An Act relative to tax credits, education and training for the design and development of video game and interactive digital media products.

SECTION 1.  Chapter 63 of the General Laws is hereby amended by striking out section 38X and inserting in place thereof the following section:

Section 38X.  (a) As used in this section the following words shall, unless the context clearly requires otherwise, have the following meanings:-

“Commissioner”, the commissioner of revenue.

“Motion picture”, a feature-length film, a video, a digital media project, a television series defined as a season not to exceed 27 episodes, or a commercial made in the commonwealth, in whole or in part, for theatrical or television viewing or as a television pilot. The term “ motion picture” shall not include a production featuring news, current events, weather and financial market reports, talk show, game show, sporting events, awards show or other gala event, a production whose sole purpose is fundraising, a long-form production that primarily markets a product or service, a production containing obscene material or performances.

“Motion picture production company”, a company including its subsidiaries engaged in the business of producing motion pictures, videos, television series, or commercials intended for a theatrical release or for television viewing. The term “motion picture production company” shall not mean or include any company which is more than 25 per cent owned, affiliated, or controlled, by any company or person which is in default on a loan made or guaranteed by the commonwealth.

“Massachusetts production expense”, a production expense for the motion picture, video game or interactive digital media clearly and demonstrably incurred in the commonwealth.

“Principal photography”, the phase of production during which the motion picture is actually filmed. The term shall not include preproduction or postproduction.

“Production expense” or “production cost”, preproduction, production and postproduction expenditures directly incurred in the production of a motion picture, video game or interactive digital media. The term shall include wages and salaries paid to individuals employed in the production of the motion picture, video game or interactive digital media; the costs of set construction and operation, editing and related services, photography, sound synchronization, lighting, wardrobe, make-up and accessories; film processing, transfer, sound mixing, special and visual effects; music; location fees and the cost of purchase or rental of facilities and equipment or any other production expense as may be determined by the department of revenue to be an eligible production expense.  The term shall not include costs incurred in marketing or advertising a motion picture, video game or interactive digital media, any costs related to the transfer of tax credits or any amounts paid to persons or businesses as a result of their participation in profits from the exploitation of the production.

“Secretary”, the secretary of economic development.

"Video game” or “interactive digital media", interactive software that: (i) is produced for distribution on or accessed via electronic media, including without limitation software  that may be accessed via or downloaded from the Internet or mobile networks and software that are distributed on optical media or embedded in or downloadable to electronic devices, including without limitation mobile phones, portable game systems, computers, tablets, and personal digital assistants (PDA) or other handheld electronic devices; (ii) users may interact with via an electronic device, which may include without limitation a computer, a game system, a mobile phone, tablet, a PDA or other handheld electronic devices, in order to achieve a goal or set of goals; and (iii) include an appreciable quantity of text, sound, fixed images, animated images, or 3-D geometry.

“Video game studio” or “interactive digital media studio”, a permanent facility within the commonwealth used primarily for the design, production or development of video games or interactive digital media products.

(b) A taxpayer engaged in the making of a motion picture, video game or interactive digital media shall be allowed a credit against the taxes imposed by this chapter for the employment of persons within the commonwealth in connection with the filming or production of 1 or more motion pictures, video games or interactive digital media in the commonwealth within any consecutive 12 month period. The credit shall be equal to 25 per cent of the total aggregate payroll paid by a motion picture, video game or interactive digital media production company that constitutes Massachusetts source income, when total production costs incurred in the commonwealth equal or exceed $50,000 during the taxable year. For purposes of this subsection, the term “total aggregate payroll” shall not include the salary of any employee whose salary is equal to or greater than $1,000,000.

(c) A taxpayer shall be allowed an additional credit against the taxes imposed by this chapter equal to 25 per cent of all Massachusetts production expenses, not including the payroll expenses used to claim a credit pursuant to subsection (b), where the motion picture, video game or interactive digital media is also eligible for a credit pursuant to subsection (b) and either Massachusetts production expenses exceed 50 per cent of the total production expenses for a motion picture or at least 50 per cent of the total principal photography days of the film or the production of the video game or interactive digital media take place in the commonwealth.

(d) A taxpayer shall be allowed an additional credit against the taxes imposed by this chapter equal to 5 per cent of all Massachusetts production expenses under this section if video game studio or interactive digital media studio is located in a gateway municipality, as defined by section 3A of chapter 23A; provided, that the value of such credit shall not exceed $500,000 per year.

(e) The tax credit shall be taken against the taxes imposed under this chapter and shall, at the election of the taxpayer, be refundable to the extent provided for in section 32E. Any amount of the tax credit that exceeds the tax due for a taxable year may be carried forward by the taxpayer to any of the 5 subsequent taxable years.

(f)(1) All or any portion of tax credits issued in accordance with the provisions of this section may be transferred, sold or assigned to other taxpayers with tax liabilities under this chapter or chapter 62. Any tax credit that is transferred, sold or assigned and taken against taxes imposed by this chapter. Any amount of the tax credit that exceeds the tax due for a taxable year may be carried forward by the transferee, buyer or assignee to any of the 5 subsequent taxable years from which a certificate is initially issued by the department of revenue.

(2) An owner, transferee or assignee desiring to make a transfer, sale or assignment shall submit to the commissioner a statement which describes the amount of tax credit for which the transfer, sale or assignment of tax credit is eligible. The owner, transferee or assignee shall provide to the commissioner such information as the commissioner may require for the proper allocation of the credit. The commissioner shall provide to the taxpayer a certificate of eligibility to transfer, sell or assign the tax credits. The commissioner shall not issue a certificate to a taxpayer that has an outstanding tax obligation with the commonwealth in connection with any motion picture, video game or interactive digital media for any prior taxable year. A tax credit shall not be transferred, sold or assigned without a certificate. The commissioner shall direct, assign and issue a certificate equal to 10 per cent of the annual total of all tax credits earned in the prior year to the Massachusetts Digital Games Institute for game development education and training programs and activities.  These credits may be refunded at 80 per cent of face value or transferred, sold or assigned to other taxpayers with tax liabilities.

(g) The commissioner, in consultation with the secretary, shall promulgate regulations necessary for the administration of this subsection.

SECTION 2.  Said chapter 63 of the general laws is hereby further amended by adding the following three sections:-

Section 82.  (a) As used in this section and in section 83, the following terms shall have the following meaning:

“Eligible labor expenditures”, compensation and benefits paid to employees working on the development, creation, production, maintenance, and distribution of video games or interactive digital media as defined in section 38X, as well as employees supporting technical or production infrastructure, including but not limited to, computer support staff.

“Video game production company”, a company including its subsidiaries engaged in the business of producing video games or interactive digital media as defined in section 38X. The term “video game production company” shall not mean or include any company which is more than 25 per cent owned, affiliated, or controlled, by any company or person which is in default on a loan made by the commonwealth or a loan guaranteed by the commonwealth.

(b) A taxpayer engaged in the making of a video game or interactive digital media shall be allowed a credit against the taxes imposed by this chapter for the employment of persons within the commonwealth in connection with the filming or production of 1 or more video games or interactive digital media in the commonwealth within any consecutive 12 month period. The credit shall be equal to 35 per cent of the eligible labor expenditures paid by a video game or interactive digital media production company that constitutes Massachusetts source income, when eligible labor expenditures incurred in the commonwealth equal or exceed $50,000 during the taxable year.

(c) A taxpayer engaged in the making of a video game or interactive digital media shall be allowed an additional workforce credit against the taxes imposed by this chapter for eligible labor expenditures within the commonwealth. The credit shall be equal to the following:

(1)if the sum of the average of the video game production company for the 5 year period is greater than or equal to 100 per cent but less than 105 per cent of the count of full-time equivalent employees during the year the credit in section 38X was earned, the workforce tax credit shall be 10 per cent of the tax credit allowed in subsection (b);

(2)if the sum of the average of the video game production company for the 5 year period is greater than or equal to 105 per cent but less than 110 per cent of the count of full-time equivalent employees during the year the credit in section 38X was earned, the workforce tax credit shall be 20 per cent of the tax credit allowed in subsection (b);

(3)if the sum of the average of the video game production company for the 5 year period is greater than or equal to 110 per cent but less than 115 per cent of the count of full-time equivalent employees during the year the credit in section 38X was earned, the workforce tax credit shall be 30 per cent of the tax credit allowed in subsection (b);

(4)if the sum of the average of the video game production company for the 5 year period is greater than or equal to 115 per cent but less than 120 per cent of the count of full-time equivalent employees during the year the credit in section 38X was earned, the workforce tax credit shall be 40 per cent of the tax credit allowed in subsection (b); and

(5)if the sum of the average of the video game production company for the 5 year period is greater than or equal to 120 per cent of the count of full-time equivalent employees during the year the credit in section 38X was earned, the workforce tax credit shall be 50 per cent of the tax credit allowed in subsection (b).

(d) A taxpayer shall be allowed an additional credit against the taxes imposed by this chapter equal to 5 per cent of either the credit allowed in subsections (b) and (c) of section 38X or the credit allowed in subsections (b) and (c) of this section if a video game production company is located in a gateway municipality, as defined by section 3A of chapter 23A; provided, that the value of such credit shall not exceed $500,000 per year.

(e) The tax credit shall be taken against the taxes imposed under this chapter and shall, at the election of the taxpayer, be refundable to the extent provided for in section 32E.  Any amount of the tax credit that exceeds the tax due for a taxable year may be carried forward by the taxpayer to any of the 5 subsequent taxable years.

(f)(1) All or any portion of tax credits issued in accordance with the provisions of this section may be transferred, sold or assigned to other taxpayers with tax liabilities under this chapter or chapter 62. Any tax credit that is transferred, sold or assigned and taken against taxes imposed by this chapter or said chapter 62 shall not be refundable.  Any amount of the tax credit that exceeds the tax due for a taxable year may be carried forward by the transferee, buyer or assignee to any of the 5 subsequent taxable years from which a certificate is initially issued by the department of revenue.

(2) An owner, transferee or assignee desiring to make a transfer, sale or assignment shall submit to the commissioner a statement which describes the amount of tax credit for which the transfer, sale or assignment of tax credit is eligible.  The owner, transferee or assignee shall provide to the commissioner such information as the commissioner may require for the proper allocation of the credit.  The commissioner shall provide to the taxpayer a certificate of eligibility to transfer, sell or assign the tax credits.  The commissioner shall not issue a certificate to a taxpayer that has an outstanding tax obligation with the commonwealth in connection with any motion picture for any prior taxable year.  A tax credit shall not be transferred, sold or assigned without a certificate. The commissioner shall direct, assign and issue a certificate equal to 10 per cent of the annual total of all tax credits earned in the prior year to the Massachusetts Digital Games Institute for game development education and training programs and activities.  These credits may be refunded at 80 per cent of face value or transferred, sold or assigned to other taxpayers with tax liabilities.

(g) A taxpayer shall be allowed either the credits under this section or section 38X.

(h) The commissioner, in consultation with the secretary, shall promulgate regulations necessary for the administration of this section.

Section 83.   A taxpayer engaged in the making of a video game or interactive digital media shall be allowed a workforce training credit against the taxes imposed by this chapter for eligible 2 year on-the-job training wages within the commonwealth. The credit shall be equal to 25 per cent of on-the-job wages as determined by the commissioner.

Section 84.  (a) If a taxpayer, engaged in the making of a video game or interactive digital media receiving a tax credit under section 82, discontinues operations in the commonwealth during the first 2 and one-half years of applying for such credit, the taxpayer shall forfeit all credits taken by the taxpayer during such 2 and one-half year period.  In the event of the forfeiture of such credits, the department shall initiate proceedings against the taxpayer to recover wrongfully  exempted state income  taxes and the taxpayer shall promptly repay to the department any wrongfully exempted state income  taxes.  The forfeited amount of credits shall be deemed assessed on the date the department initiates proceedings against such recipient and the recipient  shall promptly repay to the department any wrongfully exempted state income taxes. The secretary of economic development may elect to waive enforcement of any such forfeiture based on a finding that the waiver is necessary to avert an imminent and demonstrable hardship to the recipient.  If a waiver is granted, the recipient shall agree to contractual recapture provisions. The existence of any waiver granted under this section, the date of the granting of such waiver, and a brief summary of the reasons supporting the granting of such waiver shall be disclosed consistent with the provisions of this section.

(b) Beginning June 1, 2013 the department shall annually compile a report on the outcomes and  effectiveness of the recapture provisions of this section, including but not limited to: (1) the total number of taxpayers engaged in the making of a video game or interactive digital media receiving a tax credit under sections 38X, 82 or 83; (2) the total number of recipients in violation of this section; (3) the total number of completed recapture efforts; (4) the total number of recapture efforts initiated; and (5) the  number of waivers granted.  Such report shall be a public record under clause Twenty-sixth of section 7 of chapter 4 and chapter 66.

(c) The commissioner, in consultation with the secretary, shall promulgate regulations necessary for the administration of this section.