Garden State Film and Digital Media Jobs Act Credit Questions and Answers
Applying for the Credit
Q. How do I apply for the credit?
A. You must submit an application to the New Jersey Economic Development Authority (NJEDA)
Q. How are funds reserved?
A. Funds are reserved through the application process. Tax credits are approved on a first-come, first-served basis. The NJEDA uses the date the initial application is filed, even if subsequent revisions are later submitted.
Q. Can the amount of the tax credit award be increased after the amount is certified by NJEDA? For example: A tax credit of $6.5 million was certified, but the production company’s final budget ended up being $7.2 million. Can they apply for the increased amount?
A. The amount of the tax credit cannot be increased once it is certified, regardless of any subsequent expenses incurred.
Q. Can a pass-through entity apply for the credit?
A. A pass-through entity can apply for the credit, but cannot use the tax credit directly on its tax return. The credit flows through to the business entity’s members, partners, or shareholders. Examples of such pass- through entities are partnerships, LLCs (including a Single Member Limited Liability Company (SMLLC) or single member foreign Limited Liability Company (LLC) qualified to do business in New Jersey), S corporations, and sole proprietorships.
Using the Credit
Q. How can a recipient use the credit?
A. Recipients can use the film or the digital media content tax credit to offset their New Jersey Corporation Business and Gross Income Taxes.
Q. Is there an annual limit on an individual project for either the film or the digital media content tax credits?
A. No, there is not an annual limit on an individual project. However, the amount of tax credits issued to all applicants is limited in the State’s fiscal year to $75 million for film production projects and $10 million for digital media content production projects. The State’s fiscal year runs from July 1 through June 30.
Q. When can the taxpayer apply the tax credit against their tax liability?
A. The taxpayer must apply the tax credit to the tax credit vintage year. The tax credit vintage year is the tax year (privilege period) in which the NJEDA approves the application. A taxpayer can carry forward the unused tax credit balance for up to seven years for both Corporation Business and Gross Income Taxes.
Q. Can a pass-through entity use the tax credit?
A. A pass-through entity can apply for the credit. However, it cannot use the tax credit directly on its tax return. The credit flows through to the business entity’s members, partners, or shareholders.
Q. How does the credit flow through a tiered pass-through corporate structure?
A. In a tiered corporate structure, the credit continues to flow through until it reaches the pass-through entity’s members, partners, or shareholders.
Q. Are payments made to a loan-out company considered qualified film production expenses?
A. Yes, if the payments are made in connection with a trade, profession, or occupation carried on in New Jersey or for the rendition of personal services performed in New Jersey and the taxpayer has made the withholding required by N.J.A.C. 19:31-21.3(c). Otherwise, payments made to a loan-out company or to an independent contractor are not considered qualified film production expenses.
Q. How does the production company report qualified expenses that were made through a vendor whose primary place of business is located in one of the counties that qualifies for the increased five percent credit?
A. The applicant must keep track of all qualified expenses incurred for services performed and goods purchased through qualified New Jersey vendors. The tax credit verification report will include a breakdown of those expenses. If any of the qualified expenses were made through a vendor whose primary a place of business is in one of the counties that qualifies for the increased five percent credit, the county must be notated in the report.
Qualified New Jersey Vendor
Q. I’ve seen the terms “qualified New Jersey vendor” and “vendor authorized to do business in New Jersey” used in various references to the tax credits. Can you explain the difference between these two terms?
A. There is not a difference in the two terms. A “qualified New Jersey vendor” is a “vendor authorized to do business in New Jersey.” Both terms refer to a vendor that is registered with the State of New Jersey, Department of the Treasury, Division of Revenue and Enterprise Services (Division of Revenue) and has a New Jersey tax identification number. Note: The vendor does not need to have a physical presence in New Jersey to be a qualified New Jersey vendor.
Q. Will film production expenses incurred through a vendor who is not a qualified New Jersey vendor count towards the 60 percent of the total film production expenses or the $2 million of the total digital media content expenses eligibility requirement?
A. No, in order for the expenses to count towards the 60 percent of the total film production expense eligibility requirement or the $2 million of the total digital media content expense eligibility requirement; the expenses must be incurred through a qualified New Jersey vendor.
Q. If the qualified film production expenses are incurred through a vendor who is not a qualified New Jersey vendor, will the expenses count towards the exceeding $1,000,000 per production eligibility requirement?
A. Yes, but in order for the expenses to count towards the qualified film production expense eligibility requirement of exceeding $1,000,000 per production, the expenses must have been incurred in New Jersey for the production of a film, including pre-production and post-production costs.
Q. Does a vendor need be located in a specific county for the services performed or the items purchased to qualify for the increased five percent credit?
A. To qualify for the increased five percent credit the expenses must be incurred through a vendor whose primary place of business is in Atlantic, Burlington, Camden, Cape May, Cumberland, Gloucester, Mercer, or Salem County.
Q. What is a primary place of business?
A. A primary place of business is the headquarters or commercial facility of a vendor at which the qualified expense transaction occurs. For more information, refer to the definition of primary place of business in NJEDA’s approved regulations. Note: While physical presence is not required for a business to be a qualified New Jersey vendor, a physical presence in a specified county is necessary in order for the expense to qualify for the five percent increased credit.
Q. What businesses must register with New Jersey?
A. All businesses and other employers operating within New Jersey must register with the Division of Revenue and Enterprise Services for tax purposes by filing a Business Registration Application (Form NJ-REG)
at least 15 business days before starting business.
Q. Do loan-out companies doing business in New Jersey need to register with the State in order for the production company to include their payments as a qualified expense?
A. Yes, loan-out companies doing business in New Jersey must register with the State. Any compensation paid to a loan-out company that is not registered in New Jersey cannot be included as a qualified expense.
Q. If multiple Single Member Limited Liability Companies (SMLLC) process payroll and provide casting services, is a separate New Jersey business registration required for each SMLLC?
A. Each SMLLC must register to do business in New Jersey, unless they have a single registration that covers all the SMLLCs for federal registration/withholding purposes. If they have a single registration for federal purposes, a single registration will suffice for New Jersey purposes.
Q. If a business registers to collect Sales Tax and finds that it is not required to do so, what should it do?
A. A business can end (or add) eligibility for specific taxes either online
or by filing a paper Form REG-C-L
, Request for Change of Registration Information. If a business is ending its Sales Tax eligibility, the Certificate of Authority for Sales Tax that was issued to them must be returned to: New Jersey Division of Revenue and Enterprise Services, Client Registration, PO Box 252, Trenton, NJ 08646-0252. Taxpayers that do not have their Certificate of Authority for Sales Tax must notify the Division of Revenue of this fact in writing.
Q. Is Income Tax required to be withheld?
A. The Garden State Film and Digital Media Jobs Act requires Gross Income Tax to be withheld on payments to independent contractors and loan-out companies for services performed in New Jersey.
Q. Does a business need to be registered with the Division of Revenue and Enterprise Services (DORES) in order to withhold New Jersey Gross Income Tax from compensation paid to a worker?
A. Yes, a business must register
in New Jersey with DORES. Registration ensures that the tax filing procedures and information needed to comply with New Jersey’s employer requirements are provided.
Q. Are there any Gross Income Tax withholding requirements on payments made to loan-out companies or independent contractors?
A. Yes, the production company is required to withhold New Jersey Gross Income Tax at the rate of 6.37 percent on payments made to loan-out companies and independent contractors for services performed in New Jersey.
Q. How will the Division of Taxation allocate the Gross Income Tax withheld by the production company on the payments made to a loan-out company?
A. We will allocate the Gross Income Tax withheld to the accounts of loan-out company employees in proportion to the payment received by the employee for services performed in this State during the tax year. The production company will submit an Excel spreadsheet to the Division of Taxation to reconcile the Gross Income Tax withholdings that are attributable to the individual employees. Individual employees will include this amount with their New Jersey Withholdings on their individual Income Tax return.
For immediate assistance with withholding procedures contact Ro De Silva, Data Systems, at Ro.Desilva@treas.nj.gov
Q. If a production company submits their New Jersey Gross Income Tax withholdings after the filing due date, can they still use those wages as part of their qualified expenses for the credit?
A. Filing and/or paying the tax late does not disqualify a production company from using the wages as part of their qualified expenses. However, we will assess penalties and interest for the late filing of a report or late payment of any Gross Income Tax withholdings.
Q. Will the Sales and Use Tax exemption continue with the film credit?
A. Sales and Use Tax exemptions are defined in the Sales and Use Tax Act and are not affected by the tax credit. For more information on Sales and Use Tax exemptions for the film/movie industry, see Technical Bulletin TB-82
Q. Can an out-of-State Certified Public Accountant (CPA) represent an applicant and prepare the tax credit verification report?
A. If the out-of-State CPA is licensed by the New Jersey State Board of Accountancy, through the New Jersey Division of Consumer Affairs, the CPA can represent an applicant.
Q. Does a production company need to film in a specific county to qualify for the increased five percent credit?
A. The production company does not need to film in a specific county to qualify for the increased five percent credit. If the services performed or the goods purchased are made through a qualified New Jersey vendor whose primary place of business is in Atlantic, Burlington, Camden, Cape May, Cumberland, Gloucester, Mercer, or Salem County, the expenses qualify for the increased credit.
Back to Notice: Garden State Film and Digital Media Jobs Act Credit
For more information see, Film Tax Credit Program – Frequently Asked Questions on the NJEDA website.