Can the financing of the movie involve multiple partners?
Yes. In fact, multiple partners are quite common in the financing of movies. See the credits for any movie and often you’ll see more than one Executive Producer. Multiple partners contributing portions of the project budget enable one person to help finance a larger production.
If I am one of multiple partners in a movie production, how do you determine my return on what I finance?
You get the percentage share of what you contributed. So if the project financed was $1,000,000, and you contributed $400,000, and two others contributed $300,000 apiece, then your share is 40%. So of everything that the partners are due, you’d get 40%.
Who handles the legal arrangements like drawing up a contract that confirms what I get for financing the movie?
You decide. While we have access to experienced attorneys in making productions in Hawaii, it is likely (and recommended) that you will want to use your own attorneys to craft the contract. Either way, an arrangement that you are comfortable with would be the objective.
What form do I need to complete in order to realize the Section 181 deduction?
There is no current form to complete. IRS temporary regulations require only that you declare in a separate statement that you are electing to utilize Section 181. Advisory: Please consult your financial adviser to consider your specific circumstances.
What is the process for applying for the Hawaii State refundable tax credit, Section 235-17 HRS?
A Hawaii company files forms with the Hawaii Film Office, which issues a tax credit certification letter after shooting is complete. This is filed with a corporate tax return along with a tax credit claim form to the Hawaii Department of Taxation, which will issue all refunds.
Does it take until the following year when taxes are filed to receive the Hawaii State refundable tax credit?
Generally, yes. The certification letter issued by the Hawaii Film Office must be filed with the corporate tax return, along with the tax credit claim form with the Hawaii Department of Taxation, at the end of the company’s calendar or fiscal year.
Is it possible to receive the tax refund before completing the production?
The State of Hawaii will not provide the tax refund in advance of the tax year in question. However, through its association with Island Film Group, it may be possible for LegacyVision Films, through YBS, to arrange an advance of the refund for a transaction fee. We would inquire.
Could I elect to take this tax credit refund advance and reinvest it into my movie?
Yes. This usually would be the reason to agree to an advance. The added funds will increase our production budget and expand our capabilities. If you choose to do this, the contract will reflect your original investment has been increased by this added amount.
If by reinvesting the refundable tax, it changes the production type, will I get the greater priority return and percentages?
Yes. We have four production types. See Proposed Return Schedule. The priority return and profit percentages increase depending on the level of production. If the receipt of a tax refund advance puts the production at a higher level, we will revise the contract accordingly.
If the movie calls for it to be shot in another state, will you utilize the state tax program there?
Yes. Not all states have a movie tax credit program but the great majority do, and many programs may even be more advantageous than Hawaii’s. If the movie is shot in a state possessing a tax credit program, we will use it to the fullest extent possible.
If I am interested in the EB-5 visa program, would it mean I would generally have to finance a multi-picture project?
We believe so. EB-5 requirements call for the establishment of 10 jobs by the time your conditional permanent resident status expires (in two years). So we interpret this as maintaining these positions over that time, which means a series of movies filmed one after another.
If I do pursue investing in your business to produce movies under the EB-5 visa program, would this require additional fees?
Yes. We would want to make sure the program is set up properly and so this would require the contracting of specialized immigration attorneys and this cost would then have to be added onto whatever number of movies you would finance.
Could you explain to me what I get when net sales revenue of the movie starts to come in?
You get the first amount of revenue until you recoup the original financed amount. Then you get a priority return ranging from 5% to 20% depending on the production type. Then you receive a percentage of all remaining profits according to our Proposed Return Schedule.
What does net sales revenue mean?
It’s the revenue after accounting for expenses necessary to sell the movie. For example, online retail outlets have set-up costs and receive a percent of all sales. Theaters charge a usage fee. Distributors (if used) take their cut. Net sales revenue is derived after such expenses.
If star actors are paid points on the back end, when do they get paid and how does that affect my financial returns?
This is subject to the negotiation with actors. But in general, points are given after you have recouped your financed amount and received your priority return. After points, further profits are distributed to you according to the percentages assigned to the production type.
How does LegacyVision Films, through YBS, get paid?
Apart from receiving a share of the back end profits, by making the movie we fall under the production budget, where we get paid as producers, writers, directors, et. al., which means we will get a certain percentage of the budget for fulfilling these roles.
Does your proposed return schedule generally reflect industry standards?
Yes. In fact, our graduated priority return rates and percentages of profit shares – which increase with each production type – is actually more favorable than the norm; as we understand general practices provide only one priority return rate and a 50% share of profits.
Who owns the movie?
We – you and LegacyVision Films, through YBS – co-own the movie. The percentage ownership assigned to all parties will be described in our contract. In general, the movie is owned on a 50/50 basis by those who provide financing and LegacyVision Films/YBS.
What if after we produce the movie I find someone who would want to buy my ownership rights and I choose to sell?
As a co-owner of the movie, you have every right to do as you please, which includes selling to any prospective buyer. Should you elect to sell your share of the movie, the new co-owner of the movie will then be subject to all the provisions of our contract.
If I receive financial benefits through Section 181 and any state tax benefits, does that affect my scheduled financial returns?
No. For example, if you financed $500,000 (modified low budget production) and recouped $150,000 through both tax programs (net cost $350,000), given sufficient net revenue, you still receive your full $500,000 first, a 15% priority return, and then 60% of all other profits.