Fi26. Can interim tax credit certificates be issued and the tax credits claimed prior to final completion of the project? If so, what happens to interim tax credits if the project is not completed?

Other than the exception specified at MCL 208.1457(2), an investment expenditure certificate for a film and digital media infrastructure credit may be requested and interim credit amounts approved prior to final completion of the project. MCL 208.1457(3)(g) provides that a taxpayer may not claim an infrastructure credit until it expends at least 25% of the base investment approved in the agreement. The Department interprets MCL 208.1457(3)(g) to mean that an investment expenditure certificate need not be issued until after the project has been completed, but may be issued and the credit claimed in increments of at least 25% or more of the total base investment of the project that is expended. While only one investment expenditure certificate is authorized, it may be issued when requested by the taxpayer in the form of a maximum of four increments of the investment expenditure certificate. A first investment expenditure certificate increment cannot be requested until at least 25% of the total base investment authorized under the agreement has been expended. Similarly, second and succeeding investment expenditure increments cannot be requested until at least an additional 25% of the original total base investment has been expended since the preceding investment expenditure certificate increment was authorized. Only the final investment expenditure certificate increment may be issued when less than 25% of the original total base investment is expended. The Film Infrastructure Investment Expenditure Certificate (MFO Form 005-2008), which can be found on the Film Office's website (www.michiganfilmoffice.org), provides for 4 increment certificate amounts.

The requirement for facility completion under MCL 208.1457(2) relates to a specific circumstance where all or a portion of a qualified project is a facility that may be used for purposes unrelated to production or postproduction activities. Such a project is eligible for the infrastructure credit only if the Department determines that "the facility will support and be necessary to secure production or postproduction activity for the production and postproduction facility" and that, in the agreement for the infrastructure credit, the taxpayer agrees both that "the facility will be used as a state of the art production or postproduction facility or as support and component of the facility for the useful life of the facility" and " a credit will not be claimed…until the facility is complete." MCL 208.1457(2). Therefore, the requirement that a project facility be completed before an infrastructure credit may be claimed is limited to that particular situation.

Where a taxpayer requests and receives approval for incremental amounts of an investment expenditure certificate under MCL 208.1457(3)(g) or the amount for the completion of the project under MCL 208.1457(2), and claims a credit against tax liability for such amounts, and there is a subsequent later sale or other disposition of the tangible assets comprising the project, the original taxpayer obtaining the investment expenditure certificate is penalized. The penalty requires the original taxpayer that generated the credit to

repay an amount equal to 25% of the gross proceeds or benefit derived from the sale or other disposition of the tangible assets minus the gain, multiplied by the apportionment factor for the taxable year as prescribed in chapter 3, and plus the loss, multiplied by the apportionment factor for the taxable year as prescribed in chapter 3 from the sale or other disposition reflected in federal taxable income and minus the gain from the sale or other disposition added to the business income tax base in section 201. MCL 208.1457(3)(i).

If the infrastructure credit is assigned to another party, the penalty will be the responsibility of the assignor (the taxpayer that originally received the credit) and not the assignee(s). See MBT FAQ Fi25.

Where the project is otherwise not completed in accordance with the agreement for the infrastructure project pursuant to MCL 208.1457, then the taxpayer would be required to repay the state the entire amount of the net tax credit provided. Any agreement for an infrastructure project under MCL 208.1457 necessarily implies that the taxpayer will complete the construction of a functioning and operating film and digital media infrastructure facility. MCL 208.1457(3)(f) and 208.1457(5). If the taxpayer fails to complete the project, it is in breach of the agreement entered into under MCL 208.1457, and the taxpayer would be required to repay the amount of the credit previously claimed and issued.