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Michigan Business Tax
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Fi12. Does a production company's interest expense associated with production financing qualify as a direct production expenditure that is eligible for the Film Production Credit? If so,does capitalized interest qualify? Does interest that continues to accrue post-Michigan activity qualify?
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Answer:
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Yes,a production company's interest expense associated with production
financing will qualify as an expenditure eligible for the Film Production
Credit,if the expense otherwise satisfies the established requirements for a
"direct production expenditure" as expressed in FAQ #Fi1. However,capitalized
interest would not qualify,unless it has actually been paid. Continuing interest
on the loan would continue to qualify,as long as the expense continued to
satisfy the requirements stated in FAQ #Fi1 for a "direct production
expenditure."
With respect to a production loan,these standards require (i) that the financing
be obtained from a bank or other lender with a bricks and mortar storefront and
at least one full time employee and one year of physical presence in
Michigan,(ii) that all loan services are performed in Michigan,and (iii) that an
appropriate rate of interest is charged to the production company.
However,because only expenditures qualify for the credit,only production loan
interest that has actually accrued and been paid by the production company will
be eligible for the credit. Also,if a production company obtains a qualified
Michigan production loan,shoots a limited part of the production in Michigan,and
then applies for its postproduction certificate shortly after the Michigan
portion of the production is finished,but before the loan is fully repaid,only
interest paid up to that point will be an eligible expenditure.
Similarly,capitalized interest will not be eligible for the credit,since payment
of such interest is deferred to a future date.
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