How could a certified Louisiana film investment use partnership allocations, letters of credit, escrow, and borrowed funds under the former investor and employment-credit rules?

Plain-English summary

The proposed partnership agreements could allocate up to 100% of the former investor and employment credits to one Louisiana taxpayer, and several noncash or borrowed funding methods could qualify under strict conditions.

The production and entity structure had already been certified by the Louisiana Film and Video Commission and Department of Economic Development. The Department of Revenue agreed to respect that certification subject to statutory limitations and recapture.

Partnership allocation and claimant status

Because the statutes did not prescribe each partner's share, a written agreement could allocate credits in any proportion. Without a written agreement, credits followed the partners' investment or distributive shares.

The investing Louisiana LLC qualified through Louisiana creation or commercial domicile. Its partners or members did not themselves have to be Louisiana residents or domiciliaries, but the credit had no benefit without Louisiana income-tax liability and could not be sold under the ruling.

Letters of credit and escrow

An irrevocable letter of credit qualified only when the investor obtained it from a financial institution for the production company's benefit. Another party could not obtain it and merely pass it through the investor.

Escrowed funds likewise had to be deposited by the investor. In either case, the full investment had to be immediately available when the production company met the draw or reimbursement conditions. The investment date was when the production company could draw the funds.

Credit timing through multiple tiers

Credits flowed through on the last day of the partnership's taxable year in which the partnership earned or received them. A partner used the credit in the partner's tax year containing that day. On the assumed calendar-year facts, credits earned by the LLCs in 2002 were available against the members' 2002 income-tax liability.

Borrowed funds and recapture

The upstream capital company could borrow all invested funds without disqualifying the structure if it had a legal obligation to repay them.

If the only recapture problem was that part of the investment remained unspent after 24 months, only credits associated with the unspent funds were recaptured. More serious certification discrepancies could produce full recapture; dollar-spending discrepancies could produce partial recapture.

Common questions

Q: Could written agreements allocate all credits to one member?

A: Yes, under the ruling's partnership structure.

Q: Did an irrevocable letter of credit automatically qualify?

A: No. The investor had to obtain it, and the funds had to satisfy the ownership and immediate-availability tests.

Q: Could the investment use borrowed money?

A: Yes, if the borrower was legally obligated to repay it.

Q: Who determined whether funds were properly invested and spent for recapture purposes?

A: The ruling identified the Louisiana Film Commission and Department of Economic Development and said the Department of Revenue would respect their certification.

Citations and references

• La. R.S. 47:6007 — former Motion Picture Investor Tax Credit, pass-through, domicile, and recapture provisions
• La. R.S. 47:1125.1 — former motion-picture employment credit
• La. R.S. 47:301(10)(a)(v) — former motion-picture sales-tax provision
• LAC 61:III.101 — Private Letter Ruling authority and reliance statement

Source

• Landing page: Louisiana Department of Revenue Policies
• Original PDF: LA PLR 02-013

Original ruling text

STATE OF LOUISIANA

DEPARTMENT OF REVENUE

M. J. "MIKE" FOSTER, JR.

CYNTHIA BRIDGES

Governor

Secretary

Private Letter Ruling
Redacted Version
No. 02-013
November 27, 2002
Corporation Income Tax and Individual Income Tax
Availability of the Motion Picture Investor Tax Credit and Employment Tax Credit

This is in reply to your request for a private letter ruling concerning the availability of the
Louisiana motion picture investor tax credit, Louisiana motion picture employment tax credit,
and the Louisiana motion picture sales and use tax exemption to the transactions proposed to
be entered into by Finance and your client, Producer.
Factual Scenario
You provided the following facts:
The parties at issue are in the business of major motion picture investment and/or production
and are interested in investing in and producing a feature film in Louisiana. The parties are
considering relocating the project to Louisiana and employing a number of Louisiana
residents in connection with the production. The parties received state-certification of the
motion picture production (“the Production”) from the Department of Economic Development
(“DED”) and the Louisiana Film Commission (“LFC”) based on the terms of the proposal as
set forth below and, as such, the production at issue has been qualified as eligible to receive
the Investor Tax Credit, the Employment Tax Credit, and the Sales Tax Exemption. The
submission to the DED and the LFC and the consequent certification address the special
entities that would be created and operated for investing in and producing the Production in
keeping with the applicable law, La. Rev. Stat. § 47:6007 (as amended). The Production and
structures having been certified, the parties now seek a ruling from the Department of
Revenue on qualified investor status and on permissible methods that may be used to fund the
special entities that will invest in and produce the state-certified motion picture.
The DED and LFC have certified the following structure for the Production:
(1)

A Louisiana investment entity, Louisiana Investor LLC, domiciled in Louisiana, will
be created under Louisiana Law. Louisiana Investor LLC will be funded for the full
production costs of the motion picture, “Production”.

(2)

Producer and Finance, as the members of Louisiana Investor LLC, will fund Louisiana
Investor LLC with the “total production budget,” as that term is defined in § 3 below.
The members of Finance will be Capital Company LLC (“Capital”) and a Louisiana
taxpayer or group of taxpayers (“LA Taxpayer”) with Louisiana personal or corporate
income and/or franchise tax liability.

(3)

The total production budget will be invested in a Louisiana motion picture production
company, “Louisiana Production LLC”, a single member LLC, organized under

Post Office Box 201 · Baton Rouge 70821-0201·Telephone 225-219-7318 · (TDD) Telephone 225-219-2114
www.rev.state.la.us
An Equal Opportunity Employer

Private Letter Ruling 02-013
Page 2 of 7
November 27, 2002
Louisiana Law, and domiciled and headquartered in Louisiana. Louisiana Investor
LLC will be the single member of Louisiana Production LLC. This organization will
be the production entity for the Production. Louisiana Production LLC will be
responsible for all expenditures for the Production, including those expended in
formation of the structure described herein, as well as, all expenditures associated with
pre-production, production, and post-production. All expenditures for the Production
will be managed, administered, and paid by the Louisiana Production LLC, which will
have a Louisiana bank account. Each item of cost or expense paid, for goods or
services in or outside Louisiana, with respect to the state-certified production, will be
considered part of the “total production budget.”
(4)

As the total production budget is currently estimated at $X million, Louisiana Investor
LLC will be entitled to the Investor Tax Credit in an amount equal to 15% of $X
million or whatever the actual production budget may be. Louisiana Investor LLC
shall earn and be entitled to earn the Investor Tax Credit at the time of its investment
in Louisiana Production LLC.

(5)

In order to enable the LA Taxpayer to get the benefit of the Investor Tax Credit,
Louisiana Investor LLC and Finance will opt to be treated, for tax purposes, as
partnerships.

(6)

Pursuant to the allocation provisions in the operating agreement for Louisiana Investor
LLC, which will allocate up to 100% of the Investor Tax Credits to its member
Finance, which will in turn allocate up to 100% of the Investor Tax Credits to the LA
Taxpayer, the LA Taxpayer will be entitled to the Investor Tax Credit in the
percentage allocated. In the event that the entire tax credit cannot be used in the year
earned by the LA Taxpayer, any remaining credit may be carried forward and applied
against income tax liabilities for the subsequent ten years. Also, if funds for which the
investor received credits are not invested in and expended with respect to a statecertified production within twenty-four months of the date that such credits are earned,
the Department of Revenue (“DOR”) shall recapture the tax credits according to the
procedure provided by statute.

(7)

As the total aggregate payroll for the employment of residents of Louisiana in
connection with the Production is currently estimated at $Y million, Louisiana
Production LLC will be entitled to the Employment Tax Credit in an amount equal to
20% of $Y million, or whatever the actual payroll for Louisiana residents may be.

(8)

Pursuant to the allocation provisions in the agreements, Louisiana Production LLC
will allocate up to 100% of the Employment Tax Credits to Louisiana Investor LLC,
which will in turn allocate up to 100% of the Employment Tax Credits to Finance,
which will in turn allocate up to 100% of the Employment Tax Credits to the LA
Taxpayer, the LA Taxpayer will be entitled to the Employment Tax Credit in the
percentage allocated. Any unused credit may be carried forward no more that ten years
from the date the credit was earned.

(9)

Louisiana Production LLC is also qualified to receive a Louisiana Sales and Use Tax
Exemption pursuant to state-certification of the Project.

Ruling Request

Private Letter Ruling 02-013
Page 3 of 7
November 27, 2002
You have asked for a ruling on the following:
1.

Confirm that the treatment of the [investor tax] credit under the special entities
structure, i.e., the allocation by [Louisiana Investor LLC] to the Louisiana taxpayer,
satisfies the statute.

2.

Confirm that Louisiana taxpayers who are domiciliaries but not residents of Louisiana
can claim the Investor Tax Credit, under the structure certified as stated above.

3.

(a)

Confirm that the posting [of] an irrevocable letter of credit or multiple letters
on a qualified financial establishment permitting draws as reasonably required
to fund the Production of the state-certified production in the amount of the
total production budget earns the investor the Investor Tax Credit of 15% of
the total production budget.

(b)

Confirm that payment of the investment in the amount of the total production
budget into an escrow account to be used for the state-certified production
earns the investor the Investor Tax Credit of 15% of the total production
budget.

4.

Confirm that the Investment Tax Credit, the Employment Tax Credit, and the Sales
Tax Exemption will be available for this project as certified by the Louisiana Film
Commission and the Department of Economic Development.

5.

Please confirm that all of the Investor Tax Credits which are earned by Louisiana
Investor LLC by its investment of funds during 2002 into Louisiana Production LLC
can be claimed as credits against 2002 Louisiana income tax liability.

6.

Please confirm that Producer and Finance, as the member-owners of Louisiana
Investor LLC, and Capital and LA Taxpayer, as the member-owners of Finance, may
by written agreement allocate, as among themselves, all Investor Tax Credits earned
by the Louisiana Investor LLC’s investment into Louisiana Production LLC and all
Employment Tax Credits earned by the Louisiana Production LLC, such that LA
Taxpayer becomes entitled to claim all of the Investor Tax Credits and Employment
Tax Credits.

7.

Please confirm that Capital may borrow all of the funds that it will invest in Finance
(and which Finance will invest in the Louisiana Investor LLC) without disqualifying
Capital, Finance or the Louisiana Investor LLC from earning the Investor Tax Credits,
provided that Capital has a legal obligation to repay the borrowed funds.

8.

Please confirm that in the event that any Investor Tax Credits are recaptured because
less than all of the funds invested in Louisiana Production LLC are actually expended
with respect to a state-certified production within 24 months of the date such credits
are earned, only those Investor Tax Credits associated with the unexpended funds
would be subject to recapture.

9.

Please confirm that the Film Commission and the Department of Economic
Development are the only regulatory agencies with the authority to determine and
certify whether funds for which an investor received credits according to La. Rev.
Stat. § 47:6007 et seq. were or were not invested in and expended with respect to a
state-certified production for purposes of recapture, and that their certification that the

Private Letter Ruling 02-013
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November 27, 2002
funds were so invested and expended will preclude the associated Investor Tax Credits
from being subject to recapture.
Discussion
Your first ruling request concerns the Louisiana motion picture investor tax credit and the
“flow-through” of the credit to partners or members. Louisiana Revised Statute §
47:6007(C)(3)(c) provides that partners or members claim “their share” of the credit on their
corporation or individual income tax returns. The statute makes no provision regarding the
share of the credit to which each partner is entitled. In the absence of such statutory
provisions, the share to which each partner is entitled is governed by agreement between the
partners. In the absence of a written agreement it will be assumed that all items, including
credits, are attributable to partners in proportion to their investment in the partnership.
However, you have referred to “the allocation provisions in the operating agreement” and it is
assumed that the operating agreement is the written agreement of partners stating the share of
the credit to which each partner is entitled. The proposal to allocate up to 100% of the
investor tax credits to the LA Taxpayer under the allocation provisions of the operating
agreement satisfies the statute.
Your second ruling request is to confirm that Louisiana taxpayers who are domiciliaries but
not residents of Louisiana can claim the investor tax credit. Louisiana Revised Statutes §
47:6007(C)(1) authorizes a tax credit against state income tax for taxpayers domiciled in the
state of Louisiana. There is no residency requirement. In the factual scenario you have
provided the investor is Louisiana Investor LLC. This entity is the “taxpayer” for purposes of
La. Rev. Stat. § 6007(C)(1). If this partnership (or LLC electing to be taxed as a partnership)
is created under Louisiana law or has its commercial domicile in Louisiana it will be
considered domiciled in Louisiana. You have stated Louisiana Investor LLC is created under
Louisiana law; therefore it is eligible to earn the credit. Due to the fact Louisiana Investor
LLC is a partnership for tax purposes, La. Rev. Stat. § 47:6007(C)(3)(c) provides that the
partners or members of Louisiana Investor LLC will claim their share of the credit earned by
Louisiana Investor LLC on their corporation or individual income tax returns. There is no
requirement that these partners or members be either domiciled in or residents of Louisiana.
However, the credit will be of no benefit to these partners or members if they do not have
Louisiana income tax liabilities, as the credit cannot be sold.
Your third ruling request has two parts and centers on what qualifies as an investment in a
state-certified production. In determining what will qualify as an investment the Department
will primarily focus on ownership and availability.
In order to qualify, the investment must be irrevocable and be made by the investor, which is
Louisiana Investor LLC in this case. In the case of letters of credit, the letters of credit must
be obtained by the investor from a financial establishment for the benefit of the production
company. The letters of credit cannot be obtained by another party for benefit of the
production company and merely transmitted to the production company through the investor.
In the case of an escrow account, the amounts in escrow must be deposited by the investor. To
summarize, the investor must be the party making the investment.
The amounts invested must also be immediately available to the production company in order
to qualify. The fact the amounts are only available to the production company, through letters
or credit or escrow accounts, for payment or reimbursement of certain expenses will not

Private Letter Ruling 02-013
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November 27, 2002
prevent the amounts being considered immediately available. However, if the production
company should meet the conditions for payment or reimbursement of the full amount of the
letters of credit or escrow account immediately upon receipt of the investment, the production
company must be able to obtain these full amounts of investment immediately.
If letters of credit or escrow accounts meet the tests of ownership and availability the amounts
made available to the production company will qualify as investments as of the date the
production company can draw on the letters of credit or escrow accounts.
Your fourth ruling request concerns the availability of the investment tax credit, employment
tax credit, and the sales tax exemption for this project. The Louisiana Film and Video
Commission and the Department of Economic Development have joint authority to approve a
production as a state-certified production. The factual scenario states the Louisiana Film and
Video Commission and the Department of Economic Development have qualified the
production as eligible for these credits. We will honor their determinations subject to credit
recapture provisions if the representations made to them are not met. Recapture may be in
whole or part, depending on the discrepancy between representations and actual fact. If the
discrepancies are such that the production would not have been certified the recapture will be
in whole. If the production would have been certified, but discrepancies in dollars expended
would reduce the amount of the allowable credit, the difference will be recaptured.
Your fifth ruling request concerns when LA Taxpayer can use any credits earned. Both the
investment tax credit and the employment tax credit will flow through to the partners on the
last day of a partnership's taxable year in which the credit is earned or received (in the case of
a flow through to the partnership from another partnership) by the partnership. The partners
will be able to use the credit earned during that taxable year for their taxable year that
includes that day. If the last day of a partnership's taxable year does not coincide with the last
day of the partners’ taxable year, then the partners will be able to take the credit for their tax
year that includes the last day of the partnership's taxable year. This will hold true for multiple
tier structures such as the one set forth in your request. Assuming that all the LLCs and their
members in the scenario set forth in your request are calendar year taxpayers, the credits
earned by the LLCs in 2002 can be claimed by the members against the members’ income tax
liability for the 2002 tax year.
Your sixth request asks for confirmation that Producer and Finance, as the member-owners of
Louisiana Investor LLC, and Capital and LA Taxpayer, as the member-owners of Finance,
may by written agreements allocate, as among themselves, all investor tax credits earned by
Louisiana Investor LLC’s investment into Louisiana Production LLC and all employment tax
Credits earned by the Louisiana Production LLC, such that LA Taxpayer becomes entitled to
claim all of the investor tax credits and employment tax credits. The members of an entity that
elects to be treated as a partnership for federal income tax purposes will be entitled to claim
the investment tax credit on their Louisiana income tax returns as set forth in La. Rev. Stat. §
47:6007(C)(3)(c) and the employment tax credit as set forth in La. Rev. Stat. § 47:1125.1(C).
The statutes make no provision regarding the share of the credit to which each partner or
member is entitled. In the absence of such statutory provisions, the share to which each
partner or member is entitled is governed by written agreement between the partners or
members. The amount of the credit that will flow through to each member will depend on the
terms of the written membership agreement, or if there is no membership agreement, then it
will flow through according to each member’s distributive share. Therefore, for Louisiana tax

Private Letter Ruling 02-013
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November 27, 2002
purposes, the members of Louisiana Investor LLC and Finance may, through the written
partnership agreement, allocate the credits between themselves in any proportion.
Your seventh request concerns the borrowing of funds. Capital may borrow all of the funds
that it will invest in Finance (and which Finance will invest in Louisiana Investor LLC)
without disqualifying Capital, Finance or Louisiana Investor LLC from earning the Investor
Tax Credits, provided that Capital has a legal obligation to repay the borrowed funds.
Your eighth request asks for confirmation that in the event that any investor tax credits are
recaptured because less than all of the funds invested in Louisiana Production LLC are
actually expended with respect to a state-certified production within 24 months of the date
such credits are earned, only those investor tax credits associated with the unexpended funds
would be subject to recapture. Assuming that the only reason for any recapture is that less that
the full amount invested was actually expended, then only those investor tax credits
associated with the unexpended funds will be subject to recapture.
Your last request also concerns recapturing the investment tax credit. Specifically you want to
know which agencies have the authority to determine if funds are properly invested and
expended in a state certified production. Under La. Rev. Stat. § 47:6007(E), the Louisiana
Film Commission and the Department of Economic Development have the authority to
determine and certify whether funds for which an investor received the investor tax credit
were or were not invested in and expended with respect to a state-certified production for
purposes of recapture. Their certification that the funds were so invested and expended will
preclude the associated investor tax credits from being subject to recapture by the Department
of Revenue.
Ruling
Based upon the facts provided and necessary assumptions stated above:
1.

The allocation by Louisiana Investor LLC to the Louisiana taxpayer satisfies the
statute,

2.

Louisiana taxpayers who are domiciliaries but not residents of Louisiana can claim the
investor tax credit,

3.

(a)
The posting of an irrevocable letter of credit or multiple letters on a qualified
financial establishment permitting draws as reasonably required to fund the production
of the state-certified production in the amount of the total production budget earns the
investor the investor tax credit of 15% if the ownership and availability tests
previously discussed are met,
(b)
The payment of the investment in the amount of the total production budget
into an escrow account to be used for the state-certified production earns the investor
the investor tax credit of 15% if the ownership and availability tests previously
discussed are met,

4.

The investment tax credit will be available for this project as certified by the Louisiana
Film and Video Commission and the Department of Economic Development. The
employment tax credit in La. Rev. Stat. § 47:1125.1, and the sales tax exemption in
La. Rev. Stat. § 47:301(10)(a)(v) will be available for Louisiana Productions LLC,
subject to the limitations set forth in those statutes,

Private Letter Ruling 02-013
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November 27, 2002
5.

All of the investor tax credits which are earned by Louisiana Investor LLC by its
investment of funds during 2002 into Louisiana Production LLC can be claimed as
credits against 2002 Louisiana income tax liability,

6.

For purposes of applying the credit against their Louisiana income tax liability,
Producer and Finance, as the member-owners of Louisiana Investor LLC, and Capital
and LA Taxpayer, as the member-owners of Finance, may by written agreements
allocate, as among themselves, all investor tax credits earned by Louisiana Investor
LLC’s investment into Louisiana Production LLC and all employment tax Credits
earned by the Louisiana Production LLC, such that LA Taxpayer becomes entitled to
claim all of the investor tax credits and employment tax credits,

7.

Capital may borrow all of the funds that it will invest in Finance (and which Finance
will invest in Louisiana Investor LLC) without disqualifying Capital, Finance or
Louisiana Investor LLC from earning the Investor Tax Credits, provided that Capital
has a legal obligation to repay the borrowed funds,

8.

It is confirmed that in the event that any investor tax credits are recaptured because
less than all of the funds invested in Louisiana Production LLC are actually expended
with respect to a state-certified production within 24 months of the date such credits
are earned, only those investor tax credits associated with the unexpended funds would
be subject to recapture, and

9.

If the Louisiana Film Commission and the Department of Economic Development
certify that funds are properly invested and expended in a state certified production,
the Louisiana Department of Revenue will respect this determination and will not seek
recapture of these credits based on the expenditure of these funds.

If you have any questions about this ruling, please contact the Policy Services Division at
225-219-2780.
Cynthia Bridges
Secretary
By:

Michael D. Pearson
Senior Policy Consultant
Policy Services Division

Leonore Heavey
Attorney
Policy Services Division

This correspondence constitutes a private letter ruling (PLR) by the Louisiana Department of Revenue, as
provided for by section 61:III.101 of the Louisiana Administrative Code. A PLR provides guidance to a specific
taxpayer at the taxpayer's request. It is a written statement that applies principles of law to a specific set of facts
or a particular tax situation. A PLR does not have the force and effect of law, and is not binding on the person
who requested it or on any other taxpayer. This PLR is binding on the department only as to the taxpayer to
whom it is addressed, and only if the facts presented were truthful and complete and the transaction was carried
out as proposed. It continues as authority for the department's position unless a subsequent declaratory ruling,
rule, court case, or statute supersedes it.