TITLE 13. CULTURAL RESOURCES

PART 8. TEXAS FILM COMMISSION

CHAPTER 121. TEXAS MOVING IMAGE INDUSTRY INCENTIVE PROGRAM

Proposed Rules

The Texas Film Commission (Commission) within the Office of the Governor, Economic Development and Tourism Office proposes amendments to 13 TAC §121.1, 121.2, 121.7, 121.8, 121.10 - 121.12, and the repeal of §121.15, relating to the Texas Moving Image Industry Incentive Program under Subchapter B, Chapter 485 of the Texas Government Code.

Explanation of Proposed Amendments and Repeal

The Texas Moving Image Industry Incentive Program (TMIIIP) is an economic incentive program administered by the Texas Film Commission that is intended to promote growth in the Texas economy through the moving image industry by means of related in-state spending and job creation. TMIIIP provides qualifying film, television, commercial, visual effects, and video game productions with an opportunity to obtain incentive grant funding based on a percentage of a project's eligible in-state expenditures, including eligible wages paid to Texas residents. The primary purpose of the proposed amendments is to amend and repeal certain rules relating to the Commission requirements for the verification of eligible TMIIIP project expenditures, and to amend the deadline for the submission of TMIIP applications.

Under the Commission's current rules at 13 TAC §121.15, grantees are required at their own expense to obtain an audit opinion from a certified public accountant (CPA) attesting that the grantees' reporting of eligible expenditures for the qualifying project are in compliance with generally-recognized accounting practices, Commission rules, and TMIIP program guidelines, if the estimated amount of a TMIIP grant award is $300,000 or more. The CPA audit opinion requirement in §121.15 is proposed for repeal because the Commission has determined that such audit opinions often provide only nominal assurance as to the eligibility of project expenditures. Since current Commission practice is that grantee expenditures for qualifying projects are subject to verification by the Commission and an additional compliance review by the Office of the Governor, the requirement for grantees to obtain a CPA audit opinion is administratively unnecessary. Repeal of this requirement comprises amendments to the following Commission rules: §121.1(a) (Background and Purpose); §121.2 (Definitions); §121.7 (Underutilized and Economically Distressed Areas); §121.11 (Confirmation and Verification of Texas Expenditures); §121.12 (Disbursement of Funds); and the repeal of §121.15 (CPA Audit Opinion).

The Commission also proposes other confirming amendments to clarify that current Commission practice is that grantee expenditures for qualifying projects are subject to verification by the Commission and an additional compliance review by the Office of the Governor. Certain rules also specify the former name of "the Office of the Governor's Compliance and Oversight Division," which is now currently called the "Office of Compliance and Monitoring." The amendments modify this language to simply state that compliance reviews will be performed by "the Office of the Governor." The proposed amendments include modifications to §121.1 (Background and Purpose); §121.11 (Confirmation and Verification of Texas Expenditures) and §121.12 (Disbursement of Funds).

Finally, the Commission's current rules state that TMIIP applications will not be accepted earlier than 60 calendar days prior to the principal start date of an eligible project. The Commission proposes to amend its rules to accept TMIIP applications up to 120 calendar days prior to the commencement of production of eligible projects. This change will allow for the more efficient planning, administration, and allocation of the annual TMIIP budget, and will also benefit program applicants who typically require several months of pre-production planning to locate a project in Texas. The proposed amendment will include changes to §121.8 (Grant Application) and §121.10 (Disqualification of an Application).

Fiscal Note

Mr. Bryan Daniel, Executive Director of Office of Economic Development and Tourism, has determined that for the first five years that the proposed amendments are in effect, the repeal of the CPA audit opinion requirement in §121.15 is anticipated to result in potential cost savings to TMIIP grantees required to comply with the current rule because applicants will no longer be required to incur costs associated with obtaining a CPA audit opinion. These cost savings are estimated at $6,000 to $15,000 per grantee for each eligible project.

Public Benefit and Cost

Mr. Daniel has also determined that for each year of the first five years in which the proposed rule changes are in effect, the anticipated public benefits are the more efficient and equitable regulation of the TMIIIP, increased planning and accountability for the administration of TMIIP program funds, and a more consistent and timely review of eligible applications and project expenditures. There are no other anticipated economic costs or impacts for persons required to comply with the proposed rule amendments. There will be no adverse economic effect on small businesses, micro-businesses, or local or state employment.

Submission of Comments

Written comments on the proposed amendments may be submitted to Heather Page, Texas Film Commission, P.O. Box 12428, Austin, Texas 78711 or via email to filmincentive@gov.texas.gov with the subject line "TMIIP Rule Amendments." The deadline for receipt of comments is 5:00 p.m. CST on January 16, 2017. All requests for a public hearing on the proposed rulemaking, submitted under the Administrative Procedure Act, must be received by the Office of the Governor no more than fifteen (15) days after the notice of proposed changes in the sections that have been published in the Texas Register.

13 TAC §§121.1, 121.2, 121.7, 121.8, 121.10 - 121.12

Statutory Authority

The amendments are proposed under §485.022 and §485.024 of the Texas Government Code, which require the Commission to develop procedures for the administration of grant awards under the TMIIIP program, including rules prescribing the methods used for determining grant amounts based on an analysis of in-state spending.

Cross Reference to Statute

Texas Government Code, Subchapter B, Chapter 485.

§121.1.Background and Purpose.

(a) Background.

(1) The Texas Moving Image Industry Incentive Program administered by the Texas Film Commission (Commission) offers grants based upon eligible expenditures within the state by the Applicant, subject to this chapter and Chapter 485 of the Texas Government Code.

(2) Grants are available upon submission of all required documentation by the Applicant to the Commission [(including submission of the CPA Audit Opinion to the State of Texas, if required by this chapter)], initial verification by the Commission and a compliance review by the Office of the Governor [Governor's Compliance and Oversight Division]. These grants are in addition to the Sales Tax Exemptions described in Texas Tax Code, §151.318 and §151.3185 and the Texas Comptroller of Public Accounts Administrative Rule, 34 TAC §3.300.

(b) Purpose.

(1) The Texas Moving Image Industry Incentive Program was implemented to increase employment opportunities for Texas industry professionals, tourism and to boost economic activity in Texas cities and the overall Texas economy. Rather than Texas being an exporter of talent, Texas can now attract a wide range of projects from traditional film and commercial productions to the technology driven visual effects, animation productions and video games.

(2) The Texas Moving Image Industry Incentive Program allows for growth of the indigenous segments of production. It is an important goal of this program to have Texas' talented workforce stay in Texas and realize real professional growth in the industry. The program increases the value of the Texas workforce and the viability of the small businesses that rely on production activity, increasing Texas' capacity to take on more production activity and increasing Texas competitive edge.

(3) The Texas Moving Image Industry Incentive Program is not intended for productions that are permanently located in the State of Texas including, but not limited to, news productions, sports productions and religious service productions.

§121.2.Definitions.

The following words and terms, when used in this chapter, shall have the following meanings, unless the context clearly indicates otherwise:

(1) Applicant--

(A) For Feature Films, Television Programs, Visual Effects Projects for Feature Films or Television Programs, Reality Television Projects or Educational or Instructional Videos, either the Production Company producing the project or the owner of the copyright.

(B) For Commercials or Visual Effects Projects for Commercials, the Production Company, advertising agency, or client; provided, however, that if an advertising agency or client applies as the Applicant, but a Production Company expends the funds in the state in connection with a project, a chain of downstream payment from the Applicant to the Production Company actually expending the funds must be evidenced in connection with the submission of the Expended Budget.

(C) For Digital Interactive Media Productions, the game developer or game publisher.

(2) Business Day--A day other than Saturday, Sunday or a legal Federal holiday.

[(3) CPA Audit Opinion--An outside examination report and audit opinion letter concerning an Applicant's Expended Budget, conducted pursuant to §121.15 of this chapter.]

(3) [(4)] Cast--Actors paid by the Applicant to perform roles in Texas, including, but not limited to, featured actors, extras, stunt performers, voice-over talent, hosts, judges, announcers and roles or performers that appear on a recurring basis, but excluding talk show guests, game or contest show contestants, Reality Series participants, documentary subjects or interviewees, musicians performing as part of a music performance production, and litigants and witnesses in courtroom reality programs.

(4) [(5)] Commercial--Any live-action or animated production; that is an individual Commercial, more than one Commercial created in a contiguous production period for the same client or music video or infomercial that is made for the purpose of entertaining or promoting a product, service, or idea and is produced for distribution via broadcast, cable or any digital format, including, but not limited to, cable, satellite, Internet, or mobile electronic device.

(5) [(6)] Crew--Workers paid by the Applicant to perform work in Texas that is directly contracted and credited for a specific position, but excluding musicians performing as part of a music performance production. An individual may work in more than one position on a production. Executive Producers and/or permanent salaried employees of an Applicant for a Commercial project listed on call sheets or production reports, but not paid Wages and do not perform services on the project other than producing services, shall not be counted in Crew calculations for Texas Residency purposes. Vendors serving a traditional crew function and providing personal services, but paid as independent contractors rather than through payroll, will be counted in Texas Residency Crew calculations and should provide a Declaration of Texas Residency Form.

(6) [(7)] Declaration of Texas Residency Form--A document promulgated by the Texas Film Commission (Commission) to be utilized by Applicants in order to prove the residency status of each Texas Resident Crew or Cast member.

(7) [(8)] Digital Interactive Media Production--Software that provides a user or users with a game to play for the purpose of entertainment or education, including for military or medical simulation training, and which is created for a game console, personal computer, handheld console, mobile electronic machine or an electronic device used by a business or consumer solely for bona fide amusement purposes that rewards the player exclusively with non-cash merchandise prizes or a representation of value redeemable for those items, as outlined in Texas Penal Code, §47.01.

(8) [(9)] Educational or Instructional Video--Any individual live action or animated production or a contiguous series of more than one production created for the same client produced for exhibition in an educational or instructional setting.

(9) [(10)] Episodic Television Series--A Television Program consisting of multiple episodes of a single season.

(10) [(11)] Expended Budget--The final verifying documentation submitted by an Applicant to the Commission at the completion of a project that shows the total eligible in-state spending and includes all documentation considered by the Commission to be necessary to show compliance with the requirements of the Texas Moving Image Industry Incentive Program.

(11) [(12)] Feature Film--Any live-action or animated for-profit production, narrative or documentary that is produced for distribution in theaters or via any digital format, including, but not limited to, DVD, Internet, or mobile electronic device.

(12) [(13)] Filming Day--A day of Production as defined in paragraph (17) [(18)] of this section. For purposes of calculating 60% of Filming Days for purposes of §121.3 of this chapter (but not for purposes of calculating 25% of Filming Days for purposes of §121.7 of this chapter), a "day" may include not only a traditional "day" of Production, but also a concurrent "day" of Production conducted by a second unit, so long as:

(A) Such second unit, is not a splinter unit, but is utilized for a bona fide, production-related purpose and would be recognized by the Directors Guild of America as a second unit; and

(B) A call sheet, and production report, for such "day" is circulated and executed in connection with the activities of such second unit. Any such bona fide, second unit "day" shall be added to both the numerator of Texas days and the denominator of total days for purposes of calculating 60% of Filming Days for purposes of §121.3 of this chapter.

(13) [(14)] Physical Production--The period encompassing Pre-Production, Production, and Postproduction.

(14) [(15)] Postproduction--The period of Physical Production that occurs after the end of Production, as defined in paragraph (17) [(18)] of this section; including but not limited to, editing, music, sound, visual effects and animation.

(15) [(16)] Pre-Production--The period of Physical Production that occurs before the start of Production as defined in paragraph (17) [(18)] of this section.

(16) [(17)] Principal Start Date--

(A) For a live action Feature Film, Television Program, Reality Television Project, Educational or Instructional Video or Commercial project, this is the first day of principal photography.

(B) For a Digital Interactive Media Production, Visual Effects Project or animated project, this is the first day of Production.

(17) [(18)] Production--

(A) For a live action Feature Film, Television Program, Reality Television Project, Educational or Instructional Video or Commercial project, this is the period of Physical Production between the first and last days of principal photography, inclusive.

(B) For a Digital Interactive Media Production, Visual Effects Project or animated project, this is the period of Physical Production between the end of Pre-Production and the completion of the project.

(18) [(19)] Production Company--A film production company, television production company, Digital Interactive Media Production developer, commercial production company, visual effects company, animation production company or postproduction company.

(19) [(20)] Qualifying Application--A Qualifying Application has the meaning provided in §121.8(a)(1) of this chapter.

(20) [(21)] Reality Series--A Reality Television Project consisting of multiple episodes of a single season.

(21) [(22)] Reality Television Project--Any live action, for-profit production based upon unscripted content, including, but not limited to, a Reality Series, a contest or game show (to include individual episodes), or a talk show (to include individual episodes) that is produced for distribution via broadcast, cable or any digital format, including, but not limited to, satellite, Internet and mobile electronic device.

(22) [(23)] Television Program--Any live-action or animated for-profit production, narrative or documentary, including, but not limited to, an Episodic Television Series, a miniseries, a television movie, a television pilot, a television episode, an interstitial Television Program, or a musical performance more than 30 minutes in length that is produced for distribution via broadcast, cable or any digital format, including, but not limited to, satellite, Internet and mobile electronic device (including a short episode or series of episodes, either narrative or documentary, that is distributed initially as an Internet download or stream).

(23) [(24)] Texas Heritage Project--A Feature Film or Television Program (excluding a Reality Television Project), that promotes or documents Texas' diverse cultural, historical, natural or man-made resources as determined in accordance with §121.13 of this chapter.

(24) [(25)] Texas Resident--An individual who is a permanent resident of Texas for at least 120 days prior to the Principal Start Date of the project and who has completed a Declaration of Texas Residency Form.

(25) [(26)] Underutilized and Economically Distressed Area--

(A) Underutilized Area--An area of the state that receives less than 15% of the total film and television production in the state during a fiscal year as determined by the Commission. Areas determined by the Commission to receive in excess of 15% of the total film and television production in the state will be deemed to include the area within a thirty mile radius from that area's largest municipality's city hall.

(B) Economically Distressed Area--An area within the above-determined thirty mile radius where the median household income does not exceed 75% of the median household income as determined by the Texas State Data Center, University of Texas San Antonio.

(26) [(27)] Visual Effects Project--A self-contained production whereby computer generated images are created or manipulated to integrate with live-action footage of a Feature Film, Television Program, Educational or Instructional Video, or Commercial.

(27) [(28)] Wages--Compensation paid to an individual for work performed. Payment methods may include, but are not limited to, direct payments, payments through an agent or agency, payments through a loan-out company or payments through a payroll service. Wages may include, but are not limited to, gross wages, per diems (if signed for by the recipient), employer paid Social Security (Old Age, Survivors, and Disability Insurance (OASDI)) payments, employer paid Medicare (MEDI) payments, employer paid Federal Unemployment Insurance (FUI) payments, employer paid Texas State Unemployment Insurance (SUI) payments, employer paid pension, health and welfare payments and employer paid vacation and holiday pay. Only the first $1,000,000 in aggregate wages and/or compensation per person will constitute eligible Wage expenditures.

§121.7Underutilized and Economically Distressed Areas.

(a) Projects which complete at least 25% of their total Filming Days in Underutilized or Economically Distressed Areas (UEDAs) may receive an additional 2.5% of total in-state spending. The additional 2.5% applies to all eligible spending in all areas of Texas; it is not restricted to the spending in UEDAs.

(b) In the event that multiple locations are utilized within a single Filming Day, in order to calculate the 25% of total Filming Days in UEDAs necessary to receive an additional 2.5% of total in-state spending, the Texas Film Commission (Commission) may pro-rate a given Filming Day by number of shooting locations reflected on production reports furnished by an Applicant to the Commission. For example, if eight shooting locations are utilized in a Filming Day, and five are located in UEDAs, 5/8 of that Filming Day will count in calculating the 25% of total Filming Days necessary to become eligible for the additional grant percentage.

(c) If one or more shooting locations are not located in UEDAs, but are serviced by a basecamp located in an UEDA, such shooting locations shall be deemed to be located in UEDAs when calculating the 25% of total Filming Days necessary to become eligible for the additional grant percentage. A production company must have paid financial consideration to the owner/leaseholder of the basecamp location pursuant to a location agreement to be considered a "basecamp" under this subsection. The basecamp location must be listed on the call sheets and/or other relevant production documentation.

(d) The Commission shall use maps to identify the areas that qualify for designation in accordance with §121.2(25) [§121.2(26)] of this chapter. The maps in effect since August 28, 2011 shall expire on August 31, 2017 at which time the Commission shall update the maps. The Commission, having no obligation to do so, will endeavor to make such updated maps available in an electronic format on the Commission's Internet website up to 90 days prior to their effective date.

§121.8.Grant Application.

(a) Initial Submission

(1) A Qualifying Application is defined to include:

(A) A completed Qualifying Application form for the Texas Moving Image Industry Incentive Program;

(B) An itemized budget detailing only estimated Texas expenditures; and

(C) A Content Document:

(i) For Feature Films, Television Programs (except Episodic Television Series) and Visual Effects Projects for Feature Films and Television Programs, a full script.

(ii) For Episodic Television Series, the full script of the first episode to be filmed in Texas.

(iii) For Commercials, Educational or Instructional Videos, and Visual Effects Projects for Commercials or Educational or Instructional Videos, the scripts, storyboards or detailed outlines/summaries of content.

(iv) For Digital Interactive Media Productions, a brief summary of game content providing sufficient detail concerning the themes, settings, story, characters and events to the Texas Film Commission (Commission) upon which to base its preliminary content approval consideration.

(v) For Reality Television Projects, a detailed treatment or outline of program content.

(2) Qualifying Application forms for each type of project are available at the Commission web site: http://www.texasfilmcommission.com, or by contacting the Commission if Internet access is not available or special needs facilitation is required.

(3) Applications will not be accepted earlier than 120 [60] calendar days prior to a project's Principal Start Date.

(4) Applications must be received no later than 5:00 p.m. Central Time on the fifth Business Day prior to the Principal Start Date.

(5) Only one application and Applicant per project is allowed.

(6) Within 5 Business Days of the Principal Start Date indicated on the Qualifying Application form, an Applicant for a Feature Film, Television Program, Reality Television Project, Digital Interactive Media Production, Visual Effects Project or Educational or Instructional Video must confirm with the Commission in writing, to include e-mail, that the production began on time. If the start of the project is delayed for more than 30 days, an application may be disqualified and the Applicant must reapply. If an Applicant fails to confirm that the production began on time within such 5 Business Day period, the Commission may, at its sole election but with no obligation to do so, disqualify the application.

(b) The Office of the Governor, as a state agency, must comply with the Texas Public Information Act (the "Act"). In the event that a public information request related to the Applicant and/or the application is submitted to the agency, the Office of the Governor will promptly notify the Applicant of the request if current contact information is available, take all appropriate actions with the Attorney General of Texas to prevent release of confidential information, including asserting exemptions under the Act, and provide the Applicant with full information and opportunity to participate in such process if current contact information is available.

§121.10.Disqualification of an Application.

(a) A Qualifying Application may be disqualified at any time if a project does not meet the necessary requirements or if a Qualifying Application is incomplete. If a project is disqualified, the Applicant will be notified by e-mail. Qualifying Applications that have been disqualified may be resubmitted with the required changes or additional information, no earlier than 120 [60] calendar days before the Principal Start Date, and no later than 5:00 p.m. Central Time on the fifth Business Day preceding the Principal Start Date.

(b) In the case of a change in principal start or completion date, the Applicant must notify the Texas Film Commission (Commission) in writing, to include e-mail, of the new principal start or completion date, and must give the reason(s) for the change. If the start of the project is delayed repeatedly or for more than 30 days, a Qualifying Application may be disqualified and the Applicant must reapply.

(c) A Qualifying Application may also be disqualified for reasons including, but not limited to:

(1) Failure to submit required documents and notifications, or additional documents as requested or as required by this chapter;

(2) Failure to meet minimum requirements for in-state spending, number of Texas Residents hired, and/or percentage of Filming Days;

(3) Submission of false information;

(4) Inappropriate content as described in Texas Penal Code, §43.23 or content described by §121.4(b) of this chapter;

(5) Lack of available funding;

(6) Ineligible project as listed in §121.4 of this chapter;

(7) Pursuant and subject to §121.8(a)(6) of this chapter, if an Applicant fails to confirm that the production began on time;

(8) Lack of meaningful production activity on a project, as determined in the Commission's sole discretion, for a period of at least six months; or

(9) Voluntary notification in writing by the Applicant to the Commission of the cancellation of the project.

§121.11.Confirmation and Verification of Texas Expenditures.

(a) The Applicant should collect, authenticate and assemble an Expended Budget and all final verifying documentation[, including a CPA Audit Opinion if required by this chapter,] and submit it to the Texas Film Commission (Commission) within 60 days of completing Texas expenditures. The Commission will perform the initial review, and a compliance review will [may] be performed by the Office of the Governor [Governor's Compliance and Oversight Division].

(b) The Expended Budget must be in a format acceptable to the Commission and must contain all final verifying documentation including, but not limited to:

(1) A Texas Moving Image Industry Incentive Program Verification Worksheet confirming that all program requirements have been met and final verifying documentation is complete;

(2) Expenditure reports that document all eligible Texas spending;

(3) Copies of all invoices, receipts, pay orders and any other documentation considered necessary by the Commission for review of [auditing] the expenditure reports;

(4) Completed Declaration of Texas Residency Forms for all Texas Resident Crew and Cast members;

(5) Crew and Cast lists that document Crew and Cast members, which also indicate whether such Crew and Cast members were paid or not (regardless of whether the Applicant was the source of payment), the absence of which indication shall create the presumption that such Cast and Crew were indeed paid;

(6) Call sheets, production reports or production calendars that document all production days;

[(7) The CPA Audit Opinion, if required by §121.15 of this chapter;]

(7) [(8)] Final content;

(A) Feature Films, Television Programs, and Visual Effects Projects must submit a copy of the final content for review.

(B) Commercials, Digital Interactive Media Productions, Reality Television Projects and Educational or Instructional Videos must submit final content (or online access to final content) for review.

(8) [(9)] Additional documentation may be required including, but not limited to, the following:

(A) Financials, including all reports of expenditures.

(B) Proof of payment for expenditures.

(c) It is the responsibility of the Applicant to ensure that the final verifying documentation submitted in the Expended Budget is correct and complete. Once the Expended Budget is accepted by the Commission for review, the Applicant will not be able to submit additional information unless requested to do so by the Commission.

§121.12.Disbursement of Funds.

(a) Disbursement of funds will not occur until the Applicant has paid all financial obligations incurred to the State of Texas, and a final compliance review [audit] has been completed and approved.

(b) In the event of unpaid financial obligations to the State of Texas, the Office of the Governor will determine whether or not to withhold grant disbursement, pending settlement.

(c) Payment Assignment.

(1) An Applicant can assign payment of the grant to a third party.

(2) To assign payment the Applicant must submit:

(A) A Texas Application for Payee Identification Number Form with Section IV completed; and

(B) An assignment agreement completed and signed by the Applicant and assignee.

The agency certifies that legal counsel has reviewed the proposal and found it to be within the state agency's legal authority to adopt.

Filed with the Office of the Secretary of State on December 5, 2016.

TRD-201606169

Shane Linkous

Assistant General Counsel

Texas Film Commission

Earliest possible date of adoption: January 15, 2017

For further information, please call: (512) 463-9200


13 TAC §121.15

Statutory Authority

The repeals are proposed under §485.022 and §485.024 of the Texas Government Code, which require the Commission to develop procedures for the administration of grant awards under the TMIIIP program, including rules prescribing the methods used for determining grant amounts based on an analysis of in-state spending.

§121.15.CPA Audit Opinion.

The agency certifies that legal counsel has reviewed the proposal and found it to be within the state agency's legal authority to adopt.

Filed with the Office of the Secretary of State on December 5, 2016.

TRD-201606171

Shane Linkous

Assistant General Counsel

Texas Film Commission

Earliest possible date of adoption: January 15, 2017

For further information, please call: (512) 463-9200