What does a film or TV production company have to do -- in terms of headquarters status, spending thresholds, and documentation -- to claim Tennessee's 15% production incentive credit, and does the $1 million spending threshold apply once or to every production?

Plain-English summary

The Taxpayer wants to be recognized as a Tennessee "headquarters facility" so it can qualify for Tennessee's incentive for producing movies or episodic television programs in the state (§ 67-4-2109(k)) — a 15% credit against franchise and excise (F&E) tax liability for qualifying production expenses. A related entity has already served as headquarters for several feature films, and the Taxpayer was formed as a sole-purpose headquarters entity for a specific movie, with its president a longtime Tennessee resident and the entity's national headquarters and staff physically located in Tennessee. The Department answered seven questions covering the entire eligibility chain:

1. Headquarters facility status: Yes. The Taxpayer qualifies because its national headquarters, headquarters staff, and primary headquarters-related functions are all located and performed in Tennessee, satisfying § 67-6-224(b)(3).

2. "Qualified expenses": Yes, conditionally. Tennessee production costs count as qualified expenses only if both the Commissioner of Revenue and the Commissioner of Economic and Community Development determine the spending was necessary for the production and that the production and credit are in the state's "best interests."

3. "Qualified production company": Yes, conditionally. The Taxpayer becomes one if it incurs at least $1 million in qualified Tennessee expenses for the production.

4. 15% credit: Yes, if all requirements are met.

5. Is the $1 million threshold a one-time requirement? No. This is the most operationally important answer: the $1 million qualified-expenses threshold applies separately to each movie or episodic TV program produced in Tennessee — not once for the company as a whole. A production with $990,000 in Tennessee expenses earns zero credit, even if the company easily cleared $1 million on a prior film.

6(a). What does "necessary" mean? Expenses without which the production "could not have reasonably been made" — not merely the cheapest possible budget. A non-working bystander's salary wouldn't count; a person who splits time between this production and others only counts pro-rata for time actually spent on it; and only expenses incurred in Tennessee count at all.

6(b). What does "best interests of this state" mean? The statute's own definition: the Commissioners determine the production resulted from the credit being offered, and that it isn't "obscene" as separately defined in Tennessee's criminal code (§ 39-17-901).

7. Documentation: Flexible and case-by-case, set by the Commissioner's discretion, but the floor in every case is a listing of expenses and the name/address of each vendor paid; more (invoices, canceled checks, affidavits) may be required depending on the facts.

What this means for you

Film and TV production companies considering Tennessee

Plan around the per-production $1 million qualified-expenses threshold — a multi-film slate doesn't average out; each production needs its own qualifying spend. Budget Tennessee-incurred costs carefully, since expenses incurred outside Tennessee never count, regardless of their connection to the production.

Companies establishing a Tennessee headquarters facility for production purposes

Confirm your facility genuinely houses your headquarters staff and primary headquarters functions in Tennessee — that status (§ 67-6-224(b)(3)) is the gateway requirement before the qualified-expenses and credit-amount questions even matter.

Accountants and tax professionals

This pairs with LR 11-03 (the bona fide Tennessee advertising agency test for promotion/advertising expenses under the same § 67-4-2109(k) credit) — together they cover both the broader production-company eligibility mechanics and the narrower advertising-vendor-qualification question within the same incentive program. Note this ruling was served from the sales/ CDN folder despite being substantively an F&E tax credit ruling (credit against "combined franchise and excise tax liability") — folder placement isn't a reliable tax-type signal.

Common questions

Q: If our production company already qualified for the 15% credit on one film, do we automatically qualify for the next one?
A: No — the $1 million qualified-expenses threshold must be met separately for each movie or episodic TV program produced in Tennessee.

Q: Does "necessary" mean we have to produce the movie on the cheapest possible budget to claim full credit?
A: No — "necessary" means expenses without which the production couldn't reasonably have been made, not a bare-minimum-budget standard.

Q: Do expenses incurred outside Tennessee for a Tennessee production count toward the $1 million threshold?
A: No — only expenses incurred in Tennessee count as "qualified expenses."

Q: Can another film production company rely on this letter ruling for its own qualification?
A: No. A Tennessee letter ruling binds the Department only as to the specific taxpayer and facts it was issued to. This summary is informational only, not legal or tax advice.

Citations and references

Tennessee statutes (Tenn. Code Ann.):

• § 67-4-2109(k) (15% F&E tax credit for movie/episodic TV production expenses)
• § 67-4-2109(k)(1)(A) (definition of "qualified expenses" and "best interests of this state"); § 67-4-2109(k)(1)(B) ("qualified investor"); § 67-4-2109(k)(1)(C) (definition of "qualified production company")
• § 67-4-2109(k)(2)-(5) (credit amount, documentation, approval, refund procedures)
• § 67-6-224(b)(3) (definition of "headquarters facility")
• § 39-17-901(10), (2), (11), (12), (14) (definition of "obscene" and related terms)
• § 67-1-1802 (referenced, refund procedures)

Case law:

• Worrall v. Kroger Co., 545 S.W.2d 736 (Tenn. 1977) (statutory construction — intent of the legislature)
• National Gas Distributors, Inc. v. State, 804 S.W.2d 66 (Tenn. 1991) (natural and ordinary meaning of statutory language)
• State v. Givens, 1994 WL 406187 (Tenn. Crim. App. Aug. 4, 1994) (dictionary as source for ordinary meaning)

Source

• Landing page: https://www.tn.gov/revenue/tax-resources/legal-resources/tax-rulings.html
• Original PDF: https://www.tn.gov/content/dam/tn/revenue/documents/rulings/sales/11-05.pdf

Original ruling text

TENNESSEE DEPARTMENT OF REVENUE
LETTER RULING # 11-05
WARNING
Letter rulings are binding on the Department only with respect to the
individual taxpayer being addressed in the ruling. This presentation of the
ruling in a redacted form is informational only. Rulings are made in response
to particular facts presented and are not intended necessarily as statements
of Department policy.
SUBJECT
Statutory requirements to qualify for the incentive available for the production of a movie or
episodic television program in Tennessee.
SCOPE
This letter ruling is an interpretation and application of the tax law as it relates to a specific set of
existing facts furnished to the Department by the taxpayer. The rulings herein are binding upon
the Department, and are applicable only to the individual taxpayer being addressed.
This letter ruling may be revoked or modified by the Commissioner at any time. Such revocation
or modification shall be effective retroactively unless the following conditions are met, in which
case the revocation shall be prospective only:
(A) The taxpayer must not have misstated or omitted material facts
involved in the transaction;
(B) Facts that develop later must not be materially different from the
facts upon which the ruling was based;
(C) The applicable law must not have been changed or amended;
(D) The ruling must have been issued originally with respect to a
prospective or proposed transaction; and
(E) The taxpayer directly involved must have acted in good faith in
relying upon the ruling and a retroactive revocation of the ruling must
inure to his detriment.
FACTS
[TAXPAYER] wishes to be recognized as a “headquarters facility,” as the term is defined in
Tenn. Code Ann. § 67-6-224((b)(3), in the State of Tennessee for purposes of qualifying for the
incentive available under Tenn. Code Ann. § 67-4-2109(k) for the production of movies or
episodic television programs in Tennessee.
[TAXPAYER TWO] has served as a headquarters for [NUMBER] feature films and has received
conditional pre-approval on several other features. [TAXPAYER TWO] has entered into an

agreement with [TAXPAYER THREE] to be the headquarters for the feature film [NAME OF
MOVIE] and has formed [TAXPAYER] as a sole purpose headquarters for this film. This
headquarters will continue as a headquarters facility after the completion of the film.
The president of [TAXPAYER], [NAME OF INDIVIDUAL], has been a Tennessee resident and
registered voter in Tennessee since [DATE]. His [NUMBER] automobiles are registered in
Tennessee and his [NUMBER] children are enrolled in [NAME OF SCHOOL] in [NAME OF
COUNTY].
The national headquarters of [TAXPAYER] is located at [STREET ADDRESS], [CITY],
Tennessee [ZIP CODE]. The headquarters staff employees of [TAXPAYER] are located and
employed at this address and its primary headquarters related functions and services are
performed there.
None of the movies or episodic television productions that [TAXPAYER] plans to produce in
Tennessee for purposes of the incentive provided by Tenn. Code Ann. § 67-4-2109(k) will be
vulgar in nature or “obscene,” as the word is defined in Tenn. Code Ann. § 39-17-901.
QUESTIONS PRESENTED

1. Will [TAXPAYER] qualify as a “headquarters facility,” pursuant to Tenn. Code Ann. § 67-6224(b)(3) and for purposes of Tenn. Code Ann. § 67-4-2109(k)(2)?
2. Will the costs and expenses incurred by [TAXPAYER] in Tennessee to produce movies or
   episodic television programs in the State of Tennessee be deemed to be “qualified
   expenses,” as defined in Tenn. Code Ann. § 67-4-2109(k)(1)(A)?
3. If [TAXPAYER] incurs at least $1 million in “qualified expenses”, will it be deemed a
   “qualified production company,” as the term is defined in Tenn. Code Ann. § 67-42109(k)(1)(C)?
4. Assuming that each of the above questions are answered in the affirmative, will
   [TAXPAYER] be entitled to a credit amounting to 15% of qualified expenses as set forth in
   Tenn. Code Ann. § 67-4-2109(k)(2)?
5. Tenn. Code Ann. § 67-4-2109(k)(1)(C) states that to be deemed a “qualified production
   company,” an entity must incur at least $1 million in “qualified expenses.” Is this a one-time
   threshold requirement?
6. Tenn. Code Ann. § 67-4-2109(k)(1)(A) states that “qualified expenses” are those expenses
   incurred in Tennessee that “are necessary for the production of a movie or episodic
   television program in this state” that is “in the best interests of this state.”
   (a) What does the language “necessary for the production of a movie or episodic television
   program in this state” mean?
   (b) What does the language “in the best interests of this state” mean?
   2

7. What documentation is required to evidence “qualified expenses”?
RULINGS

1. Yes.
2. Yes, provided that the costs and expenses are determined by the Commissioner of Revenue
   and the Commissioner of Economic and Community Development to be necessary for the
   production of a movie or episodic television program in Tennessee that is in the best
   interests of the State of Tennessee.
3. Yes.
4. Yes, provided that all applicable statutory requirements of Tenn. Code Ann. § 67-4-2109(k)
   are met.
5. No. The qualified production company must incur at least $1 million in Tennessee qualified
   expenses for the production of each movie or episodic television program produced in
   Tennessee that is eligible for the incentive credit.
6. (a) Expenses “necessary for the production of a movie or episodic television program in this
   state” are expenses incurred in Tennessee without which the movie or episodic television
   program could not have reasonably been made. The phrase “necessary for the
   production of a movie or episodic television program in this state” does not mean only the
   expenses that would be necessary to make the movie or episodic television program in
   Tennessee on the lowest possible budget.
   (b) Tenn. Code Ann. § 67-4-2109(k)(1)(A), defines the phrase “in the best interests of this
   state” for purposes of movie or episodic television program incentives, to mean “. . . a
   determination by the commissioner of revenue and the commissioner of economic and
   community development that the production is a result of the credit provided in this
   subsection (k) and that the production is not found to be obscene as defined in § 39-17901.”
7. Any documentation that, in the opinion of the Commissioner, is necessary to satisfy him that
   the expenses claimed are eligible for the statutory incentive will be required. Actual
   documentation required will be determined by the Commissioner on a case-by-case basis
   and may vary depending on the factual situation with which the Commissioner is presented.
   The minimal documentation that will be required in every case will be a listing of the
   expenses incurred and the name and address of each vendor to whom each expense was
   paid. The Commissioner will not require any more documentation regarding “qualified
   expenses” than is absolutely and reasonably necessary to satisfy him that the expenses
   claimed are eligible for the statutory incentive.

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ANALYSIS
APPLICABLE STATUTES
The following definitions are set forth in Tenn. Code Ann. § 67-4-2109(k)(1) with regard to the
availability of a credit for a percentage of the expenses incurred in producing a movie or
episodic television program in Tennessee.
(A) “Qualified expenses” means those expenses incurred in this state that are necessary
for the production of a movie or episodic television program in this state; provided,
however, that such expenses shall not qualify under this subdivision (k)(1)(A) unless
both the commissioner of revenue and the commissioner of economic and community
development determine, in their sole discretion, that the production and the allowance
of the credit are in the best interests of this state. For purposes of this subdivision
(k)(1)(A), “best interests of this state” means a determination by the commissioner of
revenue and the commissioner of economic and community development that the
production is a result of the credit provided in this subsection (k) and that the production
is not found to be obscene as defined in § 39-17-901;
(B) “Qualified investor” means any entity that has established a headquarters facility as
defined in § 67-6-224 that has invested in a qualified production company; and
(C) “Qualified production company” means any entity that incurs at least one million dollars
($1,000,000) in qualified expenses.
The word “obscene” used in Tenn. Code Ann. § 67-4-2109(k)(1)(A) set forth above is defined in
Tenn. Code Ann. § 39-17-901(10) as follows:
(10) “Obscene” means:
(A) The average person applying contemporary community standards would find that the
work, taken as a whole, appeals to the prurient interest;
(B) The average person applying contemporary community standards would find that the
work depicts or describes, in a patently offensive way, sexual conduct; and
(C) The work, taken as a whole, lacks serious literary, artistic, political, or scientific
value[.]
The terms “community,” “patently offensive,” “prurient interest,” and “sexual conduct” used in
Tenn. Code Ann. § 39-17-901(10), set forth above, are defined as follows in Tenn. Code Ann. §
39-17-901(2), (11), (12) and (14):
(2)

“Community” means the judicial district, as defined in § 16-2-506, in which a violation is
alleged to have occurred[.]

(11) “Patently offensive” means that which goes substantially beyond customary limits of
candor in describing or representing such matters;
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(12) “Prurient interest” means a shameful or morbid interest in sex;
(14) “Sexual conduct” means:
(A) Patently offensive representations or descriptions of ultimate sexual acts, normal or
perverted, actual or simulated. A sexual act is simulated when it depicts explicit
sexual activity that gives the appearance of ultimate sexual acts, anal, oral or genital.
“Ultimate sexual acts” means sexual intercourse, anal or otherwise, fellatio,
cunnilingus or sodomy; or
(B) Patently offensive representations or descriptions of masturbation, excretory
functions, and lewd exhibition of the genitals[.]
Tenn. Code Ann. § 67-6-224(b)(3), referenced in Tenn. Code Ann. § 67-4-2109(k)(1)(B), set
forth above, defines a “headquarters facility” as follows:
(3) “Headquarters facility” means a facility in this state that houses the international, national,
or regional headquarters of a taxpayer, where headquarters staff employees are located
and employed, and where the primary headquarters related functions and services are
performed.
Tenn. Code Ann. § 67-4-2109(k) makes the following provisions for a qualified production
company or a qualified investor that has established a headquarters facility in Tennessee to
obtain a credit for a percentage of the expenses incurred in producing a movie or episodic
television program in Tennessee:
(2) A credit in an amount equal to fifteen percent (15%) of any qualified expenses shall be
allowed against the combined franchise and excise tax liability of any qualified production
company that has established a headquarters facility as defined in § 67-6-224. If the
qualified production company does not have a headquarters facility as defined in § 67-6224, then any qualified investor shall be allowed a credit equal to the amount of credit to
which the qualified production company would have been entitled had it established a
headquarters facility as defined in § 67-6-224, multiplied by the qualified investor’s
percentage ownership interest in the qualified production company.
(3) In order for either a qualified production company or a qualified investor to become
entitled to a credit under this subsection (k), the qualified production company shall
submit documentation verifying that the qualified expenses have been incurred and paid.
(4) The commissioner shall review the documentation and notify the qualified production
company of the approved credit.
(5) Once the qualified production company has been notified of the approved credit, either
the qualified production company or the qualified investment company, as appropriate,
may submit a claim for the credit. To the extent that any amount allowed as a credit
under this subsection (k) exceeds the current and outstanding combined franchise and
excise tax liability of the claimant, the amount of such excess shall be deemed an
overpayment and shall be refunded to the claimant. For qualified expenses incurred and
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paid during any tax year, the commissioner is authorized to issue a refund as described
in this subdivision (k)(5) prior to the expiration of such tax year if the amount of the
approved credit exceeds the claimant’s current and outstanding franchise and excise tax
liability on the date of such refund. Any refund under this subsection (k) shall be subject
to the procedures of § 67-1-1802; provided, however; notwithstanding any procedure of §
67-1-1802 to the contrary, that a claim for refund shall be filed with the commissioner
within three (3) years from December 31 of the year in which the qualified expenses were
incurred. In no case shall a refund for the same qualified expenses be allowed twice.
APPLICATION OF THE STATUTES TO
A QUALIFIED PRODUCTION COMPANY
Tenn. Code Ann. § 67-4-2109(k) provides that a qualified production company may qualify for a
credit amounting to 15% of certain Tennessee expenses incurred in the production of a movie or
episodic television program in Tennessee if the following requirements are met:

1. The qualified production company must have established a “headquarters facility” in
   Tennessee. This requirement will be met if the qualified production company has a
   Tennessee office that meets the following criteria:
   (a) The Tennessee office must be a “headquarters facility” that houses the entity’s
   international, national, or regional headquarters (See Tenn. Code Ann. § 67-6224(b)(3)).
   (b) The Tennessee office must be where the entity’s primary headquarters related
   functions and services are performed (See Tenn. Code Ann. § 67-6-224(b)(3)).
   (c) The Tennessee office must be the employment location and physical location of the
   entity’s headquarters staff employees (See Tenn. Code Ann. § 67-6-224(b)(3)).
2. The entity so established must:
   (a) Incur at least $1 million in Tennessee “qualified expenses” in the production of a
   movie or episodic television program; and
   (b) Secure a written determination by the Commissioner of Revenue and the
   Commissioner of Economic and Community Development stating that:
   (i) The movie or episodic television program is in the best interest of Tennessee (See
   Tenn. Code Ann. § 67-4-2109(k)(1)(A)); and
   (ii) The expenses incurred in producing the movie or episodic television program were
   necessary for such production in Tennessee (See Tenn. Code Ann. § 67-42109(k)(1)(A)); and
   (iii) The movie or episodic television program is a result of the credit provided in Tenn.
   Code Ann. § 67-4-2109(k) (See Tenn. Code Ann. § 67-4-2109(k)(1)(A)); and
   6

(iv) The movie or episodic television program is not “obscene,” as the word is defined
in Tenn. Code Ann. § 39-17-901 (See Tenn. Code Ann. § 67-4-2109(k)(1)(A)).

3. The “qualified production company” must submit to the Commissioner of Revenue
   documentation of the Tennessee expenses incurred in producing the movie or episodic
   television program (See Tenn. Code Ann. § 67-4-2109(k)(3)). Expenses for talent will be
   considered incurred in Tennessee if the person to whom payment is made is a
   permanent resident of Tennessee. Expenditures for travel must be paid to a bona fide
   Tennessee travel agency or a bona fide permanent Tennessee business establishment
   engaged in providing travel services.
4. Upon review of the documentation submitted for the expenses incurred in producing the
   movie or episodic television program, the Commissioner of Revenue will notify the
   “qualified production company” of the approved amount (See Tenn. Code Ann. § 67-42109(k)(4)).
5. If approved, a credit in the amount of 15% of “qualified expenses” will be allowed against
   the franchise, excise tax liability of the “qualified production company” or the “qualified
   investor,” as appropriate (See Tenn. Code Ann. § 67-4-2109(k)(2)).
6. If the amount of the approved incentive credit exceeds the franchise, excise tax liability of
   the entity entitled to the credit, then the excess may be refunded to the entity (See Tenn.
   Code Ann. § 67-4-2109(k)(5)).
7. In order for the excess credit to be refunded, the entity entitled to the credit must submit a
   refund claim to the Department of Revenue within 3 years from December 31 of the year
   in which the “qualified expenses” were incurred (See Tenn. Code Ann. § 67-42109(k)(5)).
8. The refund claim must be processed under the provisions of Tennessee law which
   requires approval of the Commissioner of Revenue and the Tennessee Attorney General
   (See Tenn. Code Ann. § 67-4-2109(k)(5)).
   A “qualified production company” or “qualified investor,” as appropriate, that meets the above
   outlined requirements will be allowed a credit against its franchise, excise tax liability equal to
   15% of the qualified Tennessee expenses that it incurs in the production of a movie or episodic
   television program in Tennessee and will be refunded the amount that the credit exceeds such
   liability.
   We turn now to an analysis of the Rulings made in response to the questions presented.
   1.

[TAXPAYER] WILL BE CONSIDERED A “HEADQUARTERS
FACILITY” UNDER THE PROVISIONS OF TENN. CODE ANN. § 67-6-224(b)(3)
AND FOR PURPOSES OF TENN. CODE ANN § 67-4-2109(k)(2)

[TAXPAYER] will be considered a “headquarters facility” under the provisions of Tenn. Code
Ann. §§ 67-6-224(b)(3) and for purposes of 67-4-2109(k)(2), if it:
7

1. Establishes a facility in Tennessee that houses its international, national, or regional
headquarters; and

2. Its headquarters staff employees are located and employed at its Tennessee
   “headquarters facility”; and
3. Its primary headquarters related functions and services are performed at the facility.
   The facts presented clearly state that [TAXPAYER]’s national headquarters is located at [Street
   Location Address], Tennessee [Zip Code] and that its headquarters staff employees are located
   and employed at such headquarters. [TAXPAYER]’s primary headquarters related functions
   and services are performed at this national headquarters office. [TAXPAYER] is thus
   considered a “headquarters facility” under the provisions of Tenn. Code Ann. § 67-6-224(b)(3)
   and for purposes of Tenn. Code Ann. § 67-4-2109(k)(2).
   2.

COSTS AND EXPENSES INCURRED BY [TAXPAYER] IN TENNESSEE
TO PRODUCE A MOVIE OR EPISODIC TELEVISION PROGRAM IN THE
STATE OF TENNESSEE WILL BE CONSIDERED “QUALIFIED EXPENSES” PROVIDED
PROPER APPROVAL IS SECURED

Tenn. Code Ann. § 67-4-2109(k)(1)(A) defines “qualified expenses” for purposes of the
incentives available for production of a movie or episodic television program in Tennessee. The
statute sets forth the following criteria:

1. The expenses must be incurred in Tennessee to produce a movie or episodic television
   program in the State of Tennessee.
2. The Commissioner of Revenue and the Commissioner of Economic and Community
   Development must make a written determination stating that:
   (a) The production and allowance of the credit are in the best interests of Tennessee; and
   (b) The expenses incurred were necessary for the production of the movie or episodic
   television program in Tennessee; and
   (c) The production is a result of the credit provided by Tenn. Code Ann. § 67-4-2109(k);
   and
   (d) The production is not “obscene,” as the word is defined in Tenn. Code Ann. § 39-17901.
   Tenn. Code Ann. § 67-4-2109(k)(1)(C) requires the “qualified expenses” to be incurred in
   Tennessee by a “qualified production company” and requires that the expenses so incurred
   amount to at least $1 million.
   As explained in #3 below, [TAXPAYER] will be considered a “qualified production company” if it
   incurs “qualified expenses” of at least $1 million in Tennessee in the production of a movie or
   episodic television program in the State of Tennessee. The facts presented state that, for
   8

purposes of the incentives provided by Tenn. Code Ann. § 67-4-2109(k), [TAXPAYER] will not
produce any movies or episodic television programs that are vulgar in nature or “obscene,” as
the word is defined in Tenn. Code Ann. § 39-17-901.
The expenses incurred in Tennessee for making a movie or episodic television program will be
deemed “qualified expenses,” as defined in Tenn. Code Ann. § 67-4-2109(k)(1)(A); provided
that [TAXPAYER] secures a written determination from the Commissioner of Revenue and the
Commissioner of Economic and Community Development stating that:

1. The production is a result of the credit provided by Tenn. Code Ann. § 67-4-2109(k); and
2. The production and allowance of the credit are in the best interests of Tennessee; and
3. The expenses incurred were necessary for the production of the movie or episodic
   television program in Tennessee; and
4. The production is not “obscene,” as the word is defined in Tenn. Code Ann. § 39-17-901.
   3.

[TAXPAYER] WILL BE CONSIDERED A “QUALIFIED PRODUCTION
COMPANY” IF IT INCURS “QUALIFIED EXPENSES” IN TENNESSEE OF AT
LEAST $1 MILLION IN THE PRODUCTION OF A MOVIE OR EPISODIC
TELEVISION PROGRAM IN THE STATE OF TENNESSEE

In order to be considered a “qualified production company,” Tenn. Code Ann. § 67-42109(k)(1)(C) requires an entity to incur “qualified expenses” in Tennessee of at least $1 million
to produce a movie or episodic television program in Tennessee.
If [TAXPAYER] incurs “qualified expenses” in Tennessee of at least $1 million in the production
of a movie or episodic television program in the State of Tennessee, it will be considered a
“qualified production company” for purposes of being eligible for incentives available under
Tenn. Code Ann. § 67-4-2109(k) for production of a movie or episodic television program in
Tennessee.
4.

[TAXPAYER] WILL BE ENTITLED TO A FRANCHISE, EXCISE TAX CREDIT
OF 15% OF ITS “QUALIFIED EXPENSES” PROVIDED THAT IT MEETS ALL APPLICABLE
STATUTORY REQUIREMENTS SET FORTH IN TENN. CODE ANN. § 67-4-2109(k)

In view of the facts presented and the Rulings in response to questions 1 through 3 above, there
is no reason to believe that [TAXPAYER] will fail to meet any of the applicable statutory
requirements set forth in Tenn. Code Ann. § 67-4-2109(k) and outlined in this Letter Ruling to
qualify for credit equal to 15% of the qualified expenses that it incurs in the production of a
movie or episodic television program in Tennessee.
5.

THE “QUALIFIED EXPENSES” THRESHOLD OF $1 MILLION APPLIES
TO EACH MOVIE OR EPISODIC TELEVISION PROGRAM PRODUCED
BY A “QUALIFIED PRODUCTION COMPANY” IN TENNESSEE

Tenn. Code Ann. § 67-4-2109(k)(1)(C) states that a “qualified production company” is an “. . .
9

entity that incurs at least one million dollars ($1,000,000) in qualified expenses.”
Tenn. Code Ann. § 67-4-2109(k)(1)(A) states that “qualified expenses” are “. . . those expenses
incurred in Tennessee that are necessary for the production of a movie or episodic television
program in this state . . ..” (Emphasis underline added.)
According to these statutes, one of the requirements that a “qualified production company” must
meet to be eligible for the movie or episodic television production incentive credit provided by
Tenn. Code Ann. § 67-4-2109(k)(2) is that the expenses that it incurs “for the production of a
movie or episodic television program in this state” must amount to at least $1 million. For
example, suppose that expenses for a movie that [TAXPAYER] produces in Tennessee amount
to $1 million. Assuming that all applicable statutory requirements are met, [TAXPAYER] will
receive a credit of $150,000 (15% of $1,000,000).
For another movie or episodic television program produced in Tennessee, suppose that
[TAXPAYER] incurs expenses of $990,000. [TAXPAYER] will not receive any credit because
the $1 million “qualified expenses” threshold has not been met.
Assume expenses for another movie or episodic television program produced by [TAXPAYER]
in Tennessee amount to $1,050,000 and all applicable statutory requirements are met.
[TAXPAYER] will receive a credit of $157,500 (15% of $1,050,000).

6. (a)

REQUIREMENT THAT “QUALIFIED EXPENSES” “ARE NECESSARY
FOR THE PRODUCTION OF A MOVIE OR EPISODIC TELEVISION
PROGRAM IN THIS STATE”

Neither the word “necessary” nor any of the other words or terms used in the phrase “. . . are
necessary for the production of a movie or episodic television program in this state . . .” found in
Tenn. Code Ann. § 67-4-2109(k)(1)(A) are defined in the law.
The most basic rule of statutory construction is to ascertain and give effect to the intention and
purpose of the legislature. Worrall v. Kroger Co., 545 S.W.2d 736 (Tenn. 1977). Legislative
intent or purpose is to be ascertained primarily from the natural and ordinary meaning of the
language used, without forced or subtle construction that would limit or extend the meaning of
the language. National Gas Distributors, Inc. v. State, 804 S.W.2d 66 (Tenn. 1991). In seeking
to determine the “natural and ordinary meaning” of statutory language, the usual and accepted
source for such information is a dictionary. State v. Givens, Slip op. 1994 WL406187
(Tenn.Crim.App. Aug. 4, 1994).
One of the definitions given for the word “necessary” in BLACK’S LAW DICTIONARY 928 (5th ed.
1979) is “. . . something which in the accomplishment of a given object cannot be dispensed
with . . ..” Among the definitions given for the word “necessary” in THE AMERICAN HERITAGE
DICTIONARY 834 (2nd ed. 1982) are “[a]bsolutely essential; indispensable” and “[n]eeded to
achieve a certain result . . ..”
In view of the context of the phrase “. . . are necessary for the production of a movie or episodic

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television program in this state . . .” and the definitions of the word “necessary” cited in the
above paragraph, it appears that the legislative intent or purpose is to classify expenses without
which the movie or episodic television program could not have reasonably been made as
“qualified expenses.”
It does not appear that the legislature intended that only expenses that are necessary to make a
movie or episodic television program in Tennessee on the lowest possible budget will be
allowed as “qualified expenses.”
It appears that the legislature only intended to give the Commissioner of Revenue and the
Commissioner of Economic and Community Development the ability to review expenses that a
“qualified production company” claims as “qualified expenses” to make sure that such expenses
are reasonably related to the production of a movie or episodic television program in
Tennessee.
For example, if a “qualified production company” had someone on its payroll that had nothing to
do with making the movie or episodic television program in Tennessee, or who was merely
present as a bystander when the movie or episodic television program was made, but did not
actually do anything at any time in connection with the movie or episodic television program,
then that person’s salary will not be allowed as a “qualified expense.” If a person in the employ
of the “qualified production company” worked on many projects, including the making of a movie
or episodic television program in Tennessee, then only the portion of such person’s salary paid
while the person was actually working on making the particular movie or episodic television
program in Tennessee will be allowed as a “qualified expense.” Expenses incurred outside
Tennessee will not be allowed as “qualified expenses.”

6. (b)

MEANING OF THE LANGUAGE “IN THE BEST INTERESTS OF
THIS STATE” IN TENN. CODE ANN. § 67-4-2109(k)(1)(A)

Tenn. Code Ann. § 67-4-2109(k)(1)(A) states that “qualified expenses” are limited to those
expenses incurred in Tennessee that, in the sole discretion of the Commissioner of Revenue
and the Commissioner of Economic and Community Development, are necessary for the
production of a movie or episodic television program in this state. The Commissioner of
Revenue and the Commissioner of Economic and Community Development must also
determine that the production and allowance of the credit are “in the best interests of this state.”
By enactment of Tenn. Code Ann. § 67-4-2109(k), the Tennessee legislature obviously wants to
encourage the making of movies and episodic television programs in Tennessee. The
legislature has provided an incentive to entities that choose to make movies or episodic
television programs in Tennessee and that meet the statutory requirements to qualify for the
incentive offered. However, the legislature does not want to encourage or reward the making of
movies or episodic television programs in Tennessee that are not “in the best interests of this
state.”
The last sentence of Tenn. Code Ann. § 67-4-2109(k)(1)(A), set forth below, defines “best
interests of this state” as follows:
For purposes of this subdivision (k)(1)(A), “best interests of this state” means a determination
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by the commissioner of revenue and the commissioner of economic and community
development that the production is a result of the credit provided in this subsection (k) and
that the production is not found to be obscene as defined in § 39-17-901.
A movie or episodic television program that, in the opinion of the Commissioner of Revenue and
the Commissioner of Economic and Community Development, is not a result of the credit
provided in Tenn. Code Ann. § 67-4-2109(k) or that is “obscene,” as the word is defined Tenn.
Code Ann. § 39-17-109, is not “in the best interests of this state” and its producer will not be
rewarded by the incentives provided in Tenn. Code Ann. § 67-4-2109(k) for making the movie or
episodic television program in Tennessee.
According to the facts presented, [TAXPAYER] intends to produce movies or episodic television
programs as a result of the credit provided in Tenn. Code Ann. § 67-4-2109(k) and none of its
productions will be “obscene,” as the word is defined Tenn. Code Ann. § 39-17-109. Therefore,
it does not appear that [TAXPAYER] will have any problem in meeting the “best interests of this
state” requirement.
7.

DOCUMENTATION REQUIRED TO EVIDENCE “QUALIFIED EXPENSES”

Tenn. Code Ann. § 67-4-2109(k)(3) and (4) make the following provisions concerning the
documentation of “qualified expenses” that are eligible for the statutory incentive for the making
of a movie or episodic television program in Tennessee:
(3) In order for either a qualified production company or a qualified investor to become
entitled to a credit under this subsection (k), the qualified production company shall
submit documentation verifying that the qualified expenses have been incurred and paid.
(4) The commissioner shall review the documentation and notify the qualified production
company of the approved credit.
The statutes are so written that the Commissioner of Revenue may require any documentation
that, in the opinion of the Commissioner, is necessary to satisfy him that the expenses are
eligible for the statutory incentive. The actual documentation required will be determined by the
Commissioner on a case-by-case basis and may vary depending on the factual situation with
which the Commissioner is presented.
The minimal documentation that will be required in every case will be a listing of the expenses
incurred and the name and address of each vendor to whom each expense was paid. If the
nature of the expense and its relationship to the movie or episodic television program produced
is not obvious from such a listing, then a further explanation may need to be provided.
In some situations, the Commissioner may find it necessary to require a copy of the invoice
evidencing each expense and/or a copy of the canceled check or other evidence of payment.
Affidavits attesting to certain expenses, or certain work done in production of the movie or
episodic television program in Tennessee may also be required in certain instances.
In any case, the Commissioner will not require any more documentation regarding “qualified
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expenses” than is absolutely and reasonably necessary to satisfy him that the expenses claimed
are eligible for the statutory incentive.

Arnold B. Clapp
Special Counsel to the Commissioner

APPROVED: Richard H. Roberts, Commissioner

DATE: 1-24-11

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