Amends TCA Section 67-4-2109 and Title 67, Chapter 6, Part 3.

This bill establishes processes by which a person may apply to the commissioner of revenue and the commissioner of economic and community development for a sales and use tax exemption (the "exemption") and a credit for qualified payroll expenses against the applicant's combined franchise and excise tax liability (the "credit") for a qualified production. This bill defines "qualified production" to mean any of the following activities, as determined by the Tennessee film, entertainment and music commission: (1) The production of a film, pilot episode, series, video game competition (an "esports event"), or other episodic content in Tennessee; (2) The creation of computer-generated imagery, video games, or interactive digital media in Tennessee; or (3) Stand-alone audio or visual post-production scoring and editing in Tennessee. The processes for obtaining the exemption and the credit are substantially similar, as follows: (1) A person must initially apply to the Tennessee film, entertainment and music commission for a determination of whether the applicant is engaged in a qualified production; (2) If the Tennessee film, entertainment and music commission determines that an applicant is engaged in a qualified production, the commissioners of revenue and economic and community development must determine whether approving the application is in the best interest of the state. In order to find that a qualified production is in the state's best interest each commissioner must determine, in their sole discretion and in writing, that the qualified production is a result of the exemption or credit and the benefits to the state resulting from the production outweigh the anticipated costs; and (3) If both commissioners approve the credit or exemption, the department of revenue is required to issue the applicant an exemption certificate or the applicant may claim the credit, as applicable. Sales and Use Tax Exemption The exemption authorized by this bill applies to the sale, use, storage, or consumption of tangible personal property, computer software, or services that are necessary to and primarily used for a qualified production. An exemption certificate issued pursuant to this bill expires two years from its effective date and may be renewed for successive two-year periods. This bill authorizes a third party purchasing or using tangible personal property, computer software, or services that are necessary to and primarily used for a qualified production that is granted an exemption to separately apply to the department of revenue to use the exemption to make purchases on a tax-exempt basis for the identified qualified production. Franchise and Excise Tax Credit The credit authorized by this bill applies to compensation paid in this state for qualified positions, subject to programmatic caps established by the Tennessee film, entertainment and music commission. This bill defines "qualified position" to mean services performed by an employee or an independent contractor determined by the Tennessee film, entertainment and music commission to be necessary to and primarily for a qualified production. This bill specifies that, for purposes of the credit, a qualified production includes activities by a third party that are necessary to and performed on behalf of a person engaging in the activities described above in (1) – (3). The amount of the credit is 40 percent of qualified payroll expenses, except in the case of qualified payroll expenses paid to individuals whose primary residence is in a tier 2, tier 3, or tier 4 enhancement county, for which the credit is 50 percent of qualified payroll expenses. The total credit taken on any franchise and excise tax return, including any credit carried forward from prior tax periods, is limited to 50 percent of the combined franchise and excise tax liability shown on the return before any credit is taken. Any unused credit may be carried forward in any tax period until the credit is taken; provided, however, that the credit cannot be carried forward for more than 15 years. Subject to the approval of the department of revenue, this bill authorizes an applicant for the credit to file a combined return with one or more affiliates or affiliated group members for purposes of fully utilizing this credit. The full text of this bill specifies procedures for adding or changing affiliates or affiliated groups that are included on a combined return.