (La. R.S. 47:6007(B)(4)) is a company in the business of producing nationally distributed motion pictures. A company controlled by anyone in default on a state loan, or who discharged a debt of public money in bankruptcy, does not qualify.
• Whether a production is "state-certified" is decided jointly and exclusively by the Governor's Office of Film and Television Development (the "Film Office") and the Department of Economic Development (LED), not by the Department of Revenue.
• Any investor that is not itself a production company can earn the credit — including a tax-exempt entity — and may claim and use the credits it earns (La. R.S. 47:6007(C)(1), (C)(3)(c)).

Transferring and selling the credit

• The credit is transferable: an investor or a later purchaser can transfer it, as long as the credits have not already been claimed against Louisiana income tax (La. R.S. 47:6007(C)(4)).
• Every certified production gets a unique identification number, and a transfer requires a detailed notice to the Film Office/LED and the Department under La. R.S. 47:6007(C)(4)(b) — including the parties' balances before and after transfer, tax ID numbers, the date and amount, the price paid, and a copy of the certificate (or the certification letter with the production's unique ID).

What counts as an "investment"

• Contributing a note counts as an investment equal to the note's original principal only if the note bears a market rate of interest and the production company can demand the full principal at any time and have it paid promptly; otherwise the investment is only the note's fair market value on the day it is contributed.
• After a production is completed, only amounts that do not exceed the production company's bona fide debts or obligations related to the certified production count as an "investment." Money contributed during pre-production, production, or post-production is presumed to fit the statute's purpose.
• "Base investment" is the actual investment made and expended in Louisiana as production expenditures directly used in a certified production (or in developing a certified infrastructure project).

How the Department honors the certification — and when it can recapture

Once the Film Office and LED issue the Investor Tax Credit Certification Letter, the Department of Revenue agrees not to bring a recapture, disallowance, or forfeiture action under La. R.S. 47:6007(E), (F), or otherwise — with two exceptions:

1. Someone claimed more credits than were certified, in which case the action is directed only at the person who over-claimed; or
2. Someone committed fraud or a material misrepresentation in claiming or using the credits, in which case the action is directed only at that person.

Certification requires the production company to first submit a cost report of production expenditures audited and certified by an independent CPA.

Applying the credit to a tax bill

• You cannot amend a prior-year return to apply a later-acquired credit and generate a refund with interest for a year whose tax has already been satisfied or is not currently due.
• You can apply a later-acquired credit to an income-tax liability that is still due for the year the credit was earned and for later years, until the 10-year carry-forward period ends; penalties and interest keep accruing until the tax is paid.
• A credit that you earned or received by flow-through cannot wipe out penalties and interest on overdue income tax from prior years. But a credit you purchased is treated as property and can be applied to those penalties and interest (La. R.S. 47:1675(H)(1)(c)).
• The credit's availability does not depend on the taxpayer's residence or domicile — any Louisiana taxpayer may use it to offset Louisiana tax.

What this means for you

If you invest in a certified Louisiana production, this ruling tells you the credit is yours to keep or sell, and that the state's certification letter is meant to give buyers confidence the credit won't be reversed absent over-claiming or fraud. If you buy credits on the secondary market, note the distinction the ruling draws: a purchased credit is treated as property and has broader use (including against old penalties and interest) than a credit you earned directly. Because film-credit rules turn on documentation — the certification letter, the CPA-audited cost report, and the transfer notice — keep those records with any return that claims the credit.

Common questions

Q: Can a tax-exempt organization earn the credit?

A: Yes. The ruling says any investor that is not a motion picture production company — "including a tax exempt entity" — is eligible to earn the credit.

Q: If I buy credits from someone else, can I use them against penalties and interest on old tax bills?

A: Yes. The ruling treats a purchased credit as property, so it can be applied to penalties and interest on overdue income taxes from prior years — unlike a credit you earned directly or received by flow-through.

Q: Does living outside Louisiana stop me from using the credit?

A: No. The ruling states that any Louisiana taxpayer may use the credit to offset Louisiana tax liability regardless of residence or domicile.

Q: Will the Department take the credit back after it is certified?

A: Generally no. After the certification letter issues, the Department agreed not to recapture or disallow the credit except against a person who claimed more than was certified or who committed fraud or a material misrepresentation.

Citations and references

• La. R.S. 47:6007 — Motion Picture Investor Tax Credit (definitions in (B)(4)/(B)(5); earning/using in (C)(1)/(C)(3)(c); transfer and notice in (C)(4)/(C)(4)(b); recapture in (E)/(F))
• La. R.S. 47:1675(H)(1)(c) — a purchased credit is treated as property
• La. R.S. 12:1301 et seq. — Louisiana Limited Liability Company Law
• Act 456 of the 2005 Regular Session of the Louisiana Legislature
• LAC 61:III.101(C) — Revenue Ruling authority and reliance statement

Source

• Landing page: Louisiana Department of Revenue Policies
• Original PDF: LA Revenue Ruling 06-016

Original ruling text

Revenue Ruling
No. RR 06-016
October 12, 2006
Corporation Income Tax
Frequently Asked Questions Concerning the
Motion Picture Investor Tax Credit
The purpose of this revenue ruling is to provide guidance to persons seeking to earn, claim,
or transfer the Motion Picture Investment Tax Credit earned by investment in a “motion
picture production company” producing a “state-certified production.” Below is a common
fact pattern that illustrates the use of the Investor Tax Credit. After the fact pattern, this
ruling will address questions taxpayers frequently ask the Department concerning specific
aspects of the Investor Tax Credit.
STATEMENT OF FACTS
1.

On June 1, 2006, the Louisiana Department of Economic Development (“LED”) and
the Louisiana Governor’s Office of Film and Television Development (the “Film
Office”) approved the “Production” as a “state-certified production” as defined in La.
Rev. Stat. 47:6007(B)(5).

2.

Motion Picture (MP), a motion picture production company, was formed as a limited
liability company under the Louisiana Limited Liability Company Law, La. Rev. Stat.
12:1301, et seq., on June 1, 2005. MP was formed in order to produce motion pictures
in Louisiana, including the “Production”. Since the date of its formation and at all
relevant times described herein, MP (a) has maintained, and will continue to maintain,
a registered office in the State of Louisiana; (b) has been, and will continue to be,
domiciled and headquartered in Louisiana; (c) has been, and will continue to be,
engaged in the business of producing nationally distributed motion pictures, videos,
television series, or commercials intended for theatrical release or television viewing.
MP is not owned, affiliated, or controlled, in whole or in part, by any company or
person which is in default on a loan made by the State of Louisiana or a loan
guaranteed by the State of Louisiana, nor is MP owned, affiliated, or controlled, in
whole or in part, by any company or person who has ever declared bankruptcy under
which an obligation of the company or person to pay or repay public funds or monies
was discharged as a part of such bankruptcy.

3.

The sole member of MP is Pictures. For federal and state tax purposes, Pictures and
MP are classified as entities that are disregarded as entities separate from their owners.

4.

Pictures was formed as a limited liability company under the Louisiana Limited
Liability Company Law, La. Rev. Stat. 12:1301, et seq., on August 8, 2005, for the
purpose of investing in MP.

5.

The sole member of Pictures is Pics Television Productions, Inc. (“Pics”), a Delaware
corporation.

6.

Pursuant to La. Rev. Stat. 12:1301, et. seq., MP and Pictures operated without written
operating agreements. All of the Louisiana Motion Picture Investor Tax Credits that
have been earned by Pictures shall flow through to Pics at the end of Pictures’ tax year.

7.

At this time, Pictures is a single-purpose entity that is not expected to have any
business activities other than investing in productions, including the Production. Pics is
in the business of, among other things, producing motion pictures.

8.

Pics intends to sell or otherwise transfer all or a portion of the Investor Tax Credits
generated in connection with the Production to one or more persons.

9.

For example, Pics is undertaking the following transaction involving Sell Your Credits
Corporation (“SYC”):
a.

Pics has or will enter into a written agreement (the “Purchase Agreement”) with
SYC providing for SYC’s purchase at one or more closings of all the Investor Tax
Credits earned by Pictures. The ultimate number of Investor Tax Credits to be
purchased by SYC at the closings will depend on MP’s actual expenditures, as
certified by LED and the Film Office. At each closing, the Purchase Agreement
will require SYC to pay Pics an agreed upon purchase price for the Investor Tax
Credits.

b.

In calendar year 2006, Pictures will contribute to MP cash and a Pictures’ Note.
The amount of cash contributed and the principal amount of the Pictures’ Note are
to equal the estimated total Production budget. MP will spend Pictures’ calendar
year 2006 investment on Production-related expenses in calendar years 2006 and
2007 but in any case within 24 months of the date of such investment. The
Investor Tax Credits earned in connection with the Production will be certified as
free from recapture in one or more Investor Tax Credit Certification Letters issued
over the duration of the Production and possibly in more than one calendar year.
Therefore, the Purchase Agreement will provide for one or more closings to
coincide with the certifications of the Investor Tax Credits earned in connection
with the Production.

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10.

SYC does not currently expect to be able to use the Investor Tax Credits that it will
purchase from Pics to offset any of its Louisiana income or franchise tax liability.
Accordingly, SYC expects to sell, or otherwise transfer all or a portion of the Investor
Tax Credits to one or more persons.

11.

Pics uses a June 30 fiscal year, and SYC uses a calendar year as its tax year for federal
and state tax purposes.

12.

Some, if not all, persons who will purchase Investor Tax Credits from Pics will do so
after Pictures has made some, or all, of its capital contributions to MP, after MP has
expended some, or all, of those contributions on Production-related expenses (either
directly or by repaying loans used to fund such expenses) and after the Production has
been certified and completed.

13.

Neither Pictures nor SYC, other than through direct and indirect investments in MP,
has ever been, or is currently engaged in the business of producing films, videos,
television series, or commercials of any kind or has ever produced a film, video,
television series, or commercial of any kind.

14.

Upon the sale or transfer of the Investor Tax Credits, the seller/transferor and the
transferee of the Investor Tax Credits will submit to the Louisiana Department of
Revenue (LDR) and the Film Office the notification of transfer required by La. Rev.
Stat. 47:6007(C)(4)(b).

FREQUENTLY ASKED QUESTIONS

1. What is a “motion picture production company” for purposes of the Investor Tax
   Credit?
   A motion picture production company is defined in La. Rev. Stat. 47:6007(B)(4) as a
   company engaged in the business of producing nationally distributed motion pictures.
   However, a motion picture production company cannot be a company owned,
   affiliated, or controlled, in whole or in part, by any company or person that is in default
   on a loan made by the state or a loan guaranteed by the state, any company or person
   who has ever declared bankruptcy under which an obligation of the company or person
   to pay or repay public funds or monies was discharged as a part of such bankruptcy.
2. Who determines whether a production qualifies as a state-certified production?
   Louisiana Revised Statutes 47:6007 gives the Film Office and LED, jointly, the
   exclusive authority to determine whether a production qualifies as a state-certified
   production.

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3. Who is eligible to earn the Investor Tax Credit?
Any investor, including a tax exempt entity, that is not a motion picture production
company is eligible to earn the Investor Tax Credits under La. Rev. Stat. 47:6007(C)(1)
and is entitled to claim and use any Investor Tax Credits that it earns by virtue of its
investments in a motion picture production company in accordance with La. Rev. Stat.
47:6007(C)(3)(c).

4. Is the Investor Tax Credit transferable?
   La. Rev. Stat. 47:6007(C)(4) provides that an investor or subsequent purchaser is
   eligible to transfer any Investor Tax Credits that it earns as long as such credits have
   not been previously claimed by any taxpayer against Louisiana income tax.
5. Can the contribution of an interest-bearing note constitute an investment and, if so,
   what is the value of the investment?
   For purposes of La. Rev. Stat. 47:6007(C)(1), the contribution of a note bearing a
   market rate of interest will constitute an investment on the date of contribution in an
   amount equal to the original principal amount of the note only if payment of the entire
   principal amount of any such note can be demanded at any time by the production
   company and if such principal amount is immediately available (subject to a reasonable
   payment deadline such as five business days) upon any such demand. If a note does not
   meet these criteria, then the amount of the investment will be deemed to be the fair
   market value of the note on the day it is contributed to the production company.
6. What contributions constitute an investment after the production is completed?
   After a production is completed, the only amounts that will be considered an
   “investment” will be amounts that do not exceed the bona fide debt or other
   outstanding obligations of the motion picture production company related to the statecertified production. Investments made in a motion picture production company for the
   production of a state-certified production during pre-production, production, or postproduction, will be presumed to be in keeping with the objectives of the statute which
   include attracting private investment for the production of motion pictures, videotape
   productions, and television programs. Once production is completed, then to the extent
   that the motion picture production company does not have bona fide debt or other
   outstanding obligations related to the state-certified production, any funds contributed
   will not be considered an “investment” for purposes of the Investor Tax Credit.
7. What is the “base investment”?
   Base investment is defined as either the actual investment made and expended by a
   state-certified production in the state as production expenditures incurred in this state
   that are directly used in a state-certified production or productions or the actual
   investment made and expended by a person in the development of a state-certified
   infrastructure project or both.

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8. Who determines whether funds were properly expended with respect to a statecertified production prior to issuing an Investor Tax Credit Certification Letter?
Prior to any certification of expenditures of the state-certified production, the motion
picture production company shall submit to the Film Office a cost report of production
expenditures audited and certified by an independent CPA as determined by rule. The
Film Office shall review the production expenses and will issue an Investor Tax Credit
certification letter indicating the amount of the Investor Tax Credits certified for the
state-certified production.

9. Will LDR accept the Investor Tax Credit certification letter issued by LED and the
   Film Office?
   LDR acknowledges and agrees that following the issuance of the Investor Tax Credit
   Certification Letter by LED and the Film Office, LDR will not initiate any action
   against the motion picture production company, the investor, partners or member of the
   investor or the transferee as the case may be, under La. Rev. Stat. 47:6007(E),
   47:6007(F), or otherwise, to recapture, disallow, recover, reduce, decertify, require
   repayment of, require forfeiture of, or otherwise limit the use of the Investor Tax
   Credits allocated or transferred to a Transferee, as the case may be, unless (1) LDR
   determines that motion picture production company, investors, members or partners of
   the investors or one or more Transferees claimed more Investor Tax Credits than LED
   and the Film Office certified by issuance of one or more Investor Tax Credit
   Certification Letters, or (2) the motion picture production company, investors,
   members or partners of the investors or the Transferee committed fraud or made a
   material misrepresentation when, in each case, claiming or utilizing the Investor Tax
   Credits.
   In the case of the motion picture production company, investors, members or partners
   of the investors or one or more Transferees claiming more Investor Tax Credits than
   LED and the Film Office certified by issuance of the Investor Tax Credit Certification
   Letter(s), any action to disallow, recover, reduce, or otherwise limit the use of the
   Investor Tax Credits will be directed solely against the person claiming more Investor
   Tax Credits than LED and the Film Office certified.
   In the case of fraud or material misrepresentation when claiming or utilizing the
   Investor Tax Credits on an income or franchise tax return, any recapture action will be
   directed solely against the person committing the fraud or making the material
   misrepresentation.
10. What must occur if an investor wants to transfer its Investor Tax Credits?
    Every production that is approved by LED and the Film Office as a state-certified
    production is issued a unique identification number. If any Investor Tax Credits are
    transferred or sold, then a copy of the credit certificate or certificates evidencing such
    Investor Tax Credits transferred or sold must be submitted as part of the notice

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required by La. Rev. Stat. 47:6007(C)(4)(b). The notification shall include the
transferor's Investor Tax Credits balance prior to transfer, a copy of any Investor Tax
Credit certification letter(s) issued by the Film Office and LED, the name of the
state-certified production, the transferor's remaining Investor Tax Credits balance
after transfer, all tax identification numbers for both transferor and transferee, the date
of transfer, the amount transferred, a copy of the credit certificate, price paid by the
transferee to the transferor, in a case where the transferor is a state-certified
production or state-certified infrastructure project for the Investor Tax Credits, and
any other information required by the Film Office, or LDR. The notice requirement
of La. R.S. 47:6007(C)(4)(b) will be met if, in lieu of the credit certificate or
certificates evidencing the Investor Tax Credits sold or transferred, the transferor and
the transferee submit a copy of the Investor Tax Credit Certification Letters that
include the unique identification number associated with the state-certified
production.
APPLICAION OF THE CREDITS

1. Can a return be amended to apply an Investor Tax Credit to a previous tax year if
   the income tax from that year is not currently due?
   The receipt of an Investor Tax Credit earned or received by flow-through or transfer,
   in a tax year subsequent to the tax year in which the Investor Tax Credit was earned
   cannot be used to eliminate a tax liability from a previous year that has already been
   satisfied or is not currently due. Therefore, a taxpayer cannot amend a previous year
   return, apply the newly acquired credit and generate a refund with interest.
2. Can a return be amended to apply a Tax Credit to a previous year if an income tax
   liability is still outstanding from a previous year?
   An Investor Tax Credit earned or received by flow-through or transfer, in a tax year
   subsequent to the tax year in which in the Investor Tax Credit was earned can be
   applied to any income tax liability that is still due for the year the credit was
   originally earned and still due for any year afterward until the 10-year carry-forward
   period is over. Penalties and interest will continue to accrue until the taxes on which
   such penalties and interest are accruing are paid. The date of payment is the date that
   LDR receives a return from a taxpayer on which the Investor Tax Credits are claimed.
3. Can a credit be used to eliminate any penalties and interest on overdue income tax
   liabilities from previous years?
   An Investor Tax Credit, in the hands of the taxpayer that earned the credit or
   received it by flow-through, cannot be used to eliminate any penalties and interest on
   overdue income taxes from prior tax years. However, an Investor Tax Credit that is
   purchased is treated as property and can be applied to penalties and interest on
   overdue income taxes from prior tax years. La. R.S. 47:1675(H)(1)(c). Penalties and
   interest will continue to accrue until the taxes on which such penalties and interest are

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accruing are paid. The date of payment is the date that LDR receives a return from a
taxpayer on which the Investor Tax Credits are claimed.

4. Is the availability of the credit affected by the domicile or residence of the taxpayer?
   Any Louisiana taxpayer may utilize Investor Tax Credit to offset their Louisiana tax
   liability regardless of their residence or domicile.
   Cynthia Bridges
   By:
   Nina S. Hunter
   Attorney
   Policy Services

History: Issued September 26, 2006. Modified on October 12, 2006 to clarify the definition
of “base Investment” and reflect Act 456 of the 2005 Regular Session of the Louisiana
Legislature.

A Revenue Ruling is issued under the authority of LAC 61III.101 (C). A Revenue Ruling is written to provide
guidance to the public and to Department of Revenue employees. It is a written statement issued to apply
principles of law to a specific set of facts. A Revenue Ruling does not have the force and effect of law and is not
binding on the public. It is a statement of the department's position and is binding on the department until
superseded or modified by a subsequent change in statute, regulation, declaratory ruling, or court decision.

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