A BILL TO BE ENTITLED
AN ACT to increase the income tax credit for production companies and to create an income tax credit for producers of digital interactive media.
The General Assembly of North Carolina enacts:
SECTION 1.  G.S. 105‑130.47(b) reads as rewritten:
"(b)	Credit. – A taxpayer that is a production company and has qualifying expenses of at least two hundred fifty thousand dollars ($250,000) with respect to a production is allowed a credit against the taxes imposed by this Part equal to twenty percent (20%) of the production company's qualifying expenses. For the purposes of this section, in the case of an episodic television series, an entire season of episodes is one production. The credit is computed based on all of the taxpayer's qualifying expenses incurred with respect to the production, not just the qualifying expenses incurred during the taxable year."
SECTION 2.  G.S. 105‑151.29(b) reads as rewritten:
"(b)	Credit. – A taxpayer that is a production company and has qualifying expenses of at least two hundred fifty thousand dollars ($250,000) with respect to a production is allowed a credit against the taxes imposed by this Part equal to twenty percent (20%) of the production company's qualifying expenses. For the purposes of this section, in the case of an episodic television series, an entire season of episodes is one production. The credit is computed based on all of the taxpayer's qualifying expenses incurred with respect to the production, not just the qualifying expenses incurred during the taxable year."
SECTION 3.  Part 1 of Article 4 of Chapter 105 of the General Statutes is amended by adding a new section to read:
"§ 105‑130.47A.  Credit for producers of digital interactive media.
(a)	Definitions. – The following definitions apply in this section:
(1)	Digital interactive media. – Products, other than interpersonal communications services such as videoconferencing, wireless communications, text‑based channels, or chat rooms, that are intended for commercial use or distribution and that satisfy each of the following conditions:
a.	The product is produced for distribution on electronic media, including file downloads over the Internet.
b.	The product contains a computer‑controlled virtual universe with which users may interact in order to achieve a goal.
c.	The product contains an appreciable amount of at least three of the five following types of data:  text, sound, fixed images, animated images, or 3D geometry.
(2)	Qualifying expenses. – The sum of the total amount spent in this State by a producer of digital interactive media in connection with the production of digital interactive media for the following:
a.	Production property purchased or leased.
b.	Compensation and wages on which withholding payments are remitted to the Department of Revenue under Article 4A of this Chapter.
(3)	Production property. – Tangible personal property and intangible property that is directly used in the production of digital interactive media. The term includes such items as software, computer code, image files, music files, scripts and plays, concept mock‑ups, software tools, and testing procedures.
(b)	Credit. – A taxpayer that produces digital interactive media is allowed a credit against the taxes imposed by this Part equal to twenty percent (20%) of the taxpayer's qualifying expenses. The credit allowed by this section may not exceed the amount of tax imposed by this Part for the taxable year reduced by the sum of all credits allowable. This limitation applies to the cumulative amount of a credit allowed in any tax year, including carryforwards. Any unused portion of a credit allowed under this section may be carried forward for the next succeeding five years.
(c)	Limitation. – No credit is allowed under this section for qualifying expenses with respect to digital interactive media that contain material that is obscene, as defined in G.S. 14‑190.1.
(d)	Substantiation. – A taxpayer allowed a credit under this section must maintain and make available for inspection any information or records required by the Secretary of Revenue. The taxpayer has the burden of proving eligibility for a credit and the amount of the credit.
(e)	Report. – The Department of Revenue must publish by May 1 of each year the following information, itemized by taxpayer for the 12‑month period ending the preceding December 31:
(1)	The qualifying expenses for which a credit was claimed, classified by whether the expenses were production property or compensation or wages.
(2)	The number of people employed in the State with respect to credits claimed.
(3)	The total cost to the General Fund of the credits claimed.
(f)	Sunset. – This section is repealed for taxable years beginning on or after January 1, 2011."
SECTION 4.  Part 2 of Article 4 of Chapter 105 of the General Statutes is amended by adding a new section to read:
"§ 105‑151.29A.  Credit for producers of digital interactive media.
(a)	Definitions. – The following definitions apply in this section:
(1)	Digital interactive media. – Products, other than interpersonal communications services such as videoconferencing, wireless communications, text‑based channels, or chat rooms, that are intended for commercial use or distribution and that satisfy each of the following conditions:
a.	The product is produced for distribution on electronic media, including file downloads over the Internet.
b.	The product contains a computer‑controlled virtual universe with which users may interact in order to achieve a goal.
c.	The product contains an appreciable amount of at least three of the five following types of data:  text, sound, fixed images, animated images, or 3D geometry.
(2)	Qualifying expenses. – The sum of the total amount spent in this State by a producer of digital interactive media in connection with the production of digital interactive media for the following:
a.	Production property purchased or leased.
b.	Compensation and wages on which withholding payments are remitted to the Department of Revenue under Article 4A of this Chapter.
(3)	Production property. – Tangible personal property and intangible property that is directly used in the production of digital interactive media. The term includes such items as software, computer code, image files, music files, scripts and plays, concept mock‑ups, software tools, and testing procedures.
(b)	Credit. – A taxpayer that produces digital interactive media is allowed a credit against the taxes imposed by this Part equal to twenty percent (20%) of the taxpayer's qualifying expenses. The credit allowed by this section may not exceed the amount of tax imposed by this Part for the taxable year reduced by the sum of all credits allowable. This limitation applies to the cumulative amount of a credit allowed in any tax year, including carryforwards. Any unused portion of a credit allowed under this section may be carried forward for the next succeeding five years.
(c)	Limitation. – No credit is allowed under this section for qualifying expenses with respect to digital interactive media that contain material that is obscene, as defined in G.S. 14‑190.1.
(d)	Substantiation. – A taxpayer allowed a credit under this section must maintain and make available for inspection any information or records required by the Secretary of Revenue. The taxpayer has the burden of proving eligibility for a credit and the amount of the credit.
(e)	Report. – The Department of Revenue must publish by May 1 of each year the following information, itemized by taxpayer for the 12‑month period ending the preceding December 31:
(1)	The qualifying expenses for which a credit was claimed, classified by whether the expenses were production property or compensation or wages.
(2)	The number of people employed in the State with respect to credits claimed.
(3)	The total cost to the General Fund of the credits claimed.
(f)	Sunset. – This section is repealed for taxable years beginning on or after January 1, 2011."
SECTION 5.  This act is effective for taxable years beginning on or after January 1, 2008.