Gaming Companies: Get In Line To Claim Endangered Tax Credits

By David Nash, Tax Supervisor

Since the mid-2000s, the State of Georgia has provided numerous tax credits and incentives to entertainment and production companies to attract these businesses to the state.  And it’s working.  Georgia is now one of the top 5 production destinations in the country, and it is estimated that entertainment-related business brought more than $3.1 billion to the state in 2012.

What do entertainment tax credits have to do with gaming? Gaming businesses with gross income of less than $100 million and that invest $500,000 or more in qualified production activities can be considered “qualified interactive entertainment production companies” and may be eligible for the state’s entertainment tax credit (called “film credit” for short). If the majority of coding, rendering, design and sound recording related to game development are done in Georgia, it probably qualifies for the 20 percent film credit, with an additional 10 percent credit added if the finished product features a special peach logo or animation to promote Georgia tourism.

In the past there was no limit on the amount of the film credit a gaming company could claim. However, in May of 2012, the state imposed a new limit so that no single company can claim more than $5 million in credit in any tax year starting on or after January 1, 2013. In addition, once qualified interactive entertainment production companies claim a total of $25 million in credits, the credit will expire.  While no one is certain when this will happen, it potentially could be gone in January 2014.

Until it’s no longer available, access to the credit will be granted on a first come, first served basis, based on the date a company’s Georgia income tax return is filed. Take these five steps now to claim your place in line for the film credit:

  1. Consult with your tax professional immediately to identify qualified activities. Your accountant should be familiar with all the tax credits offered by the state and familiar enough with your business to know if you qualify. If your accountant isn’t already claiming this credit on your behalf, be sure to ask him or her to determine if you qualify.
  2. Consider using the special Georgia peach logo. As mentioned above, if the production of your game includes the state’s promotional logo, you will likely be eligible for an additional 10 percent tax credit. What’s better than a 20 percent credit on your taxes?  A 30 percent credit.
  3. Prepare your internal financial reports as soon as you can after your 2013 operations cease. Preparation is key to helping your accountant complete your tax returns as soon as possible.
  4. Get pre-approval from the State. Compile all expenses related to the development of electronic games and submit them to the Georgia Department of Economic Development to get preliminary approval for the credit. Because of the closing window of opportunity, we recommend doing this prior to the end of 2013.
  5. Do not wait to file your 2013 company tax return. Waiting until the tax deadline will certainly jeopardize your chances for leveraging the film credit.  The sooner you can file your return after the first of the year, the better your chances.

Another notable benefit is that unused film credits can be sold to others if they cannot be used by your company, generating positive cash flow.  So if you qualify for the film credit before it expires but can’t use it to offset your company’s taxes this year, you can still benefit from the credit by selling it to a company that can use it. While the curtain is coming down on this opportunity, the news is not all doom and gloom.  There are still substantial tax benefits to be had for writing code, doing 3D rendering, and developing electronic games in Georgia. Much of this work could still be eligible for the state’s Research and Development (R&D) Tax Credit.

Williams Benator & Libby’s Software & Technology team has a long history of experience with tax planning & compliance, auditing, and consulting for software companies. Call us today to discuss your gaming company’s eligibility for the Georgia film tax credit.

For more information about this article or to discuss your company’s tax strategy, contact: David A. Nash, Tax Supervisor at (770) 512-0500