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Right to Funds from Sale of Tax Credits At Issue In Litigation Between Production Companies
State tax credits are valuable tools for helping meet the costs of producing films, TV shows, commercials, and other media and entertainment productions. To entice production companies to work locally — and depending on its particular tax-credit program — a state may allow production companies to use the credits to pay tax liabilities to that state, as collateral for loans and even to sell the credits to third parties.
But if more than one production company is involved with a project, a legal dispute can arise over which company owns the right to the tax credit funds. That's what happened in Feel Films Ltd. v. AP Production Services Inc. (APP), 21 Civ. 451 (S.D.N.Y. 2022), a current case involving Georgia's tax credit incentives.
Leading up to this litigation, London-based Feel Films was hired to produce a commercial for Kia Motors. Feel Films in turn entered into an agreement with APP for the latter to take care of line production services for the commercial, to be filmed in Georgia. The Feel Films/APP contract provided that APP "shall, in as expeditious a manner as possible, do and perform all acts necessary to maximize the amount of [Georgia] Tax Credits and secure [their] receipt … necessary to ensure the availability of the Tax Credits, the issuance of the Tax [C]redit Certificate(s) and the payment of [the amounts reflected on the Tax Credit Certificates,] … to [Feel Films] or at [Feel Films'] direction." The agreement further stated that "[t]here shall be no offset or other reduction taken by [APP] against the [amounts reflected on the Tax Credit Certificates]" and that APP "agrees that the Tax Credits and Tax Credit Certificates are held in trust for [Feel Films] such that the Tax Credits and Tax Credit Certificates are the property of [Feel Films]."
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