July 22, 2008



Film Industry Tax Credit


By: Rute Pinhel, Research Analyst



You asked for a summary of the state’s film industry tax credit program.  This report updates a 2006 OLR report (2006-R-0364). This report has been updated by OLR Reports 2010-R-0117 and 2010-R-0108.




In the 2006 and 2007 sessions, the General Assembly established transferable corporation and insurance premium tax credits for film and digital media production, film infrastructure investment, and digital animation production in Connecticut.  The film and digital media production credit is 30% of qualified production, preproduction, and postproduction expenses incurred in the state that exceed $50,000.  The film infrastructure investment credit ranges from 10-20% depending on the project’s costs.  The credit is for investments in basic buildings, facilities, or installations that the film and digital media industry needs to function in Connecticut.  The digital animation production credit is 30% of eligible expenses over $50,000 incurred in the state for developing and producing computer-generated animation content for public distribution and exhibition.  The Connecticut Commission on Culture and Tourism (CCCT) administers the credits.





Credit Amount


PA 06-83 (as amended by PA 06-186, PA 07-236, PA 07-4, June Special Session (JSS),  PA 07-5, JSS and PA 08-142) established a corporation and insurance premium tax credit for eligible companies that produce qualified films or other types of television, video, or digital media entertainment content in Connecticut. The credit is 30% of the eligible production costs over $50,000 that such a company incurs in Connecticut.


Companies must claim the credit in the income year in which they incurred the expenses (for income years on or after January 1, 2006).  They may sell or otherwise transfer the credit, but the transferee may only use it in an income year when the production company could have used it. A company can carry forward unused credits for up to three years. The credit is not refundable.


Eligible Production Companies


A production company eligible for the movie and digital media production credit can be a corporation, partnership, limited liability company, or any other type of business entity in the business of making qualified productions (see below). The company must be authorized by the secretary of the state to do business in Connecticut.


Qualified Productions And State-Certified Qualified Productions


Only qualified productions by certified companies are eligible for a tax credit. With specified exceptions, these can be any type of entertainment production or content, including movies, documentaries, long-form specials, mini-series, series, certain sound recordings, videos and music videos, or “interstitials” television programming; interactive television or games; videogames; commercials or infomercials; or any digital media format, including interactive websites, created primarily for public viewing or distribution. (The law does not define “interstitials,” but they are typically brief programs that appear during longer ones or that serve as bridges between two longer programs.) Trailers, pilots, video teasers, and demos for a product or qualified production are also eligible if they are created primarily to stimulate its sale, marketing, or promotion, or to exploit future investment in it. The trailers, pilots, video teasers, and demos can use any means and be in any digital media format or on film or videotape, as long they meet all the underlying criteria for a qualified production.


Sound Recordings.  Eligible sound recordings are music, poetry, and spoken-word performance recordings.  These are not eligible if recorded as part of a movie, video, theatrical production, t.v. news coverage, or athletic event.


Interactive Websites.  Eligible interactive websites are those (1) whose production costs exceed $500,000 per year and (2) are primarily (a) interactive games or end-user applications or (b) animation, simulation, sound, graphics, story lines, or video created or converted from another format (“repurposed”) for Internet distribution.  Websites used primarily for institutional, private, industrial, retail, wholesale marketing, or promotional purposes, or that contain obscene content are not eligible.


A state-certified qualified production is one produced by a company that (1) the CCCT has approved for a production tax credit, (2) complies with CCCT program regulations, and (3) is authorized to do business in Connecticut.


Ineligible Productions


The following types of productions are ineligible for credits:


1.   ongoing television programs created primarily as news, weather, or financial market reports;


2.   current or sporting events;


3.   award shows and other gala events;


4.   productions whose sole purpose is fundraising;


5.   long-form productions that primarily market a product or service;


6.   productions used for corporate training or in-house corporate advertising or similar productions; and


7.   productions containing obscene material or performances on which, by federal law, producers must keep certain records.


Eligible Production Expenses


The credit is 30% of eligible development and production costs over $50,000 for a qualified production.  Eligible costs are all expenditures clearly and demonstrably incurred in Connecticut for development, pre-production, production, and post-production work. 


Expenditures for industry-specific goods and services incurred outside Connecticut but used within the state on a qualified production, such as camera and equipment leases or purchases, are also eligible expenses (when the goods or services are not available for lease or purchase within the state), according to George Norfleet, CCCT’s film division director.  From January 1, 2009 to January 1, 2012, only 50% of such eligible costs will qualify for the credit.  Beginning January 1, 2012, no expense incurred outside the state will qualify regardless of where the goods or services are used.


Eligible production expenses include the following types of costs:


Compensation or Purchases. Eligible costs include expenditures incurred in Connecticut, whether for compensation or purchases, for:


1.   production and post-production work, equipment, and software;

2.   production equipment ineligible for the infrastructure tax credit;

3.   set design and construction;

4.   props, lighting, wardrobe, makeup, and makeup accessories;

5.   special, visual, and audio effects;

6.   film processing;

7.   music, sound mixing, and editing;

8.   location fees;

9.   soundstages; and

10.    all other costs or services directly incurred in connection with a state-certified qualified production.


Distribution Costs. Eligible distribution costs include production or pre- or post-production costs for creating trailers, marketing videos, commercials, point-of-purchase videos, and any other distribution-related content on film or digital media. Distribution expenses also include costs for (1) duplicating films, videos, DVDs, CDs, or any other digital files for mass consumption and (2) a Connecticut company’s purchase of equipment related to duplication or mass market distribution of content created or produced in Connecticut by any digital media format.


Ineligible Production Costs


The following costs are ineligible for a credit: 


1.   compensation over $15 million paid to any individual working  on the production or to any entity that represents such an individual; 


2.   costs for media buys, promotional events, gifts, or public relations associated with promoting or marketing a production;


3.   deferred, leveraged, or profit participation costs for people associated with a production, such as producer, director, talent, and writer fees;


4.   the cost of transferring the act’s tax credit; and


5.   amounts paid to people or businesses because of their profit participation in the production.


Credit Application and Approval Procedure


Eligible production companies seeking credits must annually apply to the CCCT within 90 days of incurring their first production expenses or costs on the qualified production and provide any information CCCT requires to determine eligibility.  A production company must wait at least three months after submitting its eligibility application before applying for a credit.  Expenses must only be listed only once and cannot be included in more than one claim for a production credit or for an infrastructure or digital animation production credit. 


Within 90 days of the end of its annual period or of incurring its last production expenses or costs, the company must apply to CCCT for a credit voucher and provide whatever information CCCT requires about its production costs. If CCCT determines the company is eligible for a credit, it must enter the expense and credit amounts on the voucher. CCCT must provide a copy of the voucher to the Department of Revenue Services (DRS) commissioner on request.


Credit Transfers


Companies may sell or otherwise transfer their credits, but the law limits them to three transfers.  If a production company sells, assigns, or otherwise transfers a credit to another taxpayer, both must jointly notify CCCT in writing within 30 days after the transfer.  The notice must include the credit voucher number, transfer date, credit amount transferred, credit balance before and after the transfer, transferor’s and transferee’s tax identification numbers, and any other information CCCT requires.  The tax credit is disallowed if the parties fail to comply with the notice requirement. CCCT must give the DRS commissioner a copy of the transfer notice if she requests it. 


The CCCT must adopt regulations to implement the credit, in consultation with DRS.  Proposed regulations are posted on CCCT’s website.


Financial Penalties and Limits on Post-Certification Remedies


The law imposes a financial penalty equal to the credit amount on any qualified production company that deliberately submits false or fraudulent information to the CCCT for purposes of the credit. 


Once a credit voucher is issued, the law limits CCCT’s and DRS’ power to further audit or examine the production expenses on which the credits are based unless there is the possibility of material misrepresentation or fraud.  If CCCT or DRS determines, after issuing a credit voucher, that a production company made material misrepresentations or committed fraud in its expense report and that resulted in inflated or inaccurate tax credits, the agencies can recover the credits but only from the production company itself, and not from any other company to which the production company transferred the credits.  The law bars the agencies from requiring that credits by recaptured, disallowed, recovered, reduced, forfeited, decertified, or subject to any other remedy that reduces or limits the credit amounts stated on the voucher.


Film infrastructure investment tax credit


PA 07-236, amended by PA 07-5, JSS, established a transferable credit against the corporation and insurance premium taxes for investments in capital projects for basic buildings, facilities, or installations that the film and digital media industry needs to function in Connecticut.  Projects must be CCCT-certified.  The entity that undertakes the project must (1) comply with CCCT regulations; (2) be authorized to do business in Connecticut; (3) not have (a) defaulted on any Connecticut state loan or loan guarantee or (b) had any obligation to repay public funds discharged because of bankruptcy; and (4) be approved for an infrastructure credit by CCCT.


Tax Credits


As table 1 shows, credit amounts depend on the infrastructure project’s costs.


Table 1: Determining Credit Amounts


Project Cost


(% of Investment)

At least

But Less Than







$1,000,000 and over



The law allows companies that receive tax credits to sell or transfer them and allows those who buy them to sell them to other eligible companies. The maximum number of such transfers is three. Taxpayers holding credits can claim them only for the income year in which the infrastructure expenditures were made. Credits are not refundable. Excess credits can be carried forward for three income years.


Infrastructure credit buyers and sellers must jointly notify CCCT of a transfer and supply the same information as for a production credit transfer.


Eligible Expenses


All money spent on a capital project and necessary equipment for leased or purchased film, video, television, digital production or digital animation production buildings, facilities, and installations is eligible for an infrastructure credit. Eligible expenses include those necessary for (1) development, production, pre- and post-production, and distribution equipment and system access; (2) project development, such as design and professional consulting fees and transaction costs; and (3) fixtures and other equipment.


Credit Application Procedure


The process for applying for infrastructure credits is similar to the film production credit application and issuance process. The entity that undertakes the project must apply to CCCT within 90 days after incurring its first expenses for the project. It must give CCCT the information it requires to determine if the project is eligible for a credit, including, at least, a detailed project description, preliminary budget, and estimated completion date.


CCCT can require an independent audit of project costs and expenses before it certifies a project. If it determines a project is eligible, it must indicate the project costs and issue a tax credit certification letter for investors showing the available credits. CCCT must give the DRS commissioner a copy of the letter upon her request.


The law bars CCCT from issuing a tax credit voucher based on the certification letter until the project is at least 60% complete. Before it issues the voucher, CCCT must receive a progress report from the entity building the project and an estimated completion date. The commission can also require an independent audit of the project costs and spending before issuing a voucher.


Once the CCCT issues a voucher for an infrastructure credit, the law imposes the same restrictions on the state's audit and tax credit recapture authority as it imposes for the production and digital animation credits.


Digital animation production credit


PA 07-236, amended by PA 07-4, JSS and PA 07-5, JSS, also established a separate transferable tax credit for digital animation production activity, which it defines as creating, developing, and producing computer-generated animation content for public distribution and exhibition.  The credit is equal to 30% of eligible digital animation production expenses over $50,000 for any income year starting on or after January 1, 2007. It applies against the corporation and insurance premium taxes.


To qualify for a credit, a company must (1) be exclusively engaged in the production activity, (2) maintain a studio in Connecticut, (3) employ at least 200 full-time employees (permanent, non-seasonal employees who work at least 35 hours a week), and (4) be certified by CCCT and comply with its regulations. The act sets a $15 million per year limit on the total credits CCCT may award. A company that receives a digital animation credit is not eligible to apply for or receive a film production credit.


The digital animation credit has the same application, transfer, post-certification remedy, and other requirements as the overall film and digital media production credit, with the following exceptions.


1.   It makes intellectual property purchase expenses eligible for a credit, if they are less than 35% of the digital animation production company’s expenses or costs in any income year.


2.   It makes expenses for the following additional types of costs explicitly eligible: actors, voice talent, rent, utilities, insurance, administrative and systems support, and short film production and distribution.


3.   A digital animation company can apply for credit vouchers only twice during the company's income year.