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Fi31. My production company is in a hurry to start pre-production in Michigan, even though our application for the film incentive has not yet been approved. If we have services performed or construction materials delivered, but then wait to make payment for those services or purchases until after the application is approved and an agreement has been entered into, can we later claim those services and purchases as eligible "direct production expenditures"?

No. The MBT Film Production Credit states that "direct production expenditures and qualified personnel expenditures incurred prior to approval of an agreement under this section are not eligible for the credit under this section." MCL 208.1455(3); see also, Michigan Film Office, Audit Instructions and Expenditure Certification Guidelines. While the film incentive is calculated based upon expenditures made by a production company that are directly related to the qualified production, the quoted language makes clear that, in order to be eligible for the incentive, qualifying expenditures must be incurred, as well as paid, after the date of the agreement providing for the film incentive. A production-related expenditure is "incurred" on the date that the production company undertakes the obligation to pay. Accordingly, if a production company has services performed or construction materials delivered prior to the date that a film incentive agreement is entered into, the company has undertaken the obligation to pay for such services and materials, and the expenditures have therefore been "incurred" prior to the agreement date, regardless of the fact that they may physically be paid for at a later date.

Similarly, a production company may not "prepay" an anticipated expenditure – for post-production special effects services, for example – that will actually be incurred after the date that the company requests its Post-Production Certificate of Completion. Because the obligation to pay does not arise until the services are performed, the expenditure has been paid but not incurred within the relevant time frame. In order to be eligible for the film incentive, qualifying expenditures must be both incurred and paid after the date that the film incentive agreement has been entered into, and prior to the date that the Post-Production Certificate has been requested.