Section 3 AAC 188.040 - Qualified expenditures(a) For purposes of AS 44.33.236(a), (1) an expenditure for real property, tangible personal property, or services is ordinary and reasonable if it is (A) necessary and non-extravagant; and(B) common and accepted in the producer's trade or business; and(2) an expenditure is directly related to the production if it is for the direct costs of the actual production that would not have been incurred independent of the production.(b) If tangible personal property is purchased, leased, or rented for direct use in the state in a film production for which a notice of qualification has been issued under AS 44.33.234(b), and if the producer does not return, dispose of, or sell the property as of the completion of its use in the film production, (1) only a portion of the depreciation expense will be allowed for the property;(2) the allowable depreciation expense is an amount equal to the portion of the depreciation expense attributable to direct use of the property in the state in the film production; and(3) the allowable depreciation expense will be calculated using class life categories under the federal depreciation rules as identified in United States Internal Revenue Service, Revenue Procedure 87-56, 1987-42 I.R.B. 4, 1987-2 C.B. 674, as modified by Revenue Procedure 88-22, 1988-18 I.R.B. 38, 1988-1 C.B. 785 and adopted by reference; the cost of tangible personal property is divided by the applicable class life category to determine an annual expense; the resulting figure for annual expense is multiplied by the ratio of the number of days in the state that the tangible personal property was in qualified use in the production over 365; the resulting amount is the allowable depreciation expense.(c) The purchase price of a screenplay is a qualified expenditure if (1) payment for the screenplay is made during the 24-month period set out in AS 44.33.233(a)(1), as that period is determined under 3 AAC 188.020(b);(2) the writer is an Alaska business; and(3) the full rights of the screenplay have been transferred to the producer, and the writer cannot sell the same screenplay to another buyer.(d) Only a qualified expenditure that is incurred during the 24-month period set out in AS 44.33.233(a)(1), as that period is determined under 3 AAC 188.020(b), will be considered in determining whether the producer has met the $100,000 minimum in AS 44.33.233(a)(1), and in determining the amount of a tax credit.(e) In addition to costs excluded under AS 44.33.236(b), the following production costs will not be considered qualified expenditures: (1) 50 percent of interstate travel and shipping costs;(2) intellectual property rights, including usage rights, archival material costs, fees for stock footage, and costs for licensing.(f) For purposes of the additional two percent credit under AS 44.33.235(c)(2), qualified expenditures will be considered to have been made in a rural area if they are for (1) services provided in a rural area;(2) the purchase or use of real property located in a rural area; or(3) tangible personal property purchased, leased, or rented in a rural area from an Alaska business that maintains a year-round physical presence in that rural area.(g) For purposes of the additional two percent credit under AS 44.33.235(c)(3), qualified expenditures will be considered to have been made in the state between October 1 and March 30 if they are for (1) services provided during that period; or(2) real property or tangible personal property purchased, leased, or rented from an Alaska business for use during that period.Eff. 6/18/2009, Register 190Copies of the United States Internal Revenue Service Revenue Procedure 87-56 and Revenue Procedure 88-22, adopted by reference in 3 AAC 188.040, are available for inspection at the offices of the Department of Commerce, Community, and Economic Development, Division of Economic Development, Alaska Film Office, located in Juneau and Anchorage. Those items also may be viewed through the Division of Economic Development's website at http:www.commerce.state.ak.us/ded/home.htm.
Authority:AS 44.33.235
AS 44.33.236
AS 44.33.238