A Guide To The New Illinois Live Theatre Production Tax Credit
February 28, 2012
The Illinois legislature has passed and Governor Quinn has signed into law the Illinois Live Theatre Production Tax Credit Act. This tax credit is based on and is similar to the Illinois film tax credit. One major difference, however, is that the live theatre tax credit is limited each fiscal year to a pool of only $2 million for all applicants. There is no such limitation on the film tax credit.
The tax credit act is meant to bring more pre-Broadway and other qualified productions to Chicago but the act is not limited to out-of-state producers. It also applies to for-profit local producer/production companies that meet certain qualifications.
Here’s a step by step guide to the new tax credit:
TO WHOM DOES IT APPLY?
The live theatre tax credit applies only to “accredited theater productions”. The act defines that term as:
- a for-profit live stage presentation
- in a qualified production facility (defined below) that is either
- a pre-Broadway production or
- a long-run production for which the aggregate Illinois labor and marketing expenditures exceed $100,000
WHAT IS A “QUALIFIED PRODUCTION FACILITY”
The act de4fines “qualified production facility” as “a facility located in Illinois in which live theatrical products are, or are intended to be, exclusively presented that contain
- at least one stage,
- a seating capacity of 1,200 or more and
- dressing rooms, storage areas, and other ancillary amenities necessary for the accredited theater production.
Question: Does this definition require the facility to be a “first class theatre?”
WHAT IS A PRE-BROADWAY PRODUCTION?
The act defines “pre-Broadway production” as a live stage production that, in its original or adaptive version, is performed in a qualified production facility (see above) having a presentation scheduled for Broadway’s Theater District in New York City within 12 months after its Illinois presentation.
- How does a producer prove that a NY presentation is “scheduled”? Must the producer have an executed lease with a NY theatre prior to opening the show in Illinois? Will something less than an executed lease fulfill this scheduling requirement (e.g., a letter of intent from the producer to the NY theatre stating the producer intends to lease that theatre for a period of time set forth in the letter)?
- What if the NY production never occurs?
- Does “Broadway’s Theater District in NYC” include off- and off-off Broadway theatres?
- Does the act allow a pre-Broadway production to be scheduled for production in a NY not-for-profit theatre like Lincoln Center in the hope that it will find a commercial production at a later date in NY?
WHAT DOES A “LONG-RUN PRODUCTION” MEAN?
A pre-Broadway production is not the only type of production that may be eligible for the live theatre tax credit. A “long-run production” is also eligible. The act defines this type of production as
- a live stage production that is performed in a qualified production facility
- for longer than 8 weeks
- with at least 6 performances per week
A long-run production that starts at the end of one tax year and goes into a new tax year is eligible for a tax credit in each of those years. A tax year is defined as January 1 through December 31.
WHO CAN APPLY FOR A LIVE THEATRE TAX CREDIT?
Most people who will apply for the tax credit will be producers, but the act does not limit those who can apply to producers. The act also defines a credit “applicant” as a taxpayer who is a “theatre producer, owner, licensee, operator or presenter that is presenting or has presented a live stage presentation located within Illinois.”
The applicant must
- own or license the theatrical rights of the stage production for the Illinois production or
- has executed an agreement or will execute an agreement directly with the owner of licensee of those rights.
Question: If a tax credit applicant does not own the rights, when must that applicant “execute an agreement” with the rights owner? Can that execution occur after the Illinois production ends its run?
WHAT KIND OF SPEND DOES THE PRODUCER HAVE TO MAKE IN ILLINOIS TO QUALIFY FOR THE TAX CREDIT?
All tax credits require the producer/production company to spend a certain amount of money on people/goods within the state. That is true of the new live theatre tax credit as well.
The act requires the producer to calculate its eligibility using the gross salary or wages of non-artist talent utilized for the production. Benefits, taxes and other “consideration” incurred or paid to employees are included.
The expenditure must be
- incurred or paid by the credit applicant on or after the effective date of the tax credit act which is __________________
- for services related to any portion of an accredited production including
- writing of the script
- hiring of service providers
- purchases from vendors
- public relations
- load in
- performances and other related activities
- load out
The expenditures must be directly attributable to the production.
IMPORTANT LIMITATION: The expenditures are limited to the first $100,000 of wages incurred or paid to each employee of the production in each tax year in which the production is eligible for a tax credit. So if a production non-talent employee receives more than $100,000 in wages in a tax year for his/her work on the production, only the first $100,000 is eligible for the tax credit.
Employee wages must be paid in the tax year for which the producer is claiming the tax credit or no later than 60 days after the end of that tax year.
Of course, the employee must reside in Illinois when he/she is paid.
Finally, the expenditure must be “reasonable” as well as directly attributable to the production. What does “reasonable” include or not include?
Qualified expenditures also include the following:
- National marketing, public relations and creation/placement of print, electronic, TV, billboard and other forms of advertising
- Construction and fabrication of scenic materials provided that those expenditures to not exceed $500,000 per production in any single tax year
The Illinois Department of Commerce and Economic Opportunity decides whether a production is eligible for the tax credit. The Department has the authority to inspect and audit an applicant’s books and records (which must be kept according to generally accepted accounting principles).
The Department is authorized to adopt rules necessary for the implementation of the tax credit act requirements and the awarding of the credit.
Credits are to be awarded on a first-come, first-serve basis (remember, each year there’s only $2 million available for this credit). If the Department awards more than the $2 million available in any given tax year, the excess will be awarded in the next tax year (assuming the legislature does not do away with the credit).
WHAT HAS TO BE INCLUDED IN AN APPLICATION FOR THE TAX CREDIT?
The Department of Commerce will prepare application forms. The Department will determine whether a production is eligible if, by a preponderance, the following conditions are met or exist:
- The applicant intends to make the expenditure in Illinois
- The production is economically sound (what does that mean?), will increase opportunities for employment and will strengthen the Illinois economy (isn’t that an awful lot to put on the shoulder of one show?)
- The applicant has filed a diversity plan outlining specific goals for hiring eligible minority persons and females and for using vendors receiving certification under the Business Enterprise for Minorities, Females and Person with Disabilities Act
- The Department has approved the diversity plan and verified that the applicant has met or made good faith efforts to achieve the goals set out in the plan (note that the goals don’t actually have to be achieved)
- The applicant must indicate whether he/she plans to participate in training, education and recruitment programs in cooperation with Illinois colleges, universities, labor organizations that are designed to promote and encourage the training and hiring of Illinois residents who represent the diversity of Illinois
- The applicant must show that the production would not occur in Illinois if not for the tax credit. The applicant must indicate one of the following:
- The applicant has not state/international location options and could reasonably and efficiently operate outside of Illinois, or
- At least one other state/nation could be considered for the production, or
- The receipt of the tax credit is a major factor in the decision to where the produ0ction will be presented and that without the tax credit the applicant would likely not create or retain jobs in Illinois, or
- Receipt of the tax credit is essential to the applicant’s decision to create or retain new jobs in Illinois
- The tax credit will result in an overall positive impart to Illinois based on data available to the Department of Commerce
If the Department issues a tax credit, it will provide the applicant with a certificate. The award entitles the applicant to receive a tax credit of up to
- 20% of the Illinois labor spend
- 20% of the Illinois production spend
- 15% of the labor spend generated by employment of Illinois residents in geographic areas of high poverty or high unemployment
The applicant receiving the tax credit can sell, assign or transfer the credit within one year after receiving it based on any rules the Department of Commerce may create. Thus, like the film tax credit which may also be sold, the applicant may expect to get $.80 to $.90 cents on the dollar in a credit sale.