New York State Budget Provides Additional Relief for the Theater IndustryBy Christopher A. Cacace | April 8, 2021
On April 6, 2021, Governor Andrew Cuomo announced the fiscal year 2022 budget for New York State. Included in the budget is additional COVID relief for small businesses, including those in the theater industry, to help them recover from the pandemic. The additional relief provided in the budget is different than what has already been provided by the Paycheck Protection Program, Employee Retention Credits and Shuttered Venue Operators Grant.
Help for the Theater Industry
The New York State budget extends the Empire State Musical and Theatrical Production Credit, which benefits shows that launch outside of New York City and meet other criteria, by four years.
Importantly, the budget also establishes a New York City Musical and Theatrical Production Tax Credit, providing up to $100 million in tax credits for theatrical productions which will start in New York City.
The new credit is applicable to “a taxpayer that is a qualified New York City musical and theatrical production company or is a sole proprietor or member of a partnership that is a qualified New York City musical production company.” The program provides New York state income tax credits to qualified production companies or their owners in much the same way that the Empire State credit does.
Qualifying for the New York City Musical and Theatrical Production Tax Credit
Below are definitions of key terms related to qualifying for the New York City Musical and Theatrical Production Tax Credit.
Qualified musical and theatrical production means a for-profit live dramatic stage presentation that, in its original or adaptive version, is performed in a qualified New York City production facility, whether or not such production was performed in a qualified New York city production facility prior to the state disaster emergency pursuant to executive order 202 of 2020.
A qualified production expenditure is any costs for tangible property used and services performed directly and predominantly in the production of a qualified musical and theatrical production within the state of New York, including: (i) expenditures for design, construction and operation, including sets, special and visual effects, costumes, wardrobes, make-up, accessories and costs associated with sound, lighting, and staging; (ii) all salaries, wages, fees, and other compensation including related benefits for services performed of which the total allowable expense shall not exceed two hundred thousand dollars per 26 weeks; and (iii) technical and crew production costs, such as expenditures for a qualified New York city production facility, or any part thereof, props, make-up, wardrobe, costumes, equipment used for special and visual effects, sound recording, set construction, and lighting.
Qualified production expenditures do not include any costs incurred prior to the credit period of a qualified New York city musical and theatrical production company.
A qualified New York City production facility is a facility located within the city of New York (i) in which live theatrical productions are or are intended to be primarily presented; (ii) that contains at least one stage, a seating capacity of five hundred or more seats, and dressing rooms, storage areas, and other ancillary amenities necessary for the qualified musical and theatrical production; and (iii) for which receipts attributable to ticket sales constitute 75% or more of gross receipts of the facility.
The credit period of a qualified New York City musical and theatrical production company is the period starting on the production start date and ending on the earlier of the date that the qualified musical and theatrical production has expended sufficient qualified production expenditures to reach its credit cap, March 31, 2023, or the date the qualified musical and theatrical production closes.
The production start date is the date that is up to twelve weeks prior to the first performance of the qualified musical and theatrical production.
Calculating and Claiming the New York City Musical and Theatrical Production Tax Credit
The credit is 25% of qualified production expenditures during the credit period or, in the case of a partnership, a partner’s pro-rata share of those expenditures. The aggregate credit is limited to $3 million per production company if the first performance is during the first year in which applications are accepted and $1.5 million if in the second year unless the tourism economy has not sufficiently recovered.
The credit shall be allowed for the taxable year beginning on or after January 1, 2021, but before January 1, 2024. A qualified New York City musical and theatrical production company shall claim the credit in the year in which its credit period ends.
The credit is refundable.
Any qualified New York City musical and theatrical production company that performs in a qualified New York city production facility and applies to receive the New York City Musical and Theatrical Production Tax Credit shall be required to:
Participate in a New York state diversity and arts job training program;
Create and implement a plan to ensure that their production is available and accessible for low or no cost to low-income New Yorkers; and
Contribute to the New York State Council on the Arts cultural program fund an amount of up to 50% of the total credits received if its production earns ongoing revenue prospectively after the end of the credit period that is at least equal to 200% of its ongoing production costs, with such amount payable from 25% of net operating profits, payable on a monthly basis, up until 50% of the total credit amount is reached.
A show raised $3 million from each of three partners, spent $1 million on qualified production cost expenditures in 2020 and was unable to open before the pandemic. The show anticipates spending another $2 million on qualified production expenditures in 2021 before starting performances on September 1, 2021.
The production start date is twelve weeks prior to the start of performances, so June 1, 2021, and that triggers the credit period during which qualified expenditures become eligible for the New York credit. The 2020 expenditures don’t qualify, but let’s assume $600,000 of the $2 million qualified expenditures were spent on or after June 1, 2021.
Under yet-to-be-developed application procedures, presumably the show will apply for credits with the Department of Taxation and Finance and/or Department of Economic Development, who will approve a credit award of $150,000 ($600,000 x 25%). When the company files its 2021 New York State partnership tax return, it will allocate the approved credit to the three partners in proportion to their ownership. If all three are equal partners, one a C corporation, one an individual and one a partnership, the C corporate partner will claim its $50,000 credit against its New York corporation tax, the partnership will pass its $50,000 credit through to its own partners in accordance with its partnership or operating agreement on its New York partnership tax return, and the individual partner will claim the $50,000 credit on their New York resident or nonresident individual income tax return. If the credit exceeds their New York tax liability, they will receive a refund for the excess amount.
The show is a hit! If all funds are spent as of September 1, 2021, that ends the credit period and the company will now calculate whether a contribution is due to the New York State Council on the Arts fund from 25% of net profits on a monthly basis.
The inclusion of the New York City Musical and Theatrical Production Tax Credit in the recently passed New York State budget is clearly intended to help mitigate the risks facing new or reopening First Class and many Off Broadway productions. Instead of the funding approaches already introduced by the federal government, this program borrows from the philosophy of the Empire State credit program and incentivizes investors by sharing their risk. Speak to your advisor to determine whether your production company qualifies for this tax credit and can access the additional benefits for the theater industry provided by the budget legislation.
Marks Paneth has provided a summary of highlights of the New York State 2021-2022 budget which can be read here. Contact Christopher Cacace, Partner-in-Charge of the Theater, Media and Entertainment Group, or your Marks Paneth advisor if you need additional information or assistance.
About Christopher A. Cacace
Christopher A. Cacace, CPA, is Partner-in-Charge of the Theater, Media and Entertainment Group at Marks Paneth LLP and Partner-in-Charge of the firm’s Westchester office. He is also a member of the Marks Paneth Executive Committee, which sets policy and strategy for the firm. He has a deep expertise serving theater and entertainment clients and has done so for nearly 40 years. Mr. Cacace started his career in accounting at Pinto Winokur & Pagano CPASs theater practice,... READ MORE +