The COVID-19 pandemic has had a devastating impact throughout the world. New York City was certainly no exception, and perhaps no industry has been impacted as severely as the live theatrical entertainment industry. Looking to aid the continuing economic recovery, the $100 million New York City Musical and Theatrical Production Tax Credit Program is set to have a far-reaching impact on an industry that is often considered the heartbeat of New York City.
Continuously providing additional guidance regarding this new program, New York has officially set forth new Agreed Upon Procedures (AUPs) to be performed by a pre-qualified CPA firm. We believe AUP inspections can significantly benefit theatrical productions intending to receive this tax credit.
So how does the New York City Musical and Theatrical Production Tax Credit work, and who is eligible to claim the credit?
- The refundable credit is calculated as 25% of “qualified production expenditures” (limited to $3 million per production in the programs first-year, $1.5 million in the programs second-year) of a “qualified musical and theatrical production” that is performed live in a qualified New York City production facility (must contain 500+ seats, dressing rooms, and 75%+ of receipts must be attributed to ticket sales).
- “Qualified production expenditures” will include costs such as expenditures for design, sets, visual effects, costumes, wardrobes, makeup, accessories, salaries/wages/fees (limited to $200K per week), and sound, lighting, and staging. NYS will also consider 50% of marketing/advertising costs if the costs were incurred and paid in NYS. It is important to note that the qualified costs above incurred during the production phase as well as during the production’s running weeks are eligible for the credit.
What is an Agreed Upon Procedures (AUPs) inspection?
- An AUP inspection is performed by a pre-qualified CPA firm and is submitted along with the final tax credit application upon completion of the production/project.
- The objective of an AUP inspection is for a 3rd party to confirm that a production company has met the eligibility requirements of the tax credit program along with submitting only those expenditures that are considered “qualified” by NYS.
- The AUP inspection will include but is not limited to procedures such as confirming the final application is complete according to NYS, inspecting the production company’s GL reports for “non-qualified” expenditures, ensuring the production is following the “Diversity and Arts Job Training” requirements and verifying that a detailed “public access and availability report” is submitted that complies with NYS regulations.
What is a “Pre-Qualified” CPA firm, and how can utilizing such a firm for an AUP inspection benefit your production?
- NYS has set forth a list of CPA firms that the State has “pre-qualified” to perform the AUP inspections as discussed above.
- Submitting an AUP report with your production’s final application will significantly reduce the time it takes NY State to process your application and issue your credit certificate, which will allow you to monetize the credit much faster. For example, the Upstate NY Musical and Theatrical Production Tax Credit Program has not historically offered the “Pre-Qualified” CPA AUP inspection. Several productions have waited more than a year to receive their credit certificates under that program. Given that the number of applicants applying to this new program will be larger than the Upstate program, these times could be much longer if the State must conduct full reviews on all of them. The hope is that with the AUP report accompanying the final application, this wait time can be significantly reduced.
- Furthermore, using a pre-qualified CPA firm will allow a production company to ensure that their final application is complete, accurate, and complies with the requirements set forth by NYS to receive the tax credit.
- NYS is considering extending the final application deadline (currently within 90 days of the end of the credit period) for productions that opt into an AUP inspection.
- An applicant that does not submit an AUP inspection may run the risk of submitting an incomplete or inaccurate final application that could severely delay the receipt of the tax credit and potentially lead to issues receiving the maximum tax credit for which the production company qualifies.
Withum is proud to be one of the “Pre-Qualified” CPA firms eligible to conduct AUP Inspections related to these important tax credits, and we look forward to expediting these refunds to production companies at a time when they need them the most.