Georgia Film Tax Credits – not just for big business
By Andrew L. Moore, CPA
Over the past several years Georgia has grown to become one of the top states in the country for film production, largely as a result of the Georgia Film, Television, and Digital Entertainment Tax Credit. Currently extended to January 1, 2019, Georgia allows for a 20 percent tax credit for companies that spend $500,000 or more on production or post production in Georgia, either in a single production or on multiple projects. The state grants an additional 10 percent credit if the finished product includes a promotional logo provided by the state. Companies producing feature films, television series, music videos, commercials, interactive games, and animated films can take advantage of the credit.
Why should all of this matter to the average Georgia taxpayer whose only film activity involves watching his or her favorite TV shows or catching a movie at the theater? The Georgia Legislature, realizing that many production companies would lack sufficient Georgia tax liabilities to fully utilize the credit against state income or withholding tax, provided the credit be transferrable, one time, to other Georgia taxpayers either in whole or in parts. The credit may only be sold or transferred once; however, the sale or transfer may involve multiple Georgia transferees or buyers.
A number of tax credit brokers work with production companies that have unused film credits and assist with brokering all or some of company’s unused credits. Film credit brokers typically make 2 – 3 cents per dollar of credit sold. So, when credits sell to an end user for 92 cents on the dollar, the broker likely negotiated a commission with the production company based on 89 to 90 cents on the dollar, profiting 2 -3 cents per dollar for putting buyer and seller together. Although rare, some credits are exchanged directly from production companies to the end purchaser of credits without a broker, usually providing for a larger discount to the buyer.
Generally, $1 of Georgia film tax credit can be purchased for around 88 to 93 cents, allowing Georgia taxpayers to settle their Georgia tax liability at a discount because the film tax credits are exchanged dollar for dollar to pay Georgia income tax. Taxpayers can purchase film credits for the current tax year, and three proceeding tax years –with the price generally lowering for prior year credits. For the buyer, the credit is treated much like withholding and is included as a tax payment before the calculation of interest and penalties. This helps taxpayers who are filing late, fail to make estimated tax payments, or have been audited with tax assessments for prior years.
According to Garrett Fox, Tax Senior Associate in charge of facilitating Georgia film tax credits at Atlanta based CPA Firm Frazier & Deeter, the price of tax credits has steadily increased over the past 3-4 years due to the increased popularity of purchasing film credits as a tax savings and planning tool. Brokers and studios are placing minimums on order size which effects pricing and availability. For example, in today’s market, a taxpayer purchasing $100,000 or more in film credits may have access to credits not available to buyers who might only need $35,000. Or, sometimes you will see an increase in price for orders below a particular threshold. In addition, Fox explains that some CPA firms, including Frazier & Deeter, have developed relationships with brokers where, depending on the circumstances, arrangements can be made to reduce minimum order requirements given the sheer volume of business done with the brokers.
As described above, this is an easy way to reduce Georgia tax liability for those taxpayers with higher income tax liabilities. For example, a client who is married and files taxes jointly, already with a high annual income, sells his or her business resulting in 2016 Georgia taxable income of $1,671,000 (the amount of Georgia taxable income that results in Georgia income tax of roughly $100,000 when filing jointly). In this example, your client would purchase $100,000 of Georgia film tax credits for around $92,000 (92 cents on the dollar), saving $8,000 simply by settling Georgia taxes with film credits.
In the above scenario, the benefit is magnified when considering your client could wait until the extended due date of his or her 2016 Georgia tax return, October 15, 2017, to actually make the purchase without being penalized for late payment of tax or underpayment of estimated tax (credits may be harder to find later in the year so careful planning should be done to locate credits as early in the year as possible).
Contrast this to settling taxes via direct cash payment to the Georgia Department of Revenue, where your client would be required to remit $100,000 on April 15, 2017, and likely be penalized for failure to make quarterly estimated tax payments if the balance due was not remitted until the April 15, 2017 due date.
As you can see, by paying via film credits you can not only settle Georgia taxes at a discount but keep cash in your client’s pocket longer!
In addition to the above, your client is eligible for an itemized deduction for state income tax in the amount of $100,000 in the year the credit is purchased. The above benefits are slightly reduced due to the taxable capital gain of $8,000 ($100,000 – $92,000) associated with purchasing the credit and using it in satisfaction of Georgia tax.
Credits left unused can be carried forward for up to five years. The expiration of the carry-forward period is based on the end of the tax year in which the production company claimed the tax credit and not the date the credit was transferred to the buyer. For example, if a production company claimed a credit on its December 31, 2010 tax return, that credit will expire five years later on December 31, 2015, even if the credit was transferred on December 31, 2014.
Sounds Great, But What Are The Risks?
Georgia film tax credits are generally considered by tax advisors to be a fairly low risk investment. However, as with all investments, there are risks to consider –including audit risk with film credits. The risks involved can be mitigated by considering the following:
- Securing a guarantee from a reputable production company (like NBC, Universal, Sony, or The Weather Channel, to name a few);
- Purchasing credits from quality brokers and production companies;
- Ensure the Georgia Department of Economic Development has certified the project;
- Purchasing credits which have already been audited by the state; or
- Purchasing credits where a reputable CPA Firm has provided a “comfort letter” for the credits.
How Can Frazier & Help?
Involve Frazier & Deeter early in the purchase. We have contacts throughout the industry, including brokers and production companies, to find the right credits. As CPAs, we are simply facilitators and advisors and are not influenced by any sort of commission.
If you have questions regarding film credits or any other tax planning strategies or tools feel free to give me a call at 404.573.4336 or email me at Andrew.Moore@FrazierDeeter.com.
Read MoreSCORE Association Establishes Branch in Valdosta, GA
VALDOSTA, GA, August 4, 2016–The SCORE Association, a not-for-profit organization composed of volunteers who provide free mentoring and free or low cost training to entrepreneurs who wish to start a new small business or grow a business, has opened a new branch in Valdosta, according to Arthur L. Slotkin, the Georgia District Director of the SCORE Association, a resource partner of the US Small Business Administration.
As part of the larger SCORE organization, the Valdosta branch will conduct a series of three training sessions in October, November and December of this year (2016) for local entrepreneurs focusing on business basics, business plan development, marketing, finances and sources of funding for small businesses. This program is called “Simple Steps to Starting Your Business.” The Simple Steps program will be offered at no cost and participation is being funded by the SCORE Association and the SCORE Foundation. Further information about this training program will be forthcoming.
Ms. Erica Hill will lead the Valdosta branch. Ms. Hill founded and ran the “Entrepreneurs of Valdosta,” a group composed of volunteers who engaged in many of the services that the SCORE Association provides at its more than 300 chapters around the United States. According to Slotkin, the affiliation of the Entrepreneurs of Valdosta with SCORE provides infrastructure, training and resources to the local branch which will help further the aims of SCORE in Valdosta.
SCORE is America’s premier source of free and confidential small business mentoring and advice service. Nearly half a million entrepreneurs count on SCORE each year for help with fulfilling their dream of starting a business, as well as helping existing enterprises grow and become more successful.
SCORE’s more than 10,000 working and retired business professionals are committed to helping their communities thrive by providing local small business owners with valuable guidance and insights for success. Each of the SCORE chapters across the country provide services and programs tailored to the local community’s specific business needs and challenges.
If you would like more information about this topic, please contact Ms. Erica Hill at 229-630-1190 or email at Erica.hill@scorevolunteer.org.
Other SCORE Chapters in Georgia:
Ph: (404) 331-0121
Ph: (706) 596-8331
Ph: (478) 621-2000
Ph: (678) 506-0718
Ph: (770) 538-2522
Ph: (912) 652-4335
5 Reasons Buying a Business is Preferable to Starting a New One
If you are considering running your own business, one of the first questions that might pop in your mind is: should I start a new one or buy an established business. In this article, we’ll take a closer look at the age-old dilemma of buying an existing business verses starting a new one from scratch.
1. An Established Concept
The benefits of buying an established business are no doubt huge. At the top of the list is that an existing business will have an established concept. Starting a business from scratch means taking a big risk in the form of a new idea. Will it really work? If the business fails, why did it fail? Both of these stressful questions need not be asked when you buy. An established business, especially one that has been around for years, has already shown that the concept and all the variables that go into it do, in fact, work.
2. Proven Cash Flow
Another massive benefit of buying an existing business is that an existing business has proven cash flow. You can look at the books and, in the process, determine just how much money is flowing in and out. With a new business, you simply won’t be sure how much it will generate. This can make it tricky when you’re trying to figure out how to not only pay your business expenses, but your personal ones as well.
3. The Unproven Element
No matter how good your idea and/or your location, your new business is still unproven. Despite the best of efforts, there may be an unforeseen variable that you or your consultants might have missed. However, when you opt for a proven, existing business, this variable does not apply to you.
4. An Established Staff
A business is often only as good as the people that populate and support it. Starting up your own business means that you have to go out and find all of your own employees. This process is much more than sifting through resumes. A resume only reveals so much. A resume doesn’t reveal if a candidate will be a good fit for the business, and it certainly doesn’t factor in chemistry. As any good coach of any team sport knows, chemistry is one of the greatest factors in winning a championship.
5. Established Relationships
A proven business also comes with an array of business relationships. Working out problems with your supply chain in the early days of your business can mean the end of that business. Many business owners have seen their businesses undone by problems with their supply chains. An existing business can point the way to reliable and consistent suppliers. When buying an existing business, you are acquiring a proven performer. You know that the business had what it takes to provide cash flow over a given period of time. You will also have customers who know who you are, where you are and how to buy from you. Buying an existing business also means gaining access to reliable suppliers and enjoying all the benefits that come with an established brand name and location.
Using Social Media To Improve Business Brokering
Social media expert Dr. Matthew Loop offered practical advice on using Facebook and other applications to boost your business when he spoke to the Georgia Association of Business Brokers (GABB) on June 28.
Loop offered highlights from his book, Social Media Made Me Rich, which offers a quick, practical, easy-to-understand, comprehensive reference guide for small businesses who want to learn how to generate income from the Internet.
Matthew Loop calls himself the highest paid social media revenue strategist in North America. He’s helped brands, celebrities, startups and small businesses increase their income, influence and impact through social media.
Loop discussed the pillars of social media outreach, including:
- Reputation / social proof management (Google Maps, Yelp, etc)
- Facebook organic –
- Pay per click advertising (Facebook, Adwords, etc)
- Search Engine Optimization (SEO)
- Online Video (YouTube) and live streaming apps (Periscope)
- Blogging / Microblogging
- Photo sharing (Pinterest and Instagram)
- Podcasting (iTunes)
- News releases and publicity
Facebook can be used profitably by small businesses who take the time to set up a page. More than 1.5 billion users, creating a page is free, and small businesses can purchase targeted advertisements inexpensively. Loop suggested these action steps”
- Create a Facebook personal account if you don’t already have one (after all, it’s 2016!) Then go to Facebook.com/pages to set up a “fan page” for your business, being very careful to create an accurate and descriptive title.
- Then go to Facebook.com/username to select a vanity URL
- Why is having a lot of Facebook fans important? It’s an indicator of popularity, immediately creates consumer trust in your business, and helps generate more website visits. Fan likes also boost SEO, or search engine optimization.
- To get lots of fans, have a promotion, give away items, or sponsor joint promotions with synergistic businesses.
How to get your first 3,000 fans quickly, according to Loop:
- Invite Your Email List and Subscribers
- Embed Facebook Fan Page Widgets on Your Website
- Add your URL to Your Email Signature Block
- Use Facebook as your fan page to like, comment, etc.
- Run Facebook Ads to a Your Facebook Page
- Run a Contest and Only Members of Your Fan Page can Participate
- Link to your social media profiles and post
- Use Facebook’s check-in feature and incentivize clients to participate
- Use Print Media, TV, or radio
- Timeline graphic branding
Action steps to improve your business’s prominence on social media:
- Update your social statuses on Facebook and other social networks at minimum of four times per day. Post high quality information, quotes of interest, pics, open-ended questions, tips, Facebook videos, blogs, and graphics to build liking and trust.
- GABB recommend members follow the GABB on social media, and you can easily repost information of interest to your clients.
- GABB on Facebook.
- Join GABB’s LinkedIn page
- GABB’s Twitter handle is @GABB_Brokers
- Send your original content to GABB, and GABB will repost it on its Social Media Account. Also, the GABB uses Buffer, (linked here), an application that allows a user to post frequently in minutes per day. Use this Buffer link, and you can get a free trial subscription that allows you to use a limited version.
Loop also said businesses should update your Google Maps profile. Google maps ranks business by the following factors, and a business who updates their status can immediately improve their ranking.
- Profile completed
- Proper category selected
- Keyword in business description
- Listing verified
- Citations
- Reviews
- Traffic to your business website
- Distance to town center
See Matthew Loop’s GABB PowerPoint Presentation.
The Georgia Association of Business Brokers (GABB) maintains a website that lists hundreds of businesses and franchises for sale throughout Georgia in a variety of fields, including automotive, business services, child care, cleaning, construction, electronics equipment, fitness, flooring, floral, food, gas stations, landscaping, manufacturing, medical, shipping, restaurants, retail, security, signs, and businesses related to the internet.
According to GABB President Greg DeFoor, selling a business is a complicated process with multiple steps and a lot of moving pieces. “Our broker members are licensed business brokers, whereas everyone in the industry may not be properly licensed,” said DeFoor, who owns DeFoor Business Services, Inc. “GABB members benefit from continuing education, networking, promotion of professionalism and ethics in the industry, research tools, and forms prepared by a team of attorneys specifically for our association.”
“We are the go-to organization for business sales and acquisitions as a result of our dedication to the profession and our members being among the best in the state at what we do,” said DeFoor. “Our members have represented probably over a thousand transactions, and we have a dedicated membership of business brokers, lenders, attorneys and other professionals to assist business buyers and sellers at every step of the process. We work behind the scenes and go mostly unnoticed, but we’re an integral part of Georgia’s business community.”
For more information about GABB, email georgiabusinessbrokers@gmail.com or call 404-374-3990.
Read MoreManaging Financial Risk: The Importance of Environmental Due Diligence
By Michael Wade and Keith Kaylor
BAT Associates, Inc.
Is there an environmental liability lurking in the commercial property your client is preparing to buy?
And how can you find out?
Many commercial properties do have potential environmental issues, and purchasers and lenders may unknowingly be taking on substantial risks from loss of property value or liability for remediation costs. That is why conducting environmental due diligence is crucial.
Fortunately, there are several types of investigations that can be done to minimize the liability.
The regulatory basis for these investigations is the “All Appropriate Inquiries” rule established by the U.S. Environmental Protection Agency (EPA) in 2005. The rule established the level of environmental due diligence required of buyers and/ or lenders wishing to qualify for liability protections from cleanup costs. The industry standard for conducting due diligence investigations is the American Society for Testing and Materials (ASTM) Standard E1527, last revised in 2013.
The most common types of investigations used are:
- Desktop Reviews
Desktop reviews are a low-cost alternative to a Phase I Environmental Site Assessment (ESA), and have a limited scope. They consist of:
- Reviewing environmental databases in order to find hazardous material sites on the subject property or nearby properties;
- Reviewing one historical land use source (usually aerial photographs); and
- Questionnaires filled out by the borrower and loan officer.
Desktop reviews do not include a site visit and do not meet the ASTM standard. Therefore, there is a possibility that environmental issues may remain undisclosed. In addition, if any issues are discovered, they cannot be fully investigated due to the limited scope, and will lead to a recommendation for a Phase I ESA. Unless the lender has other knowledge that the subject property is of low risk, a desktop review is probably best used as a screening tool only.
- Phase I ESA
A Phase I ESA is the industry standard for due diligence investigations. It consists of:
- A review of environmental databases in order to find hazardous material sites on the subject property or nearby properties;
- A review of all readily available historical land use information (aerial photographs, city directories and fire insurance maps, as available);
- A site inspection of the property;
- A review of local government records concerning the property; and
- Interviews of the site owner and/ or occupants.
- Review of environmental agency records to determine if the site is in compliance with regulations (especially important for sites handling regulated materials such as service stations or hazardous waste generators)
Phase I ESAs meet the ASTM standard, but do not include sampling of soil, groundwater, or building materials. This report will identify any potential or actual Recognized Environmental Conditions (RECs) on the subject property. The environmental professional developing the Phase I ESA report may also make recommendations for further investigation to evaluate the presence or absence of contaminants at the subject property, which may lead to a Phase II ESA.
- Phase II ESA
If environmental contamination of soil, groundwater, or soil vapor on the subject property is suspected, a Phase II ESA may be performed to determine if contamination is present. Sample locations should be selected based on areas considered most likely to contain contamination. Samples should be submitted to an accredited laboratory for analysis to ensure the legal acceptance of the analytical data. If contaminant concentrations are above state reporting levels, the property owner has the legal responsibility to report these results to the Georgia Environmental Protection Division (EPD). The EPD may ask for further investigation under the Underground Storage Tank (UST) program for service station sites. Most other sites (such as dry cleaners or auto repair) will be handled under the Hazardous Site Response Act (HSRA) Program.
- UST Investigations
Once a release from a UST site is reported, the EPD will usually require a Corrective Action Plan – Part A (CAP-A). The CAP-A may require additional groundwater sampling and additional research to determine nearby receptors, such as the nearest drinking water well.
Depending on the results of the CAP-A, additional investigations such as a CAP-B and remediation may be required, which can involve substantial costs. However, if the site owner has been contributing to the Georgia UST Trust Fund and is not found to be ineligible, the Trust Fund will reimburse the owner for remedial costs, minus a $10,000 deductible and the cost of the trust fund application. Therefore, it is crucial for lenders to ensure that owners of UST sites are in compliance with Georgia regulations before issuing a loan.
- Brownfields (HSRA) Investigations
When a reported release is minor, the Georgia EPD may issue a “No Further Action” letter. For more seriously contaminated sites, further investigation will be required. Unlike UST investigations, there is not a trust fund to help in remediation cost for HSRA sites, so the buyer may incur extensive liability. This cost liability should be a determining factor in the decision to buy a parcel and should be the driver for conducting environmental due diligence before acquiring land.
If the site goes into foreclosure or resale, the Georgia EPD Brownfields program offers incentives for subsequent owners to assess contamination and remediate the property. The program includes tax incentives, as well as relief from the liability to perform groundwater remediation, if soil contamination has been removed.
In conclusion, an environmental due diligence process can be implemented at various degrees of thoroughness. A buyer or lender should consider the potential liability associated with owning a parcel of land that is known to be contaminated. Liability can be limited through a better understanding of the severity and source of impacts prior to purchase. We recommend utilizing a knowledgeable and experienced environmental consultant and choosing the right level of investigation at the onset to help buyers and lenders to avoid substantial liability issues later.
Michael is the General Manager of BAT Associates, Inc., GABB Affiliate member. Michael is a graduate of Whittier College, earned his Master’s from San Jose State University, and his MBA from the University of New Mexico. Keith Kaylor, P.E., is a graduate of Cleveland State and is responsible for managing Phase I/II ESAs and remediation projects at BAT Associates. Both have performed environmental site assessments and provided environmental and engineering consulting services across several US states over the past 30 years.
5151 Brook Hollow Parkway
Suite 250
Norcross, GA 30071
Ph: 770-242-3908
Fax: 770-242-3912
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