Is a company that procures props and costumes for productions a Georgia vendor or a conduit for the film tax credit, and which of its sales or rentals qualify?

Plain-English summary

A Georgia procurement company ("Vendor") sells and rents props, costumes, and other items to film and television productions from an office in Georgia, carrying some basic inventory and charging Georgia sales tax. Often it fills a production's specialized request by buying or renting an item it does not stock -- for example, a "very specialized, unique period wardrobe for 300 extras" or a "functioning Sherman tank" -- from an out-of-state supplier, then reselling or re-renting it to the production. It asked whether, for such transactions, it is a "Georgia vendor" or merely a "conduit" under Revenue Regulation 560-7-8-.45(6)(f), and whether any of its sales or rentals qualify for the film tax credit (which requires qualifying production expenditures under O.C.G.A. § 48-7-40.26(a)(5)).

The Department ruled:

• Conduit for non-inventory items (Issue 1): To be a Georgia vendor with respect to specific items, a vendor must carry those specific items in its own regular inventory. When Vendor procures a specialized item it does not stock (buying from its out-of-state preferred suppliers to fill a request), it is acting as a conduit within Regulation 560-7-8-.45(6)(f), and the production company's expenditure for those items is not an eligible film-tax-credit expenditure. That Vendor keeps a small supply of similar goods (hoop skirts, rubber guns) does not change the result for the specialized items it had to source outside its inventory.
• Regular-inventory sales qualify (Issue 2): To the extent Vendor sells or rents costumes and props that it keeps in its own regular inventory, those sales or rentals do qualify for the film tax credit.

What this means for you

Film and TV production companies

An expenditure with a Georgia supplier only counts toward the film tax credit if the supplier is a Georgia vendor for that item -- i.e., the item comes from the supplier's own regular inventory. If a supplier is really sourcing a one-off item from out of state to fill your order, it is a conduit and your spend on that item is not creditable. Confirm what actually comes from a vendor's stock.

Suppliers to the film industry

Being a Georgia company that collects Georgia sales tax is not enough to make your customers' purchases creditable. The film-credit analysis is item-by-item: sales and rentals from your regular inventory support the credit; items you specially procure from out-of-state suppliers to fill an order make you a conduit for those items.

Accountants and tax professionals

The distinction lives in Revenue Regulation 560-7-8-.45(6)(f): purchases and rentals of property support the credit only when the property is used in Georgia and the vendor is a genuine Georgia vendor for that property. A vendor "that acts as a conduit to enable purchases and rentals to qualify that would not otherwise qualify" is not a Georgia vendor for those items. The test is the vendor's own regular inventory, applied per item -- not the vendor's overall Georgia presence.

Common questions

Q: Our Georgia supplier bought a specialty prop out of state just for our shoot -- does that spend count toward the film tax credit?
A: No. For an item the supplier does not carry in its own regular inventory, the supplier is a conduit under Regulation 560-7-8-.45(6)(f), and the expenditure is not an eligible film-tax-credit expenditure.

Q: Does anything the vendor provides qualify?
A: Yes -- to the extent the vendor sells or rents props and costumes from its own regular inventory, those sales or rentals qualify for the film tax credit.

Q: The vendor keeps some similar items in stock. Does that make the specially sourced item qualify?
A: No. The Department said carrying a small supply of similar goods does not change the result for the specific specialized items the vendor had to source from outside its inventory.

Q: Can another company rely on this ruling?
A: No. A Georgia letter ruling binds the Department only for the requesting taxpayer and the specific facts, with no precedential value for others.

Citations and references

Statutes and regulations:

• O.C.G.A. § 48-7-40.26(a)(5) -- qualifying production expenditures for the film tax credit
• Revenue Regulation 560-7-8-.45(6)(f) -- production expenditures incurred in this state; Georgia vendor vs. conduit rules for purchases and rentals of property

Source

• Landing page: Georgia Income Tax Letter Rulings
• Original PDF: LR IT-2017-02

Original ruling text

Georgia Letter Ruling:
Topic:
Date Issued:

LR IT-2017-02
Film Tax Credit
May 17, 2017

This letter is in response to your letter requesting a ruling that Vendor qualifies as a Georgia Vendor under the Film
Tax Credit.
Facts as Presented by the Taxpayer
Your letter to the Department states:
“Vendor is a procurement company which in its ordinary course of business, sells or rents an assortment of property
to the motion picture and television industry. Vendor procures goods, such as props and costumes (as described
below). The combination of Vendor’s business relationships, volume pricing and years of experience allows Vendor
to deliver these goods to its clients in a timely manner and at competitive prices.
“Vendor is a Georgia company with an office in , Georgia. The office is currently staffed by one employee
that works on a regular basis. Vendor also maintains some basic inventory at the office in , Georgia. .
“Vendor charges, collects, and remits applicable sales tax on all items sold or rented to its clients.
“Vendor’s longstanding business relationships allow Vendor to extend more favorable credit terms than some clients
may be able to secure on their own, especially independent productions which do not have the advantages that major
studios might have in relation to the ability to procure goods at competitive prices.
“In the ordinary course of business, Vendor procures items for production companies such as specialty wardrobe,
period prop pieces, custom effects pieces, etc. In some instances, Vendor may fulfill requests using its own inventory,
while in other instances, it may use its nationwide network to locate hard to find items to bring them to Georgia for
use in Georgia productions.
“Vendor is at financial risk for all items purchased or rented. It contracts with the supplier in its own name and not in
the name of the production company. It bears the risk of delivery of the goods to the production set.
“As previously indicated, Vendor, in its regular course of business, routinely provides a large variety of production
related items either from its inventory or from suppliers.
“Examples of a typical Vendor transaction:
“1) A television production company requires a very specialized, unique period wardrobe for 300 extras. The
production company could not locate the specialized wardrobe, in the quantity needed or within the time required, in
local stores or through their costume supplier. Vendor carries a small suppy [sic] of hoop skirts but does not have the
specialized wardrobe requested by the production company. Vendor would purchase the items from one of its
preferred suppliers, generally located out-of-state, and have the items shipped to the production company at their
shooting location. Vendor would invoice the production company from its in-state office and charge the appropriate
sales tax upon delivery.
“2) A motion picture company requires a very specialized movie prop such as a functioning Sherman tank. The
production company was not able to locate this type of tank in Georgia. Vendor carries in its inventory a limited
number of other military props (i.e., rubber guns, uniforms) but does not have a tank in its Georgia inventory. Vendor
would contract to rent and deliver the tank from one of its preferred vendors, generally located out of state. Vendor
would have the item transported to the production company at their filming location. Vendor would invoice the
production company from its in-state office and charge a rental fee and handling fee plus sales tax upon delivery.
“Vendor does not operate in any way to procure goods that would otherwise not be qualified goods used in the State
of Georgia. A determination that Vendor is operating as a ‘Georgia vendor’ or, just as importantly, to remove doubt
that Vendor operates in a way that is not merely a ‘conduit’ (under the Revenue Regulation 560-7-8-.45) would help
production companies decide whether or not to utilize a company such as Vendor in Georgia.”

LR IT-2017-02
Film Tax Credit
May 17, 2017
Page 2 of 3

Issue # 1
Whether Vendor is a conduit with respect to Examples #1 and #2, above, as provided in Revenue Regulation 560-78-.45(6)(f)?
Issue # 2
If Vendor is a conduit, do any of its sales or rentals qualify for the film tax credit?
Authorities
O.C.G.A. § 48-7-40.26 (a)(5) provides that:
“(5) ‘Production expenditures’ means preproduction, production, and postproduction expenditures
incurred in this state that are directly used in a qualified production activity, including without
limitation the following: set construction and operation; wardrobes, make-up, accessories, and
related services; costs associated with photography and sound synchronization, expenditures
excluding license fees incurred with Georgia companies for sound recordings and musical
compositions, lighting, and related services and materials; editing and related services; rental of
facilities and equipment; leasing of vehicles; costs of food and lodging; digital or tape editing, film
processing, transfers of film to tape or digital format, sound mixing, computer graphics services,
special effects services, and animation services; total aggregate payroll; airfare, if purchased
through a Georgia travel agency or travel company; insurance costs and bonding, if purchased
through a Georgia insurance agency; and other direct costs of producing the project in accordance
with generally accepted entertainment industry practices. This term shall not include postproduction
expenditures for footage shot outside the State of Georgia, marketing, story rights, or distribution,
but shall not affect other qualified story rights. This term includes payments to a loan-out company
by a production company or qualified interactive entertainment production company that has met
its withholding tax obligations as set out below. The production company or qualified interactive
entertainment production company shall withhold Georgia income tax at the rate of 6 percent on all
payments to loan-out companies for services performed in Georgia. Any amounts so withheld shall
be deemed to have been withheld by the loan-out company on wages paid to its employees for
services performed in Georgia pursuant to Article 5 of Chapter 7 of this title notwithstanding the
exclusion provided in subparagraph (K) of paragraph (10) of Code Section 48-7-100. The amounts
so withheld shall be allocated to the loan-out company's employees based on the payments made to
the loan-out company's employees for services performed in Georgia. For purposes of this chapter,
loan-out company nonresident employees performing services in Georgia shall be considered
taxable nonresidents and the loan-out company shall be subject to income taxation in the taxable
year in which the loan-out company's employees perform services in Georgia, notwithstanding any
other provisions in this chapter. Such withholding liability shall be subject to penalties and interest
in the same manner as the employee withholding taxes imposed by Article 5 of Chapter 7 of this
title and the commissioner shall provide by regulation the manner in which such liability shall be
assessed and collected.”
Revenue Regulation 560-7-8-.45 (6)(f) provides that:
“(f)
Production expenditures incurred in this state. In order to be considered to have been
incurred in this state, the following rules shall apply:
1.
Production expenditures, which are attributable to the performance of services by
individuals and companies directly at the filming site in Georgia who were not employees of the
production company or qualified interactive entertainment production company, shall be attributed
to Georgia in the same manner as salaries as provided in subparagraph (6)(g) of this rule.
2.
Except as otherwise provided in this regulation, expenditures for services which are not
performed at the filming site (such as insurance, editing and related services, digital or tape editing,
film processing, transfers of film to tape or digital format, sound mixing, computer graphics

LR IT-2017-02
Film Tax Credit
May 17, 2017
Page 3 of 3
services, special effects services, animation services, etc.) will be allowed if the vendor is a Georgia
vendor and will be attributed to Georgia if the service is rendered in Georgia. If the production
company or qualified interactive entertainment production company is unable to track the actual
time spent in Georgia, then some other reasonable method which approximates the actual time spent
in Georgia may be used to determine the amount attributable to Georgia. In the event the services
are subcontracted to a company that would not otherwise qualify and/or such subcontracted
company renders the services outside Georgia, the expenditure for such services shall not be
considered to have been incurred in this state.
3.
Purchases and rentals of property. In order to include production expenditures for
purchases and rentals of property, the property must have been used in Georgia and purchased or
rented from a Georgia vendor. Purchase receipts, invoices, contracts, or other documentation shall
be used to determine this.
4.
Georgia Vendor. For purposes of this rule, a Georgia vendor is a vendor that:
(i)
Sells or rents property or provides a service not performed at the filming site, which is the
subject of the production expenditure, in their ordinary course of business; and
(ii)
Has a physical location in Georgia with at least one individual working at such location on
a regular basis. Registering with the Georgia Secretary of State or appointing a registered agent in
Georgia does not establish a physical location in Georgia.
However, a vendor that acts as a conduit to enable purchases and rentals to qualify that would not
otherwise qualify shall not be considered a Georgia vendor with respect to such purchases and
rentals.”
Ruling
Ruling on Issue #1
In order to be a Georgia vendor with respect to specific items, a vendor must carry the specific items in its own regular
inventory. In Vendor’s Example #1, Vendor procures a “very specialized, unique period wardrobe for 300 extras” on
behalf of a television production company. It does so, however, by purchasing the items from one of Vendor’s own
“preferred suppliers, generally located out-of-state”, and then reselling or renting the wardrobe items to the production
company. Vendor is not a Georgia vendor with respect to such items. Instead, Vendor is acting as a conduit within
the definition of Revenue Regulation 560-7-8-.45(6)(f), and the television production company’s expenditure for the
300 wardrobe items in Example #1 would not be an eligible expenditure for purposes of the film tax credit. The fact
that Vendor regularly carries a small supply of hoop skirts in its inventory does not change this result. A similar
analysis would apply to Example #2.
Ruling on Issue #2
To the extent Vendor sells or rents costumes and props that it keeps in its regular inventory, such sales or rentals would
qualify for the film tax credit.

The opinions expressed in this ruling are based upon the information contained in your request and limited to the
specific transactions, facts, circumstances and taxpayer in question. The facts herein are those presented by the
taxpayer and the Department accepts them as true for this ruling. If the facts presented herein change, are not true, are
different, or material facts have been omitted, the conclusions reached in this ruling may change. In addition,
subsequent statutory or administrative rule changes or judicial interpretations of the statutes or rules upon which this
advice is based may subject similar future transactions to a different tax treatment than that expressed in this ruling.