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The Best Time to Sell your Film Tax Credits

February 5, 2015

Film producers have a number of options when it comes to selling their State Film/Digital Media production tax credits.  They can market their tax credits anytime along the continuum of pre-production, production or post-production, or once they have their tax credit certificates in hand, issued by the state Film Office.  As national brokers of such credits, Clocktower has tried all of these approaches, feeling at times like Goldilocks tasting the porridge.  We have found that the best time to market the credits is during pre-production, but after the producer has the cast and crew in place, most or all of the financing committed, and a pre-qualification from the Film Office.

If you try to market your tax credits too soon, there’s a chance that the production may not complete, and the credits may not be available to sell.  In a typical purchase agreement, an investor agrees to buy a producer’s tax credits if and when the tax credits are available to transfer.  No money changes hands until the transfer occurs.  There is usually no penalty incurred by the producer if he or she fails to generate any credits at all.   However, there is a loss of goodwill between the parties.  The investor may have been anticipating its receipt of the tax credits, and reduced its estimated tax payments accordingly.  So the investor may incur interest and penalty charges from the state Treasury Department if it under-paid its taxes.  Bottom line, it’s best to be sure the tax credits will materialize before contracting for their sale.

Conversely, selling the tax credits too late may have financial consequences as well.  Once a producer has his or her tax credits in hand, there is a rush and a need to sell them quickly to bring in much-needed cash.  This may not leave enough time to widely market the tax credits to ensure the best price, or the best terms of sale.  At certain times of the year (usually related to quarterly or annual tax filings) it is more difficult to get an investor’s attention, so frustration can build as time passes.  Finally, depending on an investor’s fiscal year, the credits may appear after the investor has paid its tax in full for the year through quarterly tax payments, and thus the tax credits are less attractive to the investor at that time.

So the solution is to market the tax credits once there is 90% certainty that the production will film and the credits will be issued.  This would mean cast and crew are in place, all financing committed, and the production pre-qualified by the state film office.  At that point, Clocktower will have ample time (30-60 days) to market the tax credits to qualified purchasers.  There is time to negotiate price and draft, review, and execute a purchase agreement for the credits.  This agreement will then provide for the purely administrative step of wiring funds to a pre-determined bank account when the tax credits are transferred to the purchaser.  Best terms, highest price, fastest payment are all “just right” – the Goldilocks solution!