Capture. Every. Eligible. Dollar.
“Capture. Every. Eligible. Dollar.” What exactly does this mean?
Well, it means that obviously you need to make sure you keep buttoned-up, auditable records on your production. Every penny spent should be tagged Eligible or Non-Eligible. And often there are sub-sets within eligibility too.
Let’s take Minnesota as an example. In addition to the State* tax incentive, they have multiple regional incentives:
Iron Range Regional Production Incentive Program
St. Louis County*
City of Duluth Production Incentive Program*
City of Austin – The Incredible Austin Minnesota Film Rebate
City of Maple Lake – The Shamprock Film Rebate
CODE IN ACCOUNTING SYSTEM
*Duluth is in St. Louis County, which is in Minnesota. These 3 incentives are stackable, which means you can take advantage of ALL 3!
From an accounting perspective, what you want to do is tag an eligible expense to the smallest appropriate geographic area incentive. If it’s tagged to Duluth, obviously it will be eligible for both St. Louis County and Minnesota, and if the expense is in Hibbing, St. Louis County, you’d code it to St. Louis County, which would also capture the Minnesota eligibility.
Every single penny must be allocated somewhere. Why do you want to bother tagging a Non-Eligible costs?
#1. So that every concerned person is forced to and knows that every cost needs to be tagged to one of these categories, no guesswork.
#2. Because this ensures that every penny is captured somewhere. The total of all your tag reports together should equal the total cost of the production. This is your “proof” that everything is captured. If you only tag the eligible expenses, it could be very easy to miss something.
Of course before submitting to final package to the City/County/State, every receipt/invoice will need to be examined with a fine-tooth comb.
Sometimes a single expenditure will be partially eligible and need to be split. This split should be recorded at the initial point of entry, but, people being people, an internal audit by the production accountant before submission is a must to make sure everything is in the right “bucket”.
In summary, you need to make sure your accounting system will easily (THIS is the key) track these for you. The Quickbooks Online “Class” feature works great for this. All of these sub-Classes roll up to the main project Class, from where Cost Reports are run, #3 in the list of why to tag to Non-Eligible costs.
Book a call HERE to find out more about our Tax Incentive services, or ask that burning question you have about your accounting! : )