The Massachusetts Legislature recently enacted personal income tax and corporate excise credits and sales tax exemptions that provide incentives to the motion picture industry (hereinafter the "Act"). See St. 2005, c. 158; amended by St. 2005, c. 167. For taxable years beginning on or after January 1, 2006 and before January 1, 2013, the Act provides two tax credits that can be taken by taxpayers against either their personal income tax or corporate excise liabilities. M.G.L. c. 62, § 6(l) and c. 63, § 38T. Each credit has its own qualification requirements and taxpayers are allowed to qualify for and claim both credits. For purposes of this letter ruling we will cite to the c. 63, § 38T corporate excise provisions.
A taxpayer engaged in the making of a motion picture is allowed a credit (hereinafter "the Payroll credit") equal to 20 per cent of the total aggregate payroll of the motion picture production company that constitutes Massachusetts source income.1 M.G.L. c. 63, § 38T(b). The Payroll credit provision specifically excludes from total aggregate payroll "…the salary of any employee whose salary is equal to or greater than $1,000,000." Id.
However, a taxpayer is allowed an additional credit (hereinafter "the Production expense credit") equal to 25 per cent of all Massachusetts production expenses, not including the payroll expenses used to claim the Payroll credit, where the motion picture is also eligible for the Payroll credit and either Massachusetts production expenses exceed 50 per cent of the total production expenses for a motion picture or at least 50 per cent of the total principal photography days of the film take place in the commonwealth. M.G.L. c. 63, § 38T(c).2 A Massachusetts production expense is defined as "…a production expense for the motion picture clearly and demonstrably incurred in the commonwealth." M.G.L. c. § 38T(a). The definition of a production expense includes "…wages and salaries paid to individuals employed in the production of the motion picture." Id.