Md. Code Regs. 03.04.03.09

Current through Register Vol. 51, No. 25, December 13, 2024

Section 03.04.03.09 - Apportionment of Income-Motion Picture and Television Film Producers and Television Networks

A. Scope.

(1) This regulation applies to:

(a) Motion picture and television film producers and affiliated distribution companies;

(b) Producers of television commercials;

(c) Television networks; and

(d) Independent television stations, to the extent they are members of a chain of commonly owned stations all of which operate as network affiliates or all of which are unaffiliated with a network but which operate:

(i) Collectively in purchasing properties for telecast or in marketing air time, or

(ii) As a producer.

(2) This regulation applies to taxable years beginning after December 31, 1998.

B. In this regulation, the following terms have the meanings indicated:

(1) Film.

(a) "Film" means the physical embodiment of a play, story, or other literary, commercial, educational, or artistic work as a motion picture, video tape, disc, or other similar medium, except that it does not include news or sports films produced for telecast.

(b) "Film" does not include video cassettes or discs intended for home viewing.

(2) "Release date" means the date on which a film is placed in service as follows:

(a) A film is placed in service when it is first telecast or exhibited to the primary audience for which the film was created;

(b) A motion picture film is placed in service when it is first publicly exhibited for entertainment purposes;

(c) An educational film is placed in service when it is first exhibited for instructional purposes;

(d) Each episode of a television series is placed in service when it is first telecast; and

(e) A film is not placed in service merely because it is completed and therefore in a condition or state of readiness and availability for telecast or exhibition, or merely because it is telecast or exhibited to prospective exhibitors, sponsors, or purchasers, or is shown in a "sneak preview" before a select audience.

(3) "Rent" includes license fees for the exhibition or telecast of films.

(4) "Tangible personal property", whether owned or rented, includes but is not limited to sets, props, wardrobes, and other similar equipment or property.

(5) "Subscriber" means the individual residence or other outlet which is the ultimate recipient of the transmission of a subscription television telecaster.

(6) "Telecast" means the transmission of an electronic signal by radiowaves or microwaves or by wires, lines, coaxial cables, wave guides, or other tangible conduits of communication.

C. Films.

(1) Each episode of a series of films produced for television shall constitute a separate film, notwithstanding that the series relates to the same principal subject and is produced during one or more television seasons.

(2) A "film" is deemed to be tangible personal property.

D. Apportionment of Business Income. The property, payroll, and sales factor of the apportionment formula for motion picture and television film producers and television networks is computed pursuant to Tax-General Article, §10-402, Annotated Code of Maryland, and Regulation .08 of this chapter, except as provided in this regulation.

E. Property Factor.

(1) In the case of rented studios, the net annual rental rate includes only the amount of the basic or flat rental charge by the studio for the use of a stage and other permanent equipment such as sound recording equipment, and similar equipment except that additional equipment rented from other sources or from the studio not covered in the basic or flat rental charge and used for 1 week or longer (even though rented on a day-to-day basis) are included. Lump-sum net rental payments for a period which encompasses more than single income year are assigned ratably over the rental period.

(2) The value of films:

(a) Is the original cost of producing the film as determined for federal income tax purposes, before any adjustment for federal credits which have not been claimed for state purposes; and

(b) Includes talent salaries.

(3) The value of a film is not included in the property factor until its release date.

(4) Video cassettes and discs are included in the property factor at their inventory cost as shown in the taxpayer's books and records.

(5) Denominator.

(a) All real property and tangible personal property (other than films), whether owned or rented, which is used in the business, are included in the denominator.

(b) Films are included in the property factor at original cost for 12 years beginning with the release date.

(c) Films of a topical nature including news or current event programs, sporting events, or interview shows are included in the property factor at original cost for 1 year beginning with the release date.

(d) All films, other than those included in the denominator under §E(5)(b) and (c) of this regulation, are aggregated and treated as a single film property which is included in the property factor. This property is valued at eight times the gross receipts generated during the income year from theater distribution, network television, television syndication, cable television, subscription television, and the marketing of video cassettes and discs through licensing or direct selling, or similar receipts, but not in an amount greater than the total original cost of the aggregated film property.

(6) Numerator.

(a) If tangible personal property (other than films) is located or used in this State for part of the income year, its value is determined by applying the ratio which the number of days the property is located or used in this State bears to the total number of days the property was owned or rented during the taxable year.

(b) The total value of films included in the property factor under §E(5) of this regulation is attributed to this State in the same ratio as the total Maryland receipts from these films, as determined in §G(1)-(3) of this regulation pertaining to the sales factor, bears to the total of receipts of these films everywhere.

F. Payroll Factor.

(1) Denominator.

(a) The denominator includes all compensation paid to employees during the taxable year, including talent salaries and residual and profit participation payments.

(b) The amount paid to a corporation for providing the services of an actor or director who is an employee of the corporation, or for loaning the services of an actor or director who is under contract with the corporation, is, if substantial, included in the producer's payroll factor as if the amount paid was compensation paid to an employee of the producer.

(2) Numerator. Compensation of employees engaged in the production of a film on location is attributed to this State in the same ratio as the total Maryland receipts from the films, as determined in §G(1)-(3) of this regulation pertaining to the sales factor, bears to the total receipts everywhere. Compensation of all other employees is governed by Regulation .08C(5) of this chapter.

G. Sales Factor.

(1) The numerator includes all gross receipts of the taxpayer from sources within this State including the following:

(a) Gross receipts from films in release to theaters and television stations located in this State;

(b) Gross receipts from films in release to or by a television network for network telecast in the ratio that the audience for the network stations (owned and affiliated) located in Maryland bears to the total audience for all network stations (owned and affiliated) everywhere;

(c) Gross receipts from films in release to subscription television telecasters in the ratio that the subscribers for the telecaster located in Maryland bears to the total subscribers of the telecaster everywhere; and

(d) Receipts from sales and rentals of video cassettes and discs as provided in Regulation .08C(3)(a), (b), and (e) of this chapter.

(2) Under §G(1)(b) of this regulation, the audience is determined by rate card values published annually by market surveys or other industry publications, or, if none are available, by population data published by the U.S. Bureau of the Census.

(3) Under §G(1)(c) of this regulation, if the number of subscribers cannot be determined accurately from records maintained by the taxpayer, then the ratio is determined on the basis of the applicable year's statistics on subscribers published by market surveys or other industry publications, or, if none are available, by population data published by the U.S. Bureau of the Census for all states in which the telecaster has subscribers.

H. Making and Revoking Election for Exclusion from this Regulation.

(1) A company described in §A(1) of this regulation shall apportion its income as set forth in this regulation unless the company makes an election to be excluded from the requirements of this regulation.

(2) A company doing business in Maryland on or before the effective date of this regulation that wishes to be excluded from the requirements of this regulation must make the election for exclusion on or before the due date, including an extended due date, of the company's original tax return for its first taxable year beginning on or after January 1, 1999.

(3) A company that begins doing business in Maryland after the effective date of this regulation and that wishes to be excluded from the requirements of this regulation must make the election for exclusion on or before the due date, including an extended due date, of the company's first original income tax return required to be filed with the Comptroller.

(4) An electing company shall make the election by attaching a statement to its tax return for the year for which the election is made. This election shall contain the following information:

(a) The name of the electing company;

(b) The address of the electing company;

(c) The taxpayer identification number of the electing company; and

(d) A statement to the effect that the company is electing to be excluded from the apportionment of income as required in this regulation.

(5) A company is deemed to have made an election to apportion its income consistent with the principles set forth in this regulation if the company does not make an election as set forth in §H(1)-(4) of this regulation.

(6) Revocation of Election.

(a) An election under this regulation may be revoked by the electing company at any time by attaching a statement to its tax return for the year for which the revocation is made. The revocation shall contain the following information:

(i) The name of the revoking company;

(ii) The address of the revoking company;

(iii) The taxpayer identification number of the revoking company; and

(iv) A statement to the effect that the company is revoking its election to be excluded from the apportionment of income as required in this regulation.

(b) A company that has revoked its election under §H(6) of this regulation may not thereafter elect to be excluded from the requirements of this regulation.

(7) An election made by one member of an affiliated group is not binding on any other member of the group. Each separate entity shall file its own election or revocation.

Md. Code Regs. 03.04.03.09

Regulation .09 adopted effective April 3, 2000 (27:6 Md. R. 639); amended effective 49:9 Md. R. 529, eff. 5/2/2022