Michigan Film and Digital Media Incentive FAQs
1. What is the Michigan Film and Digital Media Incentive?
The Film and
Digital Media Production Assistance Program (MCL 125.2029h) is an incentive program
administered by the Michigan Film Office (MFO).
It may provide a partial reimbursement of a production company’s
eligible expenditures paid for producing a film or digital media project in
2. Who qualifies?
The Film and
Digital Media Production Incentive (“Incentive”) is available to “eligible
production companies,” meaning entities that are “in the business of producing
qualified productions, or for interactive games, in the business of developing
interactive games.” The term “production” commonly means a movie or media
entertainment project. The term “production company” therefore refers to a
company that bears the overall responsibility for making (or producing) the
movie or other entertainment project as a whole. To be eligible for this
program, a production company must have a combined minimum of $100,000 of
Direct Production Expenditures plus Michigan Personnel Expenditures.
3. What types of projects qualify?
documentaries, television series, television miniseries, television specials,
interstitial television programming, long-form television, interactive
television, music videos, interactive games (including, but not limited to, video
games or wireless games, including console, computer, mobile, and online games), Internet programming, Internet videos, sound
recordings, digital animation, interactive websites and/or any trailer, pilot,
video tease or a demo created primarily to stimulate the sale, marketing or
promotion of future investment in a production.
4. What types of
projects do not qualify?
include obscene matter or an obscene performance, televised news or current
events show, a live sporting event, political advertising, a radio show, a
weather show, financial market report, an awards show or other gala event
production, a production with the primary purpose of fund-raising, employee
training, in-house corporate advertising or similar production, or a
5. What is the process to apply for the Incentive?
production company may complete the application, which is available at the MFO
website, www.michiganfilmoffice.org. The application must be accompanied by the
following items: (see application
instructions for specifics).
The application fee of 0.2% of the anticipated Incentive (minimum $200, maximum
Certificate, Binder or Quote for a minimum of $1,000,000 general liability
Representative Declaration form.
Hires list, itemizing
resident hires (Michigan Hires List).
for the entire production, including non-Michigan expenditures.
Calculation Work Sheet.
marketing and distribution plans.
how the production will be financed, including binding financing commitment
such as a loan agreement, commitment letter, or investment letter. The majority of funding must be secured before
an application is submitted. Production
Company is required to provide a signed Power of Attorney Agreement/Proof of
Funds for the MFO and the Michigan Economic Development Corporation to
independently verify the proof of funds (see instructions).
statement of Applicant or, if Applicant is a newly formed entity, recent
financial statement of Applicant’s parent or controlling entity.
Individual Certification Form.
attachments as requested by the MFO.
a project is approved, an agreement will be sent to the applicant for
6. What are the criteria used when evaluating
Once all application
materials are submitted and the core review is complete, all applications are
reviewed by a MEDC committee comprised of senior MEDC staff and the Michigan Film
125.2029h(5) language to guide approval decisions, the following factors must
The potential that, in the absence of funding, the qualified production
will be produced in a location other than this state.
The extent to which the qualified production may have the effect of
promoting this state as a tourist destination.
The extent to which the qualified production may have the effect of
promoting economic development or job creation in this state.
The extent to which state funding will attract private investment for
the production of qualified productions in this state.
The record of the eligible production company in completing commitments
to engage in a qualified production.
The extent to which the qualified production will employ Michigan
The following factors will also be considered:
The order in which the application has been received.
The geographic diversity within Michigan that the production will
The length of employment anticipated for Michigan cast and crew.
7. Does an eligible production company need to
register to do business in Michigan?
Yes. Registration is required and may be done
online at http://www.michigan.gov/business.
The MFO will not
require that loan-out companies register to do business in the state; however,
they will be carefully reviewed during the audit process to ensure that all tax
obligations have been met.
If the qualified
production is not approved, will the application fee be refunded?
must be accompanied by the application fee that is deposited into the Michigan
Film Promotion Fund. However, if a project is not approved, a refund will be
issued less a $200 processing fee.
9. When the eligible production is approved, how soon
must the production start?
If an eligible
production company enters into an agreement with the MFO, material steps toward
completing the production must take place within 90 days of the date of
approval or the agreement shall expire.
The MFO, for good
cause, may extend this time for an additional 90 days, if the eligible
production company submits the request in writing and the MFO concurs. If the
MFO determines that material steps have not been taken to commence production,
the eligible production company shall be notified in writing of a tentative
decision to terminate the agreement, and shall have 14 calendar days to respond
in writing, summarizing the material steps that have been taken toward
completion of the qualified production.
If the eligible
production company fails to respond within 14 calendar days of receipt of the
letter, then the eligible production company shall be notified in writing that
the agreement has been terminated and termination shall be effective as of the
date of the termination letter. An eligible production company whose agreement
has been terminated shall not be prohibited from reapplying for the Incentive
at any later date, for the same or a different qualified production.
Expenditures must be paid and incurred on or after the Effective
Date as designated by the MFO. Applicants
will be notified of the Effective Date upon approval. No expenditures incurred or paid prior to the
Effective Date will qualify.
11. What expenditures qualify?
Expenditures (MPE) qualify for a 32% Incentive
on eligible expenditures until December 31, 2014, and 27% thereafter. MPE are expenditures
made in this state for compensation, including fringes, to Michigan residents
for both Above and Below the Line talent, management, and labor. Michigan Personnel must be residents of Michigan
and must have a Michigan driver’s license or state identification card.
Production companies are required to complete a Michigan Residency Form for each
Michigan resident. The Incentive is
offered only for Michigan residents performing work within the state. Work performed outside the state will not
qualify, even if the work is directly related to the qualified production and
is performed by Michigan residents. Some
limits apply. See FAQ #11 on Compensation Limits and FAQ #12 on Producer
Compensation Limits below.
Expenditures (CPE) qualify for a 15% Incentive on
eligible expenditures until December 31, 2014, and 10% thereafter. CPE are expenditures
made in this state for compensation to non-resident
Below the Line talent, management and labor, and Above the Line assistants and
secretaries for services performed in Michigan. Some limits apply. See FAQ #11 on Compensation Limits below.
Personnel Expenditures (QPE) qualify for a 27% Incentive on
eligible expenditures until December 31, 2014, and 12% thereafter. QPE are expenditures
made in this state for compensation to non-resident
Above the Line talent and management for services performed in Michigan. Some
limits apply. See FAQ #11 on
Compensation Limits and FAQ #12 on Producer Compensation Limits below.
Expenditures (DPE) qualify for a 27% Incentive on
eligible expenditures. Direct Production Expenditures are development,
preproduction, production, or post-production expenditures attributable to a
expenditures must be:
Made in this state
(see further details below).
From a Michigan
to the production of the qualified production.
taxation in Michigan.
expenditures do not include:
Payments made by
an eligible production company to its parent company, affiliate, subsidiary or
joint venture partner, or other related entity for goods or services, except
where such payments are for transactions entered into pursuant to arms-length transaction
and which reflect market price for such purchased goods or services.
A prize payable to
participants in a game show or an expenditure for entertainment, amusement or recreation. (The sole exception to this would be
expenditures for one wrap party or other festive event for cast and crew; which
would be eligible).
Any expenditure for a piece of artwork or jewelry in excess of $2,500.
Parking tickets or
other legal fines.
“Made in this state” means tangible personal property and services must
be acquired from a “source within this state.”
A “source within this state” is a vendor with at least one year of physical
presence in this state, including both a physical bricks-and-mortar storefront
or office and at least one full time permanent employee; or a vendor that has
clearly demonstrated an intent to establish the requisite physical presence in
this state, provided that the required physical presence and the transaction at
issue have a demonstrable nexus. The bricks-and-mortar facility must be
sufficient to conduct operations for the type of services and materials the
vendor provides. With respect to purchases of tangible personal property, a
“source within this state” means a vendor that satisfies the preceding
requirements and is one who regularly sells or leases property of the kind
A vendor with
physical presence in the state of Michigan unrelated to the transaction at
issue is not a “source within this state”.
constituting direct production expenditures must have true economic substance
in this state.
expenditures are not direct production expenditures that are “made in this
state,” even if the costs are passed through a third-party entity in this state.
If an item of
tangible personal property is not available from a source within this state, a
vendor with the requisite physical presence in this state and who regularly
sells or leases property of that kind may qualify as a “source within this
state” and may obtain the property from an out-of-state vendor and sell or
lease it to the eligible production company. The expenditure will then not be
considered an out-of-state production expenditure.
An affidavit is
provided online by the Michigan Film Office at www.michiganfilmoffice.org for an eligible production company to use for
vendors who may need to obtain equipment from out of state.
Please refer to the
of Eligible Expenditures for additional information.
12. Are there any
limits on compensation payments?
Yes. Payments or compensation for any one employee
in excess of $2,000,000 (including fringes and taxable portions of per diems,
allowances, etc.) are not eligible for the Incentive.
13. Are there any special limits or requirements
related to producers of a qualified production?
Yes. Eligible payments, compensation, and related
fringes to all producers (combined) of a qualified production who resides in the state are limited to
10% of DPE plus MPE.
Eligible payments, compensation, and related
fringes to all producers (combined) of a qualified production who does not reside in the state are limited
to 5% of DPE plus MPE.
must be rendered in this state.
A “producer” means
an individual who, without regard to his or her actual title or screen credit, is
involved in or responsible for any of the following:
financing in whole or in part or arranging for the funding or financing of the
creative rights to or the intellectual property for development or production
of the qualified production.
Hiring Above the
overall production of the qualified production.
Arranging for the
exhibition of the qualified production.
Line Producers and
Unit Production Managers (UPMs) are generally considered Below the Line (BTL)
for purposes of the Incentive.
14. May I pay my crew
as independent contractors?
should be classified as employees rather than independent contractors. IRS Guidelines state “an individual is an
independent contractor if the payer has the right to control or direct only the
result of the work and not what will be done and how it will be done”.
The production company crew relationship typically exhibits most of the
criteria from the IRS 20 Factor Test as set forth in IRS Revenue Ruling 87-41,
1987-1 C.B. 296 (20 Factor Test) that crew are employees rather than
“Instructions” - the
company has the right to dictate when where and how the work is to be performed.
workers’ services are highly integrated into operations.
personally” - work is performed by a specific person.
and paying assistants” - the production company hires and pays a worker’s
“Set hours of
work” – hours or days of work are dictated by the company.
required” – worker is required to substantially devote full time on the day(s)
“Doing work on
employer’s premises” – ability to require the employee to work on company
“Order or sequence
set” – the company has the right to require work to be performed in a
particular order or sequence.
“Payment by hour,
business and/or traveling expenses” – direct reimbursement of travel or other
tools and materials” – usage of company provided tools or supplies (rented
items, including “box” or “kit” rentals are company provided).
investment” – company provides the workplace.
terminate” – worker has the right to terminate relationship at any time without
crew typically do not exhibit the following criteria from the 20 Factor Test
that might indicate independent contractor status:
profit or loss” – a worker who can realize a profit or loss.
“Working for more
than one firm at a time” – worker performs more than de minimis services for a
multiple of unrelated persons or firms concurrently.
on the degree of autonomy they operate under, exceptions may include preproduction
location scouts, and various post-production professionals depending on their
are not considered “employees,” however the loan-out company must be a bona
fide company as evidenced by appropriate filings with the appropriate state or
country of origin and all loaned-out individuals must have social security
15. What are the
Michigan Income Tax Withholding requirements?
Michigan Income Tax must be withheld and paid on
all employees and loan-out companies. The Michigan Income Tax rate is 4.33% for
2012 and 4.25% for 2013 and thereafter.
No Incentive will be paid unless these withholding obligations have been
met, and verified by Michigan Treasury.
16. Are per diem
payments eligible for the Incentive?
Only the portion of these payments that
is considered taxable for federal purposes and is reported on the employee’s
W-2 as taxable income will be eligible for the Incentive. This taxable
amount is classified the same as that individual’s compensation (MPE, QPE, or
CPE). The nontaxable portion of these payments is not eligible for the Incentive.
17. Are box rentals and kit rentals eligible?
Yes. If paid to a Michigan
resident, box and kit rentals are eligible as DPE because they are considered
to be rentals from a Michigan vendor.
If paid to a non-resident of Michigan, box and kit rentals are not
eligible because they are considered rentals from a non-Michigan vendor, and
reported as rent on their 1099.
18. Are allowances for housing, car, phone, and other similar items
Yes. Such allowances are eligible
to the extent they are taxable to the individual, and reported as such on their
W-2 or, in the case of a loan-out, reported as Nonemployee compensation on
their 1099. Any non-taxable portion of
an allowance is not eligible.
19. Are insurance and bonding eligible?
coverage or bonding will be eligible as DPE only if obtained by the production
company from an insurance agent both licensed and physically located in Michigan
and if all policy-related services are performed in Michigan and the premium is
paid after the Effective Date. Relevant
supporting records must be made available to auditors as requested.
airfare and other travel to or within
the Michigan is eligible if purchased through a Michigan travel agency and is
directly attributable to a qualified production. Return trips are not eligible. Charter aircraft is eligible if used within
the state and is directly attributable to a qualified production. Chartered
aircraft is ineligible for transportation outside of this state. Out of state
travel bookings (hotels, limousine services, etc.) do not qualify, even if
acquired through a Michigan travel agency.
Are finance fees
an eligible expenditure?
Yes. The interest
and finance fees associated with a production loan will generally be eligible as
DPE for the Incentive if:
satisfies the requirements of a DPE.
physically located in Michigan.
All loan services
are performed in Michigan.
Lender must be a
non-interested commercial lender, that is, a public, private or institutional
entity whose principal business activity is lending money to individuals and
Lender is not
related to or affiliated with the production company or any production crew or
must be a bona fide loan, payable by the production company
Loan proceeds must
be spent in Michigan.
Loan is evidenced
by an enforceable promissory note with clear repayment obligations, bearing a
market-related rate of interest, and secured by collateral.
and finance fees will only qualify to the extent they are booked in accordance
with generally accepted accounting principles (GAAP).
See the Notice on Eligible Interest in the Certificate
of Completion Request Packet for further information.
22. Are payments to production services companies eligible?
Yes. A “production
services company” means an entity which contracts with the eligible production
company to provide some or all of the preproduction, production, or
post-production work on a qualified production.
by an eligible production company to a production services company doing
business in this state may be eligible as DPE, provided that the expenditures
are not merely passed through the production services company for the purpose
of evading the requirement that eligible expenditures must be made in this
To be eligible as DPE,
the underlying expenditures incurred by the production services company must
meet the requirements of DPE as discussed above and be available for audit.
23. Is there an additional Incentive for utilizing
Yes. An eligible production can obtain an
additional 3% Incentive on MPE and DPE for a production “produced at” at a
Qualified Facility or Post-production Facility.
A Qualified Facility (QF) means a
permanent facility in the state equipped for motion pictures, television shows,
and digital media that meets the requirements as stated in the Qualified
Facility Application that must be submitted to and certified by the MFO for a
facility to be designated as a “Qualified Facility”.
A Post-production Facility (PPF) means a permanent facility within the state
equipped for the post-production of motion pictures, television shows, or
digital media production that meets the requirements as stated in the Qualified
Facility Application that must be submitted to and certified by the MFO for a
facility to be designated as a “Qualified Post-production Facility”.
The proportion of
time (as stated in days) the production is using a QF or PPF while the
production is in Michigan will be used to determine the percentage of MPE and
DPE that will receive the additional 3%.
of days in QF or PPF = Percentage of MPE + DPE eligible for
# of days in Michigan
support the days utilized will be required and reviewed during the audit
If a qualified
production does not use a QF or PPF or have its primary production offices at a
QF or PPF, it will not be eligible for the additional 3%. Mere use of a vendor at a QF or PPF does not
qualify the production for the additional 3% Incentive.
24. What kind of
records do I need to keep?
Standard or industry specific
accounting records must be kept using double entry accounting. This must include a detailed General
Ledger. A list of expenditures only,
instead of a detailed General Ledger, is not acceptable. Proper documentation
must be retained in an organized manner; documentation includes invoices,
receipts for expenditures, payroll withholding certificates, deal memos,
contracts, Declarations of Residency, bank statements, etc.
With prior approval from the MFO, the following exceptions to
providing a detailed G/L may be granted:
production company may solely do post-production or a gaming production,
in which there are payments to a Michigan company and/or producer; in this
case, verification of expenditures may suffice.
- A Michigan
production company may provide post-production services for multiple
projects, one or more of which qualify for a film incentive; in this case,
a job cost ledger may be sufficient.
25. When may an eligible production company claim a
film and digital media production Incentive rebate?
production companies must submit the form “Certificate of Completion Request” (COCR)
to the MFO after all Michigan production is complete and after an audit has
been performed and certified by an independent Michigan Certified Public
Accountant (CPA) meeting the guidelines described in FAQ #23. Only one COCR may
be submitted per project. The COCR template
is available at the MFO web site.
supplemental documents required to be submitted to the MFO with the audit. Please refer to the Audit Packet for
26. What are the
requirements for selecting an independent auditor?
Each production is
required to have and submit an audit by an independent CPA. CPA firms and
auditors must meet the conditions listed below. See the Production Directory on
the MFO website for approved independent auditors:
Licensed in the
State of Michigan.
Show proof of
AICPA Peer Review Board review that has been accepted by the MACPA Peer Review
Task Force for the licensing period beginning January 1, 2012.
experience auditing film productions.
Follow GAAP or
Perform audits on
a routine and current basis.
Provide independent certification on risk assessment and internal
controls related to compliance.
In order to insure
independence, the audit fee must be paid prior to submission of the COCR.
27. How long does it
take to get the Incentive rebate?
Assuming the COCR and required supporting
documentation are complete and additional information is not required, the
eligible production company should allow approximately 120 days. If additional information is requested during
the COCR review, the process may take longer.
The Incentive will be paid via Electronic Funds Transfer to the
applicant production company o