NEW FILM PRODUCTION INCENTIVES OF UP TO 27{75f0df2d6e7f7161edac4c5c1d00f29fbd5b5b131330c7e7899506e898c5a87a} IN THE U.S. VIRGIN ISLANDS MOVING THROUGH LEGISLATURE

On August 13, 2014, the Committee on Economic Development, Planning & Agriculture of the Legislature of the U.S. Virgin Islands (“Committee”), chaired by the Honorable Janette Millin Young, convened to hear testimony on Bill No. 30-0417 (the “Bill”), as proposed by the Honorable Clifford Graham, “An Act repealing and reenacting, with amendments, Title 29 Virgin Islands Code, Chapter 12, Subchapter III relating to sustainable tourism through an art-based revenue stream production”, also known as the “Stars Act”. The original legislation, which was signed into law in February 2012 but never utilized by any production company, has been revamped to be more competitive with film production tax incentives offered around the country and in other U.S. territories.  Bill No. 30-0417 was approved by the Committee at the close of testimony and voted into the Rules Committee, where it will undergo further amendment and refinement to address concerns raised by testifiers and Senators during the hearing.

It is anticipated that in its final version Bill No. 30-0417 will create a three (3) part incentive program that grants incentives on the basis of local hiring as well as qualified production expenditures. The new statute provides a hotel tax waiver, a transferrable income tax credit and a cash rebate to production companies, in both music and film, who shoot or record on location in the U.S. Virgin Islands.

 

Hotel Tax Waiver

Title 33, section 54 of the Virgin Islands Code imposes a hotel tax at a rate of ten percent (10{75f0df2d6e7f7161edac4c5c1d00f29fbd5b5b131330c7e7899506e898c5a87a}) per room billing. Bill No. 30-0417 waives a portion of the hotel tax resulting in an applicable hotel tax rate from eight percent (8{75f0df2d6e7f7161edac4c5c1d00f29fbd5b5b131330c7e7899506e898c5a87a}) to one and a half percent (1.5{75f0df2d6e7f7161edac4c5c1d00f29fbd5b5b131330c7e7899506e898c5a87a}) dependent upon the total qualified production expenditure and the total room nights booked in the Territory.  It is anticipated that through regulations and new reporting forms, the applicable reduction in the hotel tax rate would be applied by the hotel upon presentation by the qualified production company (“QPC”) of a government issued certificate indicating the rate of reduction.

 

Transferrable Income Tax Credit

The Bill also creates a transferrable income tax credit in an amount up to seventeen percent (17{75f0df2d6e7f7161edac4c5c1d00f29fbd5b5b131330c7e7899506e898c5a87a}) of the total employee withholding taxes paid by the qualified production company to the Virgin Islands Bureau of Internal Revenue (“VIBIR”). The applicable credit is dependent upon the percentage of Territory residents employed on the project. For example, if a qualified production company has a crew that is twenty-five percent (25{75f0df2d6e7f7161edac4c5c1d00f29fbd5b5b131330c7e7899506e898c5a87a}) Virgin Islands residents the income tax credit is equal to fifteen percent (15{75f0df2d6e7f7161edac4c5c1d00f29fbd5b5b131330c7e7899506e898c5a87a}) of the total withholding paid by the QPC on behalf of its employees. If the QPC pays $1,500,000.00 in withholdings to the VIBIR on behalf of its employees, and twenty-five percent (25{75f0df2d6e7f7161edac4c5c1d00f29fbd5b5b131330c7e7899506e898c5a87a}) of its employee base in the Territory are U.S. Virgin Islands residents, the QPC will be eligible for a credit in the amount of $225,000.00. Due to the fact that QPCs filming in the Territory will not necessarily have an income tax obligation to the Territory, the credits will be transferrable. The credit can be sold to a third party that does have an income tax obligation to the U.S. Virgin Islands.

 

Rebate for Qualified Production Expenditures (“QPE”)

Finally, the legislation provides a cash rebate, payable to the QPCs, which would be paid utilizing funds from the Department of Tourism Revolving Fund. The available rebate to each production is up to nine percent (9{75f0df2d6e7f7161edac4c5c1d00f29fbd5b5b131330c7e7899506e898c5a87a}) of qualified production expenditures. "Qualified production expenditures" means preproduction (including scouting activities), production, and postproduction expenditures incurred in this Territory that are directly used in a qualified production activity.  Upon submission of substantiation of qualified production expenditures, a production company is entitled to a cash rebate of up to nine percent (9{75f0df2d6e7f7161edac4c5c1d00f29fbd5b5b131330c7e7899506e898c5a87a}) of the expenditures.

 

Additionally, the statute has mechanisms intended to increase activity in St. Croix. In particular, the statute increases the QPE rebate by an additional ten percent (10{75f0df2d6e7f7161edac4c5c1d00f29fbd5b5b131330c7e7899506e898c5a87a}) if the qualified production activities are undertaken on the island of St. Croix.

 

The hotel tax reduction, income tax credit and expenditure rebate are all targeted to increase amounts spent in the Territory. These incentives are targeted to create both short and long term economic and fiscal benefits that extend beyond the production activities that qualify for the credit. These benefits include increased tourism, development of film industry infrastructure such as location services, craftsmen, models, studios and service providers, and attraction of production activities not eligible for the credit.

 

Claudette Watson Anderson, Director of the Virgin Islands Bureau of Internal Revenue; Beverly Nicholson Doty, Commissioner of the Virgin Islands Department of Tourism; Luana Wheatley, Assistant Director of Communications (Tourism); Attorneys David A. Bornn and Erika A. Kellerhals and Frederick Handleman, Special Assistant to the CEO of the Virgin Islands Economic Development Authority, gave testimony on the Bill. Written testimony was provided by Eric Matthews, co-founder of USVI Film Promotion Office;  Gail Glanville, founder of local private sector film industry service provider;  Todd Hecht, local veteran Location Manager and Production Service provider;  Joe Bessacini, Exec. V.P., Incentives, Cast And Crew, Los Angeles and Peter Trimarco, Association of Film Commissioners International and publisher of Beyond Cinema Magazine.

 

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