How did PLR 03-006 apply the 2002 Louisiana film investor and employment credits to a layered LLC production and credit-allocation structure?

Official correction

The Department's historical note says the first ruling in PLR 03-006 was incorrect.

The corrected position was that the motion picture employment credit under La. R.S. 47:1125.1 was earned in the year when the production company's Louisiana employees received the qualifying salary, wages, or compensation—not under the original alternative timing described in ruling one.

The source says the original rulings would still be followed for the requesting taxpayer if its facts were truthful and complete and the transaction was carried out as proposed.

Remaining historical holdings

1. Investor-credit timing: The investor credit was earned in the tax year when the investment was made, regardless of when the production company later spent the funds.
2. Post-completion investment: Funding after completion qualified only to the extent the production company still had bona fide debt.
3. Entity level: The production company could not earn its own investor credit; the investor company earned that credit directly. The production company earned the employment credit, which flowed through to the investor company.
4. Special allocations: Written operating agreements could allocate all credits to the 1% LLC member and then among that member's owners. Without a written agreement, credits followed investment or distributive shares.
5. Corporate elections: An LLC electing federal corporate treatment claimed credits on its Louisiana corporate return; without that election, members could claim flow-through credits.
6. Credit amount: The investor credit depended on the amount invested in and expended on the production, while the operating agreement determined each member's share.
7. Other-source income: Allocated investor and employment credits could offset qualifying Louisiana tax liability regardless of whether the income came from the production.

Facts and assumptions limiting the ruling

The structure used a Louisiana production LLC owned by a Louisiana investment LLC, with a separate Louisiana LLC and its taxpayer members receiving specially allocated credits. The Department assumed each production would be state-certified and each investment would meet the statutory minimum.

Common questions

Q: May the original employment-credit timing holding be relied on generally?

A: No. The Department marked it incorrect.

Q: When was the investor credit earned under the ruling?

A: When the investment was made.

Q: Could money contributed after completion qualify?

A: Only up to the production company's remaining bona fide debt.

Q: Could a 1% member receive all credits?

A: The ruling allowed that allocation through written operating agreements on its stated facts.

Citations and references

• La. R.S. 47:1125.1 — motion picture employment tax credit
• La. R.S. 47:6007 — motion picture investor tax credit
• La. R.S. 47:287.11 — corporation income tax status
• Senate Bill 108 and House Bill 17 of the 2002 First Extraordinary Session
• LAC 61:III.101 — Private Letter Ruling authority and reliance statement

Source

• Landing page: Louisiana Department of Revenue Policies
• Original PDF: LA PLR 03-006

Original ruling text

Historical Note: Subsequent to the issuance of this private letter ruling, the LDR
determined that the first ruling in PLR 03-006 was incorrect and that the motion picture
employment credit, La. Rev. Stat. § 47:1125.1, is earned in the year in which the
Louisiana employees of the motion picture production company receive the salary,
wages, or compensation paid in connection with the production. The rulings in PLR 03006 will still be followed with respect to the particular taxpayer that requested the PLR
as long as the facts presented were truthful and complete and the transaction was carried
out as proposed.
Private Letter Ruling
Redacted Version
No. 03-006
April 17, 2003
Corporation Income Tax, Corporation Franchise 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 and the Louisiana motion picture employment tax
to the transactions proposed to be entered by ABC, LLC.
Facts
You provided the following facts:
“Due to the incentives of Senate Bill 108 and House Bill 17, entities located in states other
than Louisiana that are in the business of distributing motion pictures, music videos and
television commercials (individually, “Distribution Company” and collectively, “Distribution
Companies”), desire to come to Louisiana to have motion pictures produced.
“ABC, LLC is a Louisiana limited liability company. Its Members will be subject to
Louisiana income tax.
“Investment Co., LLC is a Louisiana limited liability company to be formed that will transfer
funds to Production Co., LLC (see below) to be used in the production of motion pictures.
Investment Co., LLC will be owned 99% by a Distribution Company and 1% by ABC, LLC
“Production Co., LLC will be a single member Louisiana limited liability company owned by
Investment Co., LLC. Production Co., LLC will cause a motion picture to be produced in the
state of Louisiana. The funds to produce the motion picture will come from Investment Co.,
LLC. Production Co., LLC will either hire Louisiana residents to produce the motion picture
and/or contract with other Louisiana motion picture producers to produce the motion picture.

617 North Third Street
P. O. Box 44098
Baton Rouge, Louisiana 70804-4098
225-219-2780 ‚ 225-219-2759 Fax
TDD 225-219-2114 ‚ www.revenue.louisiana.gov

Redacted Private Letter Ruling 03-006
Page 2 of 7
April 17, 2003
“The Operating Agreement of Investment Co., LLC shall provide that all items of income,
gain, loss and deduction shall be allocated 1% to ABC, LLC and 99% shall be allocated to
Distribution Company, except that any credits under Senate Bill 108 and House Bill 17 shall
be allocated 100% to ABC, LLC which then will be allocated to the Members of ABC, LLC
in accordance with its Operating Agreement.
“ABC LLC may not become a Member of Investment Co., LLC until just prior to or shortly
after the motion picture has been state certified and completed, and will not contribute funds
to Investment Co., LLC until that time.
“A Louisiana taxpayer may not become a member of ABC, LLC until just prior to or shortly
after the motion picture has been state certified and completed, and will not contribute funds
to ABC, LLC (which funds will then be contributed to Investment Co., LLC) until that time.
“Production Co., LLC will expend funds (contributed to it by Investment Co., LLC) in
producing a motion picture. The production of the motion picture could span a two year
period, i.e., certain funds being expended in December of one year and January of the next
year.
“It is very likely that a separate Production Co., LLC will be created for each motion picture
to be produced. It is also likely that a different Investment Co., LLC will be created with
respect to each motion picture to be produced.”
Ruling Request
You asked the following questions:
1.

“In what tax year are the employment state tax credits earned? For instance, is the
employment tax credit earned in the year in which the motion picture has been state
certified and is completed, or is it earned in the year in which Production Co., LLC
pays its employees? For example, if Production Co., LLC pays its employees in the
month of December, 2002, and in the month of January, 2003, does the employment
state tax credit flow to Investment Co., LLC in January, 2003, the year in which the
motion picture is completed, based on the total amount paid to employees (that is, the
amount paid in the months of December and January), or does the employment state
tax credit flow through to Investment Co., LLC in December, 2002, based on the
amount Production Co., LLC paid to its employees in December, 2002, and then again
in January, 2003, based on the amount Production Co., LLC paid to its employees in
January, 2003?

2.

“In what tax year are the investment state tax credits earned? For instance, is the
investment tax credit earned (i) in the year in which the motion picture has been state
certified and is completed, or (ii) is in the year in which Investment Co., LLC transfers
funds to Production, LLC or (iii) in the year that Production, LLC expends the funds?
For example, if Investment Co., LLC contributes $15M to Production, LLC in
December of 2002 and Production, LLC spends $10M in the month of December and
another $5M in the month of January, does Investment Co., LLC earn the investment
tax credit in January, 2003, based on a $15M movie production or does Investment
Co., LLC earn a credit in December, 2002, based on a $10M movie production and
another credit in January, 2003, based on a $5M movie production?

Redacted Private Letter Ruling 03-006
Page 3 of 7
April 17, 2003
“It is suggested that all credits should be earned when the motion picture has been
completed and certified.
3.

“Is Investment Co., LLC considered an investor within Senate Bill 108 even if
Investment Co., LLC and/or its Members do not contribute funds to the motion
[picture] production until after the motion [picture] production has been state certified
and completed?

4.

“If Production, LLC is a single member LLC, will the employment state tax credits
and investment tax credits flow through to Investment Co., LLC?

5.

“May Investment Co., LLC specially allocate all of the state tax credits to ABC, LLC
(a 1% owner of Investment Co., LLC), which state tax credits will then flow through
to the Members of ABC, LLC in a manner provided for in ABC, LLC’s Operating
Agreement?

6.

“Will the state investment tax credits available to ABC, LLC be based on the total
amount of funds expended by Production Co., LLC and not limited to the actual
dollars invested by ABC, LLC?

7.

“May the Louisiana taxpayer (a Member of ABC, LLC) utilize the state tax credits
against Louisiana income tax, even if the income tax is the result of income from
sources other than the motion picture production?”

Discussion
Senate Bill 108 of the 2002 First Extraordinary Session of the Louisiana Legislature amended
La. Rev. Stat. § 47:6007, the Motion Picture Investor Tax Credit and La. Rev. Stat. §
47:1125.1(C), the employment tax credit for motion picture production companies.
To be able to earn the investor credit, a taxpayer must be domiciled in the state of Louisiana
and must invest a minimum three hundred thousand dollars in a state-certified production. See
La. Rev. Stat. § 47:6007(C). To qualify as a state-certified production, the production must
meet several tests that are set forth in the definition section of La. Rev. Stat. § 47:6007(B).
The employment tax credit, La. Rev. Stat. § 47:1125.1(C), is earned by a motion picture
production company for the employment of residents of Louisiana in connection with
production of a motion picture. The amount of the credit is a percentage of the total aggregate
payroll for residents employed in connection with the production. The credit is only available
with regard to payroll of Louisiana residents that are directly employed by the motion picture
production company.
The statute gives the Louisiana Film and Video Commission (the Film Commission) and the
Department of Economic Development (DED) joint authority to determine if a production
qualifies as a state-certified production. Therefore, if the Film Commission and DED approve
a production as a state-certified production, the Department of Revenue will abide by their
determination.
For purposes of this private letter ruling, it will be assumed that any production made under
the business structure outlined in your facts will meet all of the above requirements and has
been determined by the Film Commission and DED to be a “state-certified production.” It
will also be assumed that the investments made in Production, Co., LLC that will equal or
exceed the minimum required investment of three hundred thousand dollars in each

Redacted Private Letter Ruling 03-006
Page 4 of 7
April 17, 2003
production. Because Investment Co., LLC is a Louisiana resident Investment Co., LLC will
be entitled to earn the credit on any investment made in a “state-certified production” that
meets or exceeds the threshold amount, regardless of the source of the capital used to make
the investment.
Your first ruling request asks in what year the employment tax credit is earned. The
employment tax credit, La. Rev. Stat. § 47:1125.1(C), is earned by a motion picture
production company for the employment of residents of Louisiana in connection with
production of a motion picture. The amount of the credit is a percentage of the total aggregate
payroll of Louisiana residents that are directly employed by the motion picture production
company in connection with the production. If the total production costs in Louisiana are less
than three hundred thousand dollars, no credit is earned. If the total production costs in
Louisiana are between three hundred thousand and one million dollars, the credit is ten
percent of the total aggregate payroll for residents. If the total production costs in Louisiana
are greater than one million dollars the credit is twenty percent of the total aggregate payroll
for residents.
The statute does not expressly state when the credit is earned, and, therefore, may be
considered to be earned by Production Co, LLC either in the year in which the wages are paid
to the Louisiana residents or in the year in which the production is completed. The amount of
the credit is based on the total aggregate payroll for residents employed in connection with the
production and that amount is not known until the production is completed, the credit may be
considered to be earned by Production Co., LLC in the year in which the production is
completed. If Production Co., LLC chooses to consider the credit to be earned as qualified
payroll is paid to Louisiana residents, since the credit percentage is based on the amount spent
if the anticipated cost is greater than $1 million, and the actual expenditure is less than $1
million, recapture will be required.
In your second ruling request you ask when the investor tax credit is earned. The motion
picture investor tax statute provides that “the tax credit shall be earned by investors at the time
of such investment in such state-certified productions...” See La. Rev. Stat. § 47:6007(C)(1).
Therefore the investor tax credit is earned in the year in which the investment is made,
without regard to when the production is completed or certified. In your example, Investment
Co., LLC contributes $15M to Production, LLC in December of 2002 and Production Co.,
LLC spends $10M in the month of December and another $5M in January 2003. In this
situation Investment Co., LLC earned the entire investor tax credit in 2002, regardless of
when Production Co., LLC spent the money.
In your third ruling request you ask if Investment Co. LLC will be considered to be an
investor if it or its members do not contribute funds to the Production Co., LLC until after the
production is completed. The primary objective of this credit is “to encourage development in
Louisiana of a strong capital base for motion picture film, videotape, and television program
productions, in order to achieve a more independent, self-supporting industry.” La. Rev. Stat
§ 47:6007(A). An immediate objective of the credit is “to [a]ttract private investment for the
production of motion pictures, videotape productions, and television programs which contain
substantial Louisiana content”. La. Rev. Stat § 47:6007(A)(1)(a). After the motion picture is
completed, the only amounts that will be considered an “investment” will be amounts that are
not in excess of bona fide debt of the motion picture production company. Investments made
in a motion picture production company for the production of a state-certified production

Redacted Private Letter Ruling 03-006
Page 5 of 7
April 17, 2003
prior to production; during production; or post-production, if the production company has
bona fide debt, will be presumed to be in keeping with the objectives of the statute. If the
production is already completed, and the production does not have bona fide debt, the funds
contributed are not needed to meet any of the objectives of the statute authorizing the credit
and cannot be considered an “investment” for purposes of the credit.
Your fourth ruling request asks if the investor tax credit and the employment tax credit will
flow through Production Co., LLC to Investment Co, LLC. As a motion picture production
company, Production Co., LLC cannot earn the investor tax credit, see La. Rev. Stat. §
47:6007(C), therefore this credit is earned directly at the Investment Co. level without a flow
through. The employment tax credit is earned at the Production Co. level and will flow
through to Investment Co. under the provisions of La. Rev. Stat. § 47:1125.1(C).
In your fifth ruling request you ask if Investment Co., LLC may allocate all of its state tax
credits to ABC, LLC and if ABC, LLC may, in turn, allocate all such tax credits so allocated
to its members. The operative 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 is entitled will be 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. 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 ABC or its members under the allocation provisions of the operating agreements satisfies
the statute.
If Investment Co., LLC or ABC, LLC elect to be taxed as corporations for federal income tax
purposes, they will be entities subject to Louisiana corporation income tax under La. Rev.
Stat. Ann. § 47:287.11. In this situation, the credit must be claimed on their Louisiana
corporation income tax returns and will not flow through to their members, La. Rev. Stat.
Ann. § 47:6007(C)(3)(a). If Investment Co., LLC or ABC, LLC do not elect to be taxed as a
corporation for federal income tax purposes, they will not be an entity subject to Louisiana
corporation income tax, and their members will be entitled to claim the credit on their
Louisiana income tax returns as set forth in La. Rev. Stat. Ann. § 47:6007(C)(3)(c). The
amount of the credit that will flow through to each member will depend on the terms of the
membership agreement, or if there is no membership agreement, then it will flow through
according to each member’s distributive share.
In your sixth request, you ask if state investor tax credits available to ABC, LLC are based on
the total amount of funds expended by Production Co., LLC and not limited to the actual
dollars invested by ABC, LLC. The total amount of the motion picture investor credit will be
based on the amount invested in Production Co., LLC that is expended in the production of
the state-certified production. If no provision is included in Investment Co., LLC’s operating
agreement, the credit that ABC, LLC will earn will be based on the actual dollars invested by
ABC. However, through allocations of the credit in the Investment Co. operating agreement
as addressed in your fifth ruling request, the total amount of the investor tax credit available to
ABC may be based upon the total amount invested in Production Co., LLC that is expended
in the production of the state-certified production.
Your seventh and final request asks if the Louisiana Taxpayer may utilize the state tax credits
against Louisiana income tax, even if the income tax is the result of income from sources

Redacted Private Letter Ruling 03-006
Page 6 of 7
April 17, 2003
other than the motion picture production. The investor tax credit is a credit against state
income tax for taxpayers domiciled in the state of Louisiana. The statute does not limit the
applicability of the investor credit to income generated by the production. As long as the
Louisiana Taxpayer is domiciled in Louisiana, the Taxpayer may utilize the investor tax credit
against its Louisiana income tax liability regardless of the source of the income. The
employment tax credit states that the credit “may be applied to any income tax or corporation
franchise tax liability applicable to the motion picture production company”. La. Rev. Stat. §
47:1125.1(B). Subsection C of the statute goes on to provide for a flow through of the credit
for situations in which the motion picture production company is not subject to income or
franchise tax. If the motion picture production company were subject to Louisiana income or
franchise tax liability, it could use the credit against either tax even if the source of the tax
liability were unrelated to the production that gave rise to the credit. Because the statute
provides for a flow through of the credit and because the motion picture production company
could use the credit against either tax liability regardless of its source, a taxpayer who is
allocated the credit through the flow through provisions will also be able to use the credit
against either tax liability regardless of its source.
Ruling:
Based upon the facts provided and the necessary assumptions set forth, for purposes of the
incentive tax credits authorized by La. Rev. Stat. §§ 47:6007 and 47:1125.1,
1.
The employment tax credit may be considered to be earned either in the year in which
qualifying wages are paid to Louisiana residents or in the year in which the production is
completed.
2.
The motion picture investor credit will be earned in the tax year in which the
investment is made in Production Co., LLC.
3.
Investment Co., LLC will be considered an investor for purposes of the investor tax
credit if it does not contribute funds to the production until after the production has been state
certified and completed only to the extent that Production Co., LLC has bona fide debt
remaining after the completion of the production.
4.
Any employment tax credits earned by Production Co, LLC will flow through to
Investment Co., LLC.
5.
Investment Co., LLC may allocate all of the state tax credits to which it is entitled to
ABC, LLC through its written operating agreement. ABC LLC may in turn allocate all of the
state tax credits to which it is entitled to any or all of its members through its written
operating agreement.
6.
The amount of the investor tax credit is based on the total amount invested in and
expended on the production. Once earned, the amount of the credit attributable to each
member of the Investment Co., LLC is based on Investment Co.’s operating agreement.
Therefore the credit that ABC receives is not necessarily based solely on the amount that
ABC invests.

Redacted Private Letter Ruling 03-006
Page 7 of 7
April 17, 2003
7.
The Louisiana Taxpayer may utilize any of the investor or employment tax credits to
which it is entitled against its Louisiana income tax liability regardless of the source of the
income.
If you have any questions or need additional information, please call Michael Pearson, Senior
Policy Consultant, or Leonore Heavey, Attorney, Policy Services Division, at 225-219-2780.
Sincerely

Cynthia Bridges
Secretary

By:

Leonore F. Heavey
Attorney
Policy Services Division

Revision History: April 17, 2003 (new document); March 22, 2004 (historical note added)

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.