Georgia has recently expanded the entertainment credit that was enacted a few years ago. Georgia now has a 30% credit for production costs incurred in Georgia. Many of the production companies do not need the credits because they don’t have Georgia taxable income. They can elect to make a one-time transfer of the credit. The production company submits the budget and gets pre-approved by the state. Once the production is complete, there is no verification by Georgia as to the amount of the credit. Therefore, a CPA firm must perform some testing and issue a comfort letter on the credits.
You can use the credits to offset 100% of your Georgia tax liability and the source of the income does not matter. Any credits not used carry forward 5 years. If you wanted to buy 2009 credits to pay your Georgia liability you can do so and get a refund of the amounts already paid in.
The amount of tax satisfied is treated as a state tax payment in the year you file the return. You do have to pick up capital gain income for the difference between the amount paid for the credits and the amount of tax paid. For example, if a taxpayer has a $10,000 state tax liability, he could pay $9,000 for the credit (the credits typically sell for 89 – 90 cents on the dollar). The taxpayer would deduct the $10,000 on Schedule A and record a capital gain of $1,000.