HB0374 99TH GENERAL ASSEMBLY

LRB099 05686 HLH 25729 b

99TH GENERAL ASSEMBLY
State of Illinois
2015 and 2016
HB0374

Introduced , by Rep. Fred Crespo

SYNOPSIS AS INTRODUCED:

New Act
35 ILCS 5/224 new

Creates the Interactive Digital Media Tax Credit Act. Entitles interactive digital media companies that meet certain requirements to an income tax credit based on the amount of the Illinois labor expenditure and Illinois production spending approved by the Department of Commerce and Economic Opportunity for the production. Authorizes taxpayers to take the credit beginning in the taxable year in which the company has met the investment requirement. Provides for the transfer of credits. Requires the Department to submit a report concerning the program to the General Assembly no later than July 1, 2020. Provides that the Act is repealed on July 1, 2021. Amends the Illinois Income Tax Act to make conforming changes. Effective immediately.

FISCAL NOTE ACT MAY APPLY

A BILL FOR

AN ACT concerning revenue.

Be it enacted by the People of the State of Illinois, represented in the General Assembly:

Section 1. Short title. This Act may be cited as the Interactive Digital Media Tax Credit Act.

Section 5. Definitions; rules.

(a) As used in this Act:

"Base Illinois production spending" is the average amount of expenses incurred by the applicant for all productions in calendar years 2013, 2014, and 2015, including, without limitation, all of the following:

(1) expenses to purchase, from vendors within Illinois, tangible personal property that is used in the accredited production;

(2) expenses to acquire services from vendors in Illinois for an accredited production, including services for editing and processing; and

(3) compensation paid to vendors for contractual or salaried employees of the vendor who are Illinois residents and who perform services with respect to the accredited production, not to exceed $100,000 for any one employee.

"Base number of employees" is the average of all full-time employees who were employed by an applicant in calendar years 2013, 2014, and 2015.

"Interactive digital media project" means: (1) a production of interactive entertainment which is produced for distribution in commercial or educational markets, including computer games, video games, and simulation or animation; or (2) a production intended for Internet or wireless distribution.

"Accredited production" means the production of an interactive digital media project that has been certified by the Department in which the Illinois production spending included in the cost of the production exceeds $100,000 per year.

"Accredited production certificate" means a certificate issued by the Department certifying that the interactive digital media production is an accredited production that meets the guidelines of this Act.

"Applicant" means a taxpayer that is an interactive digital media company that is operating or has operated an accredited production located within the State of Illinois and that (i) owns the copyright in the accredited production throughout the Illinois production period or (ii) has contracted directly with the owner of the copyright in the accredited production or a person acting on behalf of the owner to provide services for the production if the owner of the copyright is not an eligible production corporation.

"Credit" means, for an interactive digital media accredited production commencing on or after January 1, 2016:

(1) an amount equal to 30% of the (i) Illinois production spending and (ii) Illinois labor expenditure for the taxable year; and

(2) an additional amount equal to 5% of the Illinois production spending if the accredited production company is located in a geographic area of high poverty or high unemployment, as determined by the Department.

"Department" means the Department of Commerce and Economic Opportunity.

"Director" means the Director of Commerce and Economic Opportunity.

"Illinois labor expenditure" means salary or wages paid to employees of the applicant for services on the accredited production. To qualify as an Illinois labor expenditure, the expenditure must be all of the following:

(1) reasonable in the circumstances;

(2) included in the applicant's federal income tax basis;

(3) incurred by the applicant for services performed on or after January 1, 2016;

(4) incurred during the production stages of the accredited production;

(5) limited to the first $100,000 of wages paid to or incurred with respect to each new employee of a production commencing on or after January 1, 2016;

(6) directly attributable to the accredited production;

(7) paid in the tax year for which the applicant is claiming the credit or no later than 60 days after the end of the tax year;

(8) paid to persons residing in Illinois at the time the payments were made; and

(9) paid for services rendered in Illinois.

"Illinois production spending" means the expenses incurred by the applicant for an accredited production above the base Illinois production spending, including, without limitation, all of the following:

(1) expenses to purchase, from vendors located in Illinois, tangible personal property that is used in the accredited production;

(2) expenses to acquire services from vendors located in Illinois for an accredited production, including services related to editing or processing; and

(3) the compensation paid by a vendor, not to exceed $100,000 for any one employee, for contractual or salaried employees of the vendor who are Illinois residents performing services with respect to the accredited production.

"New employee" means a full-time employee who (i) is first employed by an applicant on or after January 1, 2016 and (ii) is in excess of, or in addition to, the applicant's base number of employees. The term "new employee" does not include:

(1) an employee of the eligible employer who performs a job that (i) existed for at least 6 months before the employee was hired and (ii) was previously performed by another employee; and

(2) an employee of the eligible employer who was previously employed in Illinois by a related member of the eligible employer and whose employment was shifted to the eligible employer after the eligible employer entered into the agreement; or

(3) a child, grandchild, parent, or spouse, other than a spouse who is legally separated from the individual, of any individual who has a direct or indirect ownership interest of at least 5% in the profits, capital, or value of the eligible employer.

"Qualified production facility" means a facility in the State in which interactive digital media projects are or are intended to be regularly produced.

(b) The Department may adopt rules necessary to implement this Act.

Section 10. Tax credit awards. Subject to the conditions set forth in this Act, an applicant is entitled to a credit against the tax imposed under subsections (a) and (b) of Section 201 of the Illinois Income Tax Act as approved by the Department under Section 25 of this Act.

Section 15. Application for certification of accredited production. Any applicant proposing an interactive digital media production located or planned to be located in Illinois may request an accredited production certificate by formal application to the Department.

Section 20. Issuance of tax credit certificate.

(a) In order to qualify for a tax credit under this Act, an applicant must file an application, on forms prescribed by the Department, providing information necessary to calculate the tax credit and any additional information as required by the Department.

(b) Upon satisfactory review of the application, the Department shall issue a tax credit certificate stating the amount of the tax credit to which the applicant is entitled. The tax credit certificate shall be effective for expenditures made prior to the date of initial certification and shall be valid until the production is completed.

Section 25. Amount and duration of the credit. The amount of the credit awarded under this Act is based on the amount of the Illinois labor expenditure and Illinois production spending approved by the Department for the production as set forth under Section 5. The credit may be taken beginning with the taxable year in which the accredited production company has met the investment requirement. For each year in which such accredited production company either claims or transfers the credit, the accredited production company shall attach a schedule to the accredited production company's Illinois income tax return.

Section 30. Transfer of tax credits.

(a) Upon application and granting of an accredited production certificate by the Department, an accredited production company, or a partner or member that has received a distribution under that certificate, may elect to transfer, in whole or in part, any unused credit amount granted under this Act. An election to transfer any unused credit amount must be made no later than 5 years after the date the credit is awarded, after which period the credit expires and may not be used. The Department shall notify the Department of Revenue of the election and transfer.

(b) An accredited production company that elects to apply a credit amount against taxes remitted is permitted a one-time transfer of unused credits to one transferee. An accredited production company that elects to apply a credit amount against taxes due is permitted a one-time transfer of unused credits to no more than 4 transferees, and such transfers must occur in the same taxable year.

(c) The transferee is subject to the same rights and limitations as the accredited production company awarded the credit, except that the transferee may not sell or otherwise transfer the credit.

(d) The Department of Revenue may adopt rules to administer this Section.

Section 35. Interactive Digital Media Tax Credit Report. The Department shall submit to the General Assembly, no later than July 1, 2020, a report that includes, without limitation:

(1) an assessment of the economic impact of the tax credit program created under this Act, including the number of jobs created and retained, and whether the job positions are entry level, management, vendor, or production related;

(2) an assessment of the revenue impact of the program, including, but not limited to, the amount of Illinois labor expenditure and Illinois production expenditure brought to Illinois, including the amount of spending and the type of Illinois vendors hired in connection with an accredited production company;

(3) in the discretion of the Department, a review of the practices and experiences of other states or nations with similar programs;

(4) a determination of whether those receiving qualifying Illinois labor expenditure salaries or wages reflect the geographical, racial, ethnic, gender, and income level diversity of the State of Illinois; and

(5) an assessment of the overall success of the program.

Section 60. Repealer. This Act is repealed July 1, 2021.

Section 90. The Illinois Income Tax Act is amended by adding Section 224 as follows:

(35 ILCS 5/224 new)

Sec. 224. Interactive Digital Media Tax Credit. For tax years beginning on or after January 1, 2016, taxpayers who have been awarded a credit under the Interactive Digital Media Tax Credit Act are entitled to a credit against the tax imposed under subsections (a) and (b) of Section 201 of this Act as provided in the Interactive Digital Media Tax Credit Act.

The credit may not be carried back. If the amount of the credit exceeds the tax liability for the year, the excess may be carried forward and applied to the tax liability of the 5 taxable years following the excess credit year. The credit shall be applied to the earliest year for which there is a tax liability. If there are credits from more than one tax year that are available to offset a liability, the earlier credit shall be applied first. In no event shall a credit under this Section reduce the taxpayer's liability to less than zero.

Section 99. Effective date. This Act takes effect upon becoming law.