Legislature(2015 - 2016)BELTZ 105 (TSBldg)
02/19/2015 01:30 PM Senate LABOR & COMMERCE
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SB 39-REPEAL FILM PRODUCTION TAX CREDIT 2:03:21 PM CHAIR COSTELLO reconvened the meeting and announced the consideration of SB 39. "An Act repealing the film production tax credit; providing for an effective date by repealing the effective dates of secs. 31 - 33, ch. 51, SLA 2012; and providing for an effective date." She stated that public testimony would be taken on February 24. 2:04:44 PM SENATOR BILL STOLTZE, sponsor of SB 39, stated that he introduced the legislation because he has never supported the subsidy, even in times of high revenue. He maintained the intent is not a punitive attack on the industry; it is due to the fiscal impacts. He spoke to the following sponsor statement: Senate Bill 39 repeals the film production tax credit program as passed by the 27th Legislature, but will leave the film production program office in place. The bill also authorizes the Department of Revenue to review and audit the record for previous recipients of film tax credits and allows the Department of Revenue the ability to recover certain damages. 2:11:43 PM DANIEL GEORGE, Staff, Senator Bill Stoltze, provided the following sectional analysis for SB 39: Section 1 removes a reference to the film tax credit from AS 43.75.130(f), related to the revenue sharing with local governments of the fisheries business tax. The effective date of this section in July 1, 2015. Section 2 removes a reference to the film tax credit from AS 43.75.130(f) as it is amended in sec. 14, ch. 61, SLA 2014. The effective date of this section is the same as the effective date of sec. 14, December 31, 2016. Section 3 removes a reference to the film tax credit from AS 43.77.060(e), related to the revenue sharing with local governments of the fisheries resource landing tax. The effective date of this section is July 1, 2015. Section 4 removes a reference to the film tax credit from AS 43.77.060(e), as it is amended in sec. 17, ch. 61, SLA 2014. The effective date of this section is the effective date of sec. 17, ch. 61, SLA 2014, December 31, 2016. Section 5 makes amendments conforming with the repeal of AS 44.25.100 - 44.25.190, related to the film production incentive program. The effective date of this section is July 1, 2015. Section 6 removes a reference to the film tax credit from sec. 28(b), ch. 61, SLA 2014, (the transition language of SCS CSHB 306(FIN) am S of the 28th Legislature) relating to the repeal of the film tax credit and other tax credits. This section has an immediate effective date. Section 7 repeals AS 24.20.271(12) (related to the duty of the legislative audit division to conduct audits of the film production incentive program), and AS 44.33.231(c) (administration of the Alaska film production incentive program (AS 44.25.110). The effective date of this section is July 1, 2015. Section 8 repeals AS 44.25.135, effective July 1, 2021, allowing six years for the recovery of the film production tax credit after the credit program is repealed if the film office determines that the film producer or production is liable for damages to the state, or any political subdivision of the state. This section has an immediate effective date. Section 9 repeals multiple sections of ch. 51, SLA 2012 and ch. 61, SLA 2014, related to the film tax credit. The effective date of this section is July 2015. Section 10 provides transition language for the repeal of the film tax credit. The effective date of this section is July 1, 2015. Section 11 repeals certain sections of ch. 51, SLA 2012, related to the film tax credit. The effective date of this section is July 1, 2015. Sections 12-15 provide the effective dates for the bill, noted above. These various dates are necessary because 2014 legislation will amend some sections in 2016, and to allow recovery of damages after the program is repealed. 2:15:27 PM SENATOR STOLTZE advised that he introduced the bill last year with Representative Thompson and it is back again with more urgency. CHAIR COSTELLO asked Mr. Burnett to review the information he provided relating to the program. 2:17:53 PM JERRY BURNETT, Deputy Commissioner, Department of Revenue (DOR), stated that under the current program, which started July 1, 2013, $28.3 million in credits have been approved. Under current statute this leaves $171.7 million in potential tax credits between now and 2018. He reviewed the status report of the Alaska film production incentive for FY2009 to FY2013 under the Department of Commerce, Community and Economic Development (DCCED). About $38 million in tax credits were approved for 11 commercial films, 19 documentary films, 29 feature films, 65 TV-nonfiction films, and 1 TV-drama. About $117 million in expenditures were reported. CHAIR COSTELLO asked how the credit works. MR. BURNETT explained that a commercial entity pays a fee and submits a detailed application to the Alaska Film Incentive Commission, which is comprised of the commissioners or their designees from the Department of Labor and Workforce Development, the Department of Natural Resources, the Department of Commerce, Community and Economic Development, and Department of Revenue. The executive director of the film office, who works in the Tax Division of DOR, reviews the applications and makes recommendations. Because the applicants are commercial entities, the information is confidential. The Alaska Film Incentive Commission makes a qualifying determination and a narrow appeal opportunity is available under the Administrative Appeals Act. This has happened once and the appeal was successful. Once the applicant is qualified, the entity does the work, reports its expenditures to the Tax Division, and receives a transferable credit certificate that can be sold to a taxpayer. The taxpayer can use the credit to reduce their tax liability. MR. BURNETT reviewed the status report of the Alaska film production incentive that was released yesterday, February 18, 2015. It is the first annual report under the new program that stated on July 1, 2013 when the law changed. 2:23:59 PM At ease 2:24:24 PM CHAIR COSTELLO reconvened the hearing. MR. BURNETT reviewed the FY2014 annual report under the DCCED program that existed prior to July 1, 2013, AS 44.25.105(a). The tax credits disbursed amounted to $5,543,701. The qualified expenditures paid by productions qualifying for the film production tax credit amounted to [$17,417,134]. The qualified expenditures paid by productions qualifying for the film production tax credit to established Alaska businesses totaled [$5,730,621]. The qualified expenditures paid by productions qualifying for the film production tax credit to Alaska residents as wages totaled [$1,344,918]. The qualified expenditures paid by productions qualifying for the film production tax credit for wages paid to non-residents totaled [$5,667,782]. The number of residents employed by productions qualifying for the film production tax credit totaled 188. The number of individuals employed by productions qualifying for the film production tax credit who were not residents totaled 192. The expenditures paid by productions qualifying for the film production tax credit that were not qualified expenditures totaled $34,141,296. FY2014 data under the new Department of Revenue program shows 50 applications of which 40 were approved. The estimated credits totaled $18,263,211. There were 8 applications rejected, 1 withdrawn, and 1 was under review at the end of the fiscal year. Two tax credits were disbursed but the dollar amount of tax credits disbursed is confidential when fewer than 3 credits are issued. The information for calendar year 2014 is similar. There were 40 applications and 24 were approved. The total amount of estimated credits approved was $16,192,992. Just 4 tax credits were disbursed for a total of $585,984. The qualified expenditures that were paid by productions qualifying for the film production tax credit totaled $1,461,063. The qualified expenditures totaled $601,529. Ninety one residents and 64 non-residents were employed on those 4 productions. The expenditures that were paid by productions qualifying for the film production tax credit that were non-qualified expenditures totaled $11,118,329. 2:30:15 PM CHAIR COSTELLO asked if there are any outstanding credits. MR. BURNETT offered to follow up with the aggregate amount. CHAIR COSTELLO noted that the statute was amended to focus on Alaskan jobs and Alaskan companies. She asked if the report reflects full-time equivalent jobs. MR. BURNETT clarified that it is the number of individuals employed, not the number of jobs. He advised that there have been 2 meetings since the beginning of 2015 and 1 application was approved at a January meeting. CHAIR COSTELLO asked what the governor has done to affect the program. MR. BURNETT explained that the Governor's FY2016 budget removed funding for the DOR staff in the Alaska Film Office. The practical effect under AS 44.25.110 is that qualified credits will be processed and the program will be suspended after July 1. Due to the current fiscal climate, is unlikely that the incentive commission will approve any further applications. CHAIR COSTELLO asked the practical difference between the Governor's action and the bill. MR. BURNETT explained that under the Governor's action new legislation would not be required to reinstate the program, whereas SB 39 eliminates the program. CHAIR COSTELLO asked him to characterize the current fiscal situation. MR. BURNETT explained that the State of Alaska will bring in about 40 percent of the general fund revenue it is expending in FY2015, which is potentially a deficit of more than $3.5 billion. Money has to come out of savings to pay for the budget and the state has ample savings for the next several years. Going forward the deficit appears to stay in place and perhaps get worse, which is a concern. He opined that the film tax incentive legislation isn't consistent with the fiscal structure of the state and doesn't bring much revenue into the state coffer. 2:39:41 PM SENATOR STEVENS questioned the apparent disparity between the fiscal note that says that tax credits preapproved prior to July 1, 2015 would be allowed, and the testimony that the commission isn't expected to make further approvals. MR. BURNETT clarified that he said it is unlikely that any further applications would be approved, but there could be a special circumstance that makes an application stand out. SENATOR STEVENS asked if there is any difference between the Governor's suspension and the bill with regard to the July 1, 2015 date. MR. BURNETT offered his belief that it's the same in both cases. CHAIR COSTELLO stated that she would hold SB 39 in committee and take public testimony on February 24.