1) Section 170.1 has been revised to update the references to the authorizing legislation for the Program. The revision also eliminates a reference to the New York City film tax credit program, which no longer exists.

2) Several changes to the definitions of Section 170.2 have been made. The definition of “certificate of tax credit” adds language mandating the certificate include the allocation year of tax credit earned and a disclaimer that such tax credit will not be claimed before the later of either the taxable year the production of the qualified film was completed or the taxable year immediately following the allocation year for which the film was allocated the credit. The definition of “production costs” has been amended to clarify that “licensing or rights associated with the production of a qualified film” are not included within the scope of the definition. The definition of “third party verification” has been added to define the process by which an authorized applicant may voluntarily have its final application review by a qualified certified public accountant in accordance with agreed upon procedures.

Further, several new important definitions have been added to help clarify the Program, including, but not limited to: “allocation year”; “end credit requirements”; “level one qualified production”; “level two qualified production”; “qualified certified public accountant”; “qualified independent film production company”; and “relocated television production.”

3) Section 170.4 has been revised to require an authorized applicant to submit an initial application before the start of principal photography. It also clarifies that the interview with the Department after submission of the initial application is discretionary, not mandatory.

4) Changes to section 170.5 clarify that the Department shall allocate the amount of credits for each calendar year based upon the date of approval of the final application and no longer on an applicant’s effective date. The obsolete reference to the maximum allowable allocation of credit limit of $60 million per calendar year has been deleted.

5) Regarding criteria for the evaluation of initial and final applications, section 170.6 has been updated to ensure that the threshold standards mirror those in the statute.

6) A new Section 170.7 has been added to allow the Department to accept, as part of a final application, a third party verification by a qualified certified public accountant of an authorized applicant’s final application.

7) Section 170.9 has been revised to clarify (i) that an appeal may be taken only from denial of a final application or disagreement over the amount awarded by the Department and (ii) that a failure to request an appeal within 30 days of denial or issuance of disputed amount of tax credit will be deemed a waiver of applicant’s right to appeal.

8) A new Section 170.10 has been added to address the sharing of information regarding credits applied for and claimed between the Department and the Department of Taxation and Finance.

9) A new Section 170.11 (derived from the statute) has been added requiring the Department to file a quarterly report with the Director of the Budget and the chairmen of the Assembly Ways and Means Committee and the Senate Finance Committee within 15 days after the close of the calendar quarter.

10) A new Section 170.12 (derived from the statute) has been added requiring the Department to file a biennial report with the Director of the Budget and the chairmen of the Assembly Ways and Means Committee and the Senate Finance Committee within 15 days after the close of the applicable calendar year.

The full text of the emergency rule is available at the Department’s website at www.esd.ny.gov.

STATUTORY AUTHORITY:

Section 7(c) of Part P of Chapter 60 of the Laws of 2004 requires the Commissioner of Economic Development to promulgate rules and regulations to establish procedures for the allocation of the Empire State Film Production Tax Credit, including provisions describing the application process, the due dates for such applications, the standards used to evaluate the applications, and the documentation provided to taxpayers to substantiate to the State Department of Taxation and Finance the amount of the tax credit for the program itself. Such legislation provides that, notwithstanding any other provisions to the contrary in the State Administrative Procedure Act, the rules and regulations may be adopted on an emergency basis. Since the initial adoption of the film tax credit regulations, the statute has been amended four times without a change to the regulations.

LEGISLATIVE OBJECTIVES:

The proposed amendments to Part 170 are in accord with the public policy objectives the Legislature sought to advance by creating the Empire State Film Production Tax Credit Program (the “Program”). The Program creates an incentive to bring strategically targeted aspects of the industry to New York State as opposed to other competitive markets such as Louisiana, Ontario, and Vancouver. It is the public policy of the State to offer a tax credit that will help draw film and television production—and the economic activity it generates—to the State. The revisions to Part 170 help to further such objectives by updating the application process for the Program, clarifying portions of the Program through the creation of various definitions, and describing the credit allocation process itself.

NEEDS AND BENEFITS:

The revisions to Part 170 are necessary to properly update the administration of the Program and ensure that the regulations conform to the statutory changes made to the Program since 2004. The revisions clarify the law’s requirements related to facilities and qualifying productions, update definitions and processes to reflect changes to the industry and the law, and further define necessary administrative procedures. Several new definitions have been added to Section 170.2, including the terms “allocation year”; “end credit requirements”; “level one qualified production”; “level two qualified production”; “qualified certified public accountant”; “qualified independent film production company”; “relocated television production”; and “third party verification.” Administrative changes of note include: (1) adding a provision to Section 170.4(a)(1) that requires an authorized applicant to submit an initial application before the start of principal photography; (2) clarifying in Section 170.4(a)(2) that the interview with the Department after submission of the initial application is discretionary, not mandatory; (3) requiring in Sections 170.6(a)(1) and 170.6(b)(1) that both the initial and final applications must be complete rather than substantially complete; (4) removing the requirement in current Section 170.4(a)(5) that applications shall be reviewed in the order they are received; (5) clarifying in Section 170.5 that the Department shall allocate the amount of credits for each calendar year based upon the date of approval of a complete final application rather than on an applicant’s effective date; (6) adding a requirement in Sections 170.6(a)(11) and 170.6(b)(9) that applicants acknowledge the support of the Program by satisfying the end credit requirements in Section 170.2(i); and (7) adding a new Section 170.7 to allow the Department to accept third party verifications of authorized applicants’ final applications.

Section 170.8 is revised to make clear (i) that an appeal may only be taken from denial of a final application or disagreement over the amount awarded by the Department and (ii) that a failure to request an appeal within 30 days of denial or issuance of disputed amount of tax credit will be deemed a waiver of applicant’s right to appeal.

This rule making also adds new Sections 170.10 and 170.11 to detail the Department’s obligations, as required by statute, to submit quarterly and biennial reports on the Program to the Director of the Budget and the chairs of the Assembly Ways and Means Committee and the Senate Finance Committee.

COSTS:

a. Costs to the regulated parties for the implementation of and continuing compliance with the rule:

Minimal costs associated with applying for the program. This is a voluntary program and regulated parties may receive substantial tax credits if they qualify.

b. Costs to the regulating agency, the state, and local governments for the implementation and continued administration of the rule: N/A.

c. The information, including the source(s) of such information and the methodologies upon which the cost analysis is based: N/A.

LOCAL GOVERNMENT MANDATES:

None.

PAPERWORK:

The rule updates the application process for eligible applicants, including changes to initial and final applications, certain tax certificates, and forms relating to film expenditures.

DUPLICATION:

The proposed rule will serve as an amendment to the existing regulations of the Commissioner of the Department of Economic Development, Part 170 of 5 NYCRR.

ALTERNATIVES:

No alternatives were considered in revising Part 170. Many of the changes are driven by changes to the statute since Part 170 was first promulgated. For example, the revised Part 170 reflects the new reporting requirements of Chapter 59 of the Laws of 2013 to apply to taxpayers that have received a certificate of tax credit rather than taxpayers that were allocated a credit after initial application. This is a reasonable approach for several reasons. First, reporting based on completed projects is justifiable in that it avoids the Department providing misinformation in reports based on a project’s estimated initial costs from its initial application which invariably change as the production is completed. Also, this approach is sensitive to companies’ concerns that release of estimated information while the production is still being made would negatively impact their ability to enter into contracts and ultimately market their film.

FEDERAL STANDARDS:

There are no federal standards in regard to the Program; it is purely a State program that offers a State tax credit to eligible applicants. Therefore, the proposed rule does not exceed any federal standard.

COMPLIANCE SCHEDULE:

The Department and the business applicants will be able to achieve compliance with the revised regulation as soon as it is adopted.

Changes made to the last published rule do not necessitate revision to the previously published Statement in Lieu of Regulatory Flexibility Analysis for small business and local governments. The changes made represent clarification of issues that do not impact the statement.

Changes made to the last published rule do not necessitate revision to the previously published Statement in Lieu of Rural Area Flexibility Analysis. The changes made represent clarification of issues that do not impact the statement.

Changes made to the last published rule do not necessitate revision to the previously published Statement in Lieu of Job Impact Survey. The changes made represent clarification of issues that do not impact the statement.

Purpose

Comment: What is the purpose of providing that a “sole proprietor” of a partnership may be allowed a credit?

Answer: Including “sole proprietor” reflects that, pursuant to Tax Law § 24(a)(1), sole proprietors of qualified film production companies are eligible to receive a credit under the Empire State Film Production Tax Credit Program (“Film Program”).

Definitions

Comment: The definition of “qualified film” should not exclude the filming of live theatrical performances. Another comment recommended that the enumerated recordings which shall not constitute a qualified film should list the filming of a “live theatrical performance” separately from documentary films.

Answer: The New York State Department of Economic Development (“Department”) has determined that the recording of live theatrical productions does not adequately promote the programmatic goals of increasing investment and job creation in the film production industry to warrant such productions receiving Film Program tax benefits. The Department believes that, because recordings of live theatrical productions document actual events, namely specific productions of theatrical performances as they occur in theatrical venues, they are appropriately defined as documentary films.

Comment: Under the definition of “pre-production,” wages paid to line producers should not be excluded as qualified pre-production costs.

Answer: The Department has determined that line producers, in light of their role in developing budgets and hiring key crew members, are producers. Accordingly, the wages of line producers are not “production costs” per Tax Law § 24(b)(2) and shall not constitute qualified pre-production costs.

Comment: What is the purpose of changing the word “shall” to “may” in various provisions of the regulations; e.g., defining the information that “may” be included in certificates issued by the Department as opposed to information that “shall” be included in such certificates?

Answer: Changing “shall” to “may” allows the Department to omit information from certificates of tax credit that would be superfluous. Another instance of “shall” being changed to “may” was the initial application interview provided for at 5 NYCRR § 170.4(a)(2). Eliminating the requirement for an interview will make the application process more efficient.

Comment: Is there a definition of “consumer viewing?”

Answer: No.

Comment: What is an “individual” under the definition of “qualified independent film production company?”

Answer: An “individual” is any film production company owned by a single person. This change reflect Tax L. § 24(b)(7).

Comment: The definition of “qualified film production facility” should be expanded to include any New York facility that “enables a qualified production company to produce a qualified film in whole or in part.”

Answer: Expanding the definition of “qualified film production facility” to include any facility that “enables a qualified production company to produce a qualified film in whole or in part” would not comport with Tax Law § 24(b)(5) which establishes specific criteria defining qualified film production facilities.

Comment: The definition of “qualified film production company” should be amended to clarify that the definition only applies to the portion of the film being produced in New York.

Answer: The definition as promulgated already reflects Tax Law § 24(b)(6).

Comment: The definition of “television series” should include programs with a running time of at least 20 minutes rather than 30 minutes.

Answer: Not required by statute.

Armories

Comment: Are there any substantive changes to the use of armories?

Answer: No. Language added to the regulations pertaining to armories mirrors the existing statutory requirements under Tax Law § 24.

Application Process

Comment: The regulations should include a provision providing for inspection of film production records by third-party auditors.

Answer: The regulations have been amended to allow for voluntary review of an approved applicant’s final application, in accordance with agreed upon procedures, by a qualified certified public accountant.