IPA explains how you can save $$$ with Illinois’ wage tax credit and how to calculate its value

You’ve heard a lot about the Illinois Production Tax Credit but don’t know how it applies to you? Then you’ve come to the right place.

ReelChicago brings you the IPA’s easy explanation of what it is and how you can apply for it.

What the credit is. It’s a credit against Illinois income tax equal to 25% of the first $25,000 in wages, including payroll taxes and union benefits, paid to Illinois residents who work on the project.

Diversity component. Production companies must be willing to make a true good faith effort to promote diversity in their hiring practices, including cooperating with the Illinois Film Office to formulate a per project target for minority employment and a plan for achieving that goal.

The two-step application process. Initially, prior to the start of production, the production company must submit a preliminary application which will result in tentative approval from the Illinois Film Office that the project is eligible to be an accredited production.

The second step is the final application for the issuance of an actual tax credit certificate. This must be submitted within two years after completion of the project.

Eligibility requirements. Threshold for minimum amount of Illinois resident wages necessary for project eligibility: $100,000 for productions of 30 minutes or longer; $50,000 for productions less than 30 minutes.

Note: Wages of the first two highest paid Illinois residents must be excluded from the calculation of the final tax credit amount earned. They may, however, be included for the purpose of meeting the eligibility threshold.

The production company must set a target for minority employment and make a good faith effort to achieve it, as determined by the IFO.

The tax credit’s been helpful in boosting filming revenues to $77 million in 2004 from $25 million in 2002.

The production must demonstrate that the tax credit is essential to the decision to film in Illinois.

This can take the form of a budget demonstrating that the same project could be made for less cost outside of Illinois compared to the cost of producing it in Illinois without the tax credit.

The production company must either be the copyright holder, or have been contracted directly or indirectly by the copyright holder or agent.

The initial application for tentative approval as an accredited production must be submitted to the IFO as early as possible before the start of shooting.

Questions and answers.

How is the amount of credit calculated?
The credit amount earned will be equal to 25% of the first $25,000 of each employee’s wages (including payroll taxes and union benefits) for all Illinois residents who work on the project, excluding the two highest paid.

Eligible wages may include all those related directly to the project, incurred between final script approved and one year after the start of the project, regardless of actual employer.

This may include employees of sub-contractors (set building companies, etc), advertising agency employees, talent payments and residuals (up to one year after the start of the production), and post-production employees, in addition to direct employees of the production company.

What if the production company can’t use an Illinois Income Tax Credit?
In the case of commercials or related advertising projects, the advertiser or its agency may be designated the applicant on the final request for issuance of the tax credit certificate.

At any time between the start of production and two years after completion, the production company may form a LLC (limited liability company) or a partnership with one or more entities that do have sufficient Illinois Income Tax liability to use the credit. The LLC or partnership would then be identified as the official applicant on the final request for the tax credit certificate.

Once awarded, the tax credit can be allocated between the members of the LLC or partnership in accordance with the LLC’s operating agreement or partnership agreement.

The agreement may stipulate that the production company receives monetary compensation from the other members or partners, in consideration of the tax credit. It is not necessary that the LLC or partnership directly pay any of the wages or other expenses of the production, so long as one of the members has done so.

What types of projects are not eligible?
News, current events, weather, market reports or public programming; Talk shows, game shows, questionnaire or contest format productions; Sports events; Award shows, galas or telethons.

How do I apply?
Contact the IFO at 312/814-3600 for an application.

To calculate the potential value of your tax credit, go to www.illinoisproduction.org/taxcalculator. And visit www.illinoisproduction.org for information about the IPA and how you can become a member.