SENATE ECONOMIC GROWTH COMMITTEE
STATEMENT TO
SENATE, No. 3275
with committee amendments
STATE OF NEW JERSEY
DATED: JUNE 10, 2024
The Senate Economic Growth Committee reports favorably and with committee amendments Senate Bill No. 3275.
As amended and reported, this bill revises certain provisions of the film and digital media content production tax credit program (program) to include eligibility for wages and salaries paid to persons who are not subject to tax under the “New Jersey Gross Income Tax Act” due to a tax reciprocity agreement with another state. The bill also makes certain changes to the availability of tax credits under and the requirements of the program.
Availability of Certain Unused Aspire and Emerge Tax Credits
This bill amends current law providing that certain unused tax credits authorized for award under the “New Jersey Aspire Program Act” (Aspire) and “Emerge Program Act” (Emerge) are to be made available for the provision of tax credits made available through the program. Under current law, the unused tax credits are to be made available for tax credits allowed to New Jersey studio partners and New Jersey film-lease production companies. This bill amends the law so that tax credits are additionally to be made available to taxpayers other than New Jersey studio partners and New Jersey film-lease production companies that are awarded tax credits under the program, which value is not to exceed $300 million in fiscal year 2025.
State Income Tax Reciprocity
Under the program, the New Jersey Economic Development Authority (authority) awards corporation business tax and gross income tax credits to eligible taxpayers based on the qualified film production expenses or qualified digital media content production expenses incurred for use within certain parts of the State. In addition to certain other eligibility requirements, at least 50 percent of the qualified digital media content production expenses incurred by a taxpayer are required to be for wages and salaries paid to full-time or full-time equivalent employees in New Jersey in order to qualify for the digital media content production tax credit.
Under current law, the terms “qualified film production expenses” and “qualified digital media content production expenses” are defined to include, among other expenses, the wages and salaries paid to individuals who are employed for the purposes of the production and who are subject to the tax imposed by the “New Jersey Gross Income Tax Act.” Current law also defines the term “full-time or full-time equivalent employee” to include persons working not less than 35 hours per week, or other standard of service accepted by custom or practice as full-time or full-time equivalent employment, and whose wages and salaries are subject to withholding as provided in the “New Jersey Gross Income Tax Act.”
This bill expands the scope of qualified film production expenses and qualified digital media content production expenses to include wages and salaries that are paid to individuals who are employed for the purposes of the production and who are not subject to tax under the “New Jersey Gross Income Tax Act” due to the provisions of a tax reciprocity agreement with another state. The bill also provides that these expenses include any payments made by the taxpayer to a loan out company for services performed in New Jersey by individuals who are employed by the loan out company and whose wages and salaries are subject to withholding but not subject to tax under the “New Jersey Gross Income Tax Act” due to the provisions of a tax reciprocity agreement with another state.
Additionally, the bill amends the definition “full-time or full-time equivalent employee” to include otherwise eligible persons whose wages and salaries are not subject to tax under the “New Jersey Gross Income Tax Act” due to the provisions of a tax reciprocity agreement with another state.
Currently, the State has entered into a reciprocal income tax agreement with the Commonwealth of Pennsylvania. Under the terms of this agreement, compensation paid to Pennsylvania residents who are employed in New Jersey is not subject to tax under the “New Jersey Gross Income Tax Act.” Accordingly, the bill provides that wages and salaries paid to certain Pennsylvania residents may be included as qualified film production expenses and qualified digital media content production expenses, provided that these persons are employed in New Jersey for the purposes of the film or digital media content production.
Modification of Certain Program Requirements
Among other requirements under current law: (1) at least 60 percent of the total film production expenses, exclusive of post-production costs, of the taxpayer are to be incurred for services performed, and goods purchased through vendors authorized to do business, in New Jersey; or (2) the qualified film production expenses of the taxpayer during the tax period for services performed, and goods purchased, through vendors authorized to do business in New Jersey, are to exceed $1 million per production. The bill requires that both conditions be met for reality shows.
The bill also amends current law that requires at least $2 million of the total digital media content production expenses of a taxpayer be incurred for services performed, and goods purchased through vendors authorized to do business, in New Jersey to be approved for a tax credit in an amount equal to 30 percent of the qualified digital media content production expenses of the taxpayer during a tax period. Instead, the bill requires a minimum of $4 million for this provision.
Under current law, taxpayers that have applied for and have not been allowed a tax credit under the program because the total amount of tax credits allowed to taxpayers for the tax period exceeds the amount of tax credits available in that year are to be allowed in the order in which they have been submitted. This bill modifies this provision, requiring that those taxpayers instead have their applications approved by the authority, provided the application otherwise satisfies program requirements.
Modification of Definitions
The bill amends the definition of “film” to provide that a reality show is included in the term “film” if the production company of the reality show has obtained a minimum 10 episode order from, and is commissioned and scheduled to premiere on, a major linear network or streaming service. Under current law, a reality show is included in the definition of “film” if the production company of the reality show leases or otherwise occupies a production facility of a certain size for a certain period of time and invests a certain amount of money in the facility within a designated enterprise zone or UEZ-impacted business district.
The bill changes the definition of “loan out company” to require such companies to be authorized to do business in New Jersey.
The bill changes the definition of “qualified film production expenses” to provide that the term does not include expenses incurred in marketing or advertising a film; expenses for a story, script, or scenario to be used for a film; for taxpayers other than New Jersey studio partners and New Jersey film-lease production companies, payment in excess of $750,000 to a highly compensated individual for wages or salaries or other compensation for writers, directors, including music directors, producers, and performers, other than background actors with no scripted lines; and for New Jersey studio partners and New Jersey film-lease production companies, payment in excess of $500,000 to a highly compensated individual for wages or salaries or other compensation for writers, directors, including music directors, producers, and performers, other than background actors with no scripted lines, with certain exceptions.
Under current law, the term “qualified film production expenses” is defined to exclude expenses incurred in marketing or advertising a film; and payment in excess of $500,000 to a highly compensated individual for costs of a story, script, or scenario used in the production of a film and wages or salaries or other compensation for writers, directors, including music directors, producers, and performers, other than background actors with no scripted lines, with certain exceptions.
The bill provides that for a New Jersey studio partner that incurs less than $25 million in qualified film production expenses in New Jersey, in excess of amounts paid to highly compensated individuals, an individual amount not to exceed $18 million of the wages or salaries or other compensation for certain individuals constitutes qualified film production expenses. Under current law, this provision applies to New Jersey studio partners that incur less than $50 million in qualified film production expenses in New Jersey.
Additionally, the bill provides that for New Jersey studio partners that incur $25 million or more in qualified film production expenses in New Jersey, in excess of amounts paid to highly compensated individual, an additional amount, to exceed $72 million, of wages or salaries or other compensation for certain individuals constitutes qualified production expenses. Under current law, this provision applies to New Jersey studio partners that incur $50 million or more in qualified film production expenses in New Jersey.
The bill also amends existing program definitions for “digital media content,” “full-time or full-time equivalent employee,” “incurred in New Jersey,” and “qualified digital media content production expenses.”
COMMITTEE AMENDMENTS:
The committee amended the bill to:
(1) provide that certain unused tax credits authorized for award under the “New Jersey Aspire Program Act” and “Emerge Program Act” are to be made available for tax credits allowed, through the program, to taxpayers other than New Jersey studio partners and New Jersey film-lease production companies, which value is not to exceed $300 million in fiscal year 2025;
(2) require that for reality shows to qualify under the program, at least 60 percent of the total film production expenses, exclusive of post-production costs, of the taxpayer are incurred for services performed, and goods purchased through vendors authorized to do business in New Jersey, and the qualified film production expenses of the taxpayer during the privilege period for services performed, and goods purchased, through vendors authorized to do business in New Jersey, exceed $1 million per production;
(3) require that at least $4 million, rather than $2 million as required under current law, of the total digital media content production expenses of a taxpayer be incurred for services performed, and goods purchased through vendors authorized to do business, in New Jersey to be approved for a tax credit in an amount equal to 30 percent of the qualified digital media content production expenses of the taxpayer during a tax period;
(4) provide that taxpayers that have applied for and have not been allowed a tax credit under the program, because the total amount of tax credits and tax credit transfer certificates allowed to taxpayers for the tax period exceeds the amount of tax credits available in that year, are to have their applications approved by the authority, provided the application otherwise satisfies program requirements This modifies the requirement under current law that the authority allow tax credits, under these circumstances, in the order in which the taxpayers submitted applications;
(5) provide that qualified film production expenses and qualified digital media content production expenses include any payments made by the taxpayer to a loan out company for services performed in New Jersey by individuals who are employed by the loan out company and whose wages and salaries are subject to withholding but not subject to tax under the “New Jersey Gross Income Tax Act” due to the provisions of a tax reciprocity agreement with another state. Previously, the bill provided for inclusion of such wages and salaries when not subject to the gross income tax without clarification as to withholding status on those wages and salaries;
(6) amend the definitions of certain terms for purposes of the program;
(7) remove a provision for certain retroactive applicability of the bill;
(8) update the title and synopsis to reflect changes to the bill; and
(9) make technical changes to the bill.