Administrative Rules of the State of Montana

BEFORE THE DEPARTMENT OF COMMERCE

OF THE STATE OF MONTANA

In the matter of the adoption of New Rules I through IX pertaining to the Montana Economic Development Industry Advancement Act (MEDIA)

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NOTICE OF PUBLIC HEARING ON PROPOSED ADOPTION

TO: All Concerned Persons

1. On December 2, 2019, at 10:00 a.m., the Department of Commerce will hold a public hearing in Room 228 of the Park Avenue Building at 301 South Park Avenue, in Helena, Montana, or by conference call 1-877-273-4202, conference room 7865396, to consider the proposed adoption of the above-stated rules.

2. The Department of Commerce will make reasonable accommodations for persons with disabilities who wish to participate in this rulemaking process or need an alternative accessible format of this notice. If you require an accommodation, contact the Department of Commerce no later than 5:00 p.m., November 29, 2019, to advise us of the nature of the accommodation that you need. Please contact Bonnie Martello, Department of Commerce, 301 South Park Avenue, P.O. Box 200501, Helena, Montana 59620-0523; telephone (406) 841-2596; TDD 841-2702; fax (406) 841-2771; or e-mail [email protected].

3. The rules as proposed to be adopted provide as follows:

NEW RULE I DEFINITIONS When used in these rules, unless the context clearly requires a different meaning, the following definitions apply:

(1) "Affiliate" means a subsidiary of which more than 50% of the voting stock is owned directly by the parent corporation or another member of the Montana combined group.

(2) "Base investment" means the amount expended by a production company as production expenditures and compensation incurred in this state that are directly used in a state-certified production.

(3) "Compensation" means Montana wages, salaries, commissions, payments to a loan-out company subject to the provisions of (b), union benefits, fringe benefits, and any other form of remuneration paid to employees for personal services performed in this state.

(a) The term does not include compensation paid that is less than the minimum wage described in 39-3-409, MCA.

(b) The term includes payments to a loan-out company by a production company if the production company withheld and remitted Montana income tax at the rate of 6.9% on all payments to the loan-out company for services performed in this state. The amount withheld is considered to have been withheld by the loan-out company on wages paid to its employees for services performed in this state. The amounts withheld must be allocated to the loan-out company's employees based on the payments made to the loan-out company's employees for services performed in Montana. For purposes of this chapter, loan-out company nonresident employees performing services in this state must be considered taxable nonresidents and the loan-out company is subject to income taxation in the tax year in which the loan-out company's employees perform services in this state, notwithstanding any other provisions of Title 15, MCA. The withholding liability is subject to penalties and interest as provided in 15-1-216, MCA.

(c) With respect to a single crew member or production staff member, excluding an actor, director, producer, or writer, the portion of any compensation that exceeds $500,000 for a single production is not included when calculating the base investment.

(d) All payments to a single employee and any legal entity in which the employee has any direct or indirect ownership interest are considered as having been paid to the employee and must be aggregated regardless of the means of payment or distribution.

(4) "Game platform" means the electronic delivery system used to launch or play an interactive game.

(5) "Game sequel" means an interactive game that builds on the theme of a previously released interactive game, is distinguished by a new title, and features objectives or characters that are recognizably different from those in the original game.

(6) "Loan-out company" means a personal service company contracted with and retained by a production company to provide individual personnel who are not employees of the production company, including actors, directors, producers, writers, production designers, production managers, costume designers, directors of photography, editors, casting directors, first assistant directors, second unit directors, stunt coordinators, and similar personnel, for performance of services used directly in a qualified production activity.

(a) The term does not include persons retained by a production company to provide tangible property or outside independent contractor services, such as catering, construction, trailers, equipment, and transportation.

(7) "Multimarket commercial distribution" means paid commercial distribution that extends to markets outside the state.

(8) "Postproduction company":

(a) means a company that:

(i) maintains a business location physically located in this state;

(ii) is engaged in qualified postproduction activities;

(iii) meets the requirements of 15-31-1005(4), MCA, in the tax year for which the postproduction company claims the tax credit provided for in 15-31-1009, MCA; and

(iv) has been approved by the department of commerce to claim the credit provided for in 15-31-1009, MCA.

(b) The term does not include any form of business owned, affiliated, or controlled, in whole or in part, by a company or person that is in default on a tax obligation of the state, a loan made by the state, or a loan guaranteed by the state.

(9) "Prereleased interactive game" means a new game, the offering of an existing game on a new game platform, or a game sequel that is in the developmental stages of production and that may be available to individuals for testing purposes but is not generally made available or distributed to consumers or to the general public.

(10) "Principal photography" means the time period the fundamental component of the project is materialized in Montana.

(11) "Production company" means a company primarily engaged in qualified production activities that have been approved by the department of commerce.

(a) The term does not include any form of business owned, affiliated, or controlled, in whole or in part, by a company or person that is in default on a tax obligation of the state, a loan made by the state, or a loan guaranteed by the state.

(12) "Production expenditure":

(a) means a preproduction or production expenditure incurred in Montana that is directly used for a qualified production activity including:

(i) set construction and operation;

(ii) wardrobes, makeup, accessories, and related services;

(iii) costs associated with photography and sound synchronization expenditures, excluding license fees, incurred with Montana companies for sound recordings and musical compositions, lighting, or related services and materials;

(iv) editing and related services;

(v) rental of facilities and equipment;

(vi) leasing of vehicles, whether to be photographed or to transport people, equipment, or materials;

(vii) lodging costs, including hotel rooms and private housing rentals paid for by the production company;

(viii) per diem and living allowance paid to staff, cast, and crew members;

(ix) digital, film, or tape editing, film processing, transfers of film to tape or digital format, sound mixing, computer graphics services, special effects services, visual effects services, and animation services;

(x) airfare, if purchased through a Montana travel agency or travel company;

(xi) insurance costs and bonding, if purchased through a Montana insurance agency; and

(xii) other direct costs of producing the project in accordance with generally accepted entertainment industry practices and generally accepted accounting principles.

(b) The term does not include:

(i) compensation, which qualifies for the credit provided for in 15-31-1007(3)(b)(i) through (3)(b)(iv), MCA;

(ii) production expenditures for footage shot outside the state;

(iii) marketing;

(iv) story rights;

(v) distribution; or

(vi) postproduction expenditures.

(13) "Qualified Montana promotion" means a promotion of this state approved by the Department of Commerce and consisting of:

(a) a qualified movie production that includes a 5-second static or animated logo that promotes Montana in the end credits for the life of the project and that includes a link to the official state of Montana website on the project's website;

(b) a qualified television production that includes an embedded 5-second Montana promotion during each broadcast worldwide for the life of the project and that includes a link to the official state of Montana website on the project's website;

(d) a qualified interactive game that includes a 15-second Montana advertisement in units sold and embedded in online promotions; or

(e) a qualified television special or sports event for which the network provides complimentary placement of two 30-second spots per 30 minutes of qualifying television special or sports event programming promoting Montana destinations and provided by the Department of Commerce as provided for in 15-31-1004(7), MCA.

(14) "Qualified postproduction activity" means an activity performed in this state on a qualified production employing traditional, emerging, and new workflow techniques used in postproduction for picture, sound, and music editing, rerecording and mixing, visual effects, graphic design, original scoring, animation, musical composition, and other activities performed after initial production and including activities performed on previously produced and edited content.

(15) "Qualified postproduction wage" means wages incurred in this state directly in qualified postproduction activities for footage shot inside or outside this state.

(16) "Qualified production" means a new film, video, or digital project including only feature films, series for theaters, television, or streaming, pilots, movies and scripted shows made for television or streaming, televised commercial advertisements, music videos, corporate videos, industrial films, production for website creation, television specials, sports events, video games, interactive entertainment, prereleased interactive games, and sound recording projects used in a feature film, series, pilot, or movie for television.

(a) The term includes projects shot, recorded, or originally created in short or long form, animation, and music, fixed on a delivery system, including film, videotape, computer disc, laser disc, and any element of the digital domain, from which the program is viewed or reproduced and which is intended for multimarket commercial distribution via a theater, video on demand, digital or fiber optic distribution platforms, digital video recording, a digital platform designed for distribution of interactive games, licensing for exhibition by individual television stations, groups of stations, networks, advertiser-supported sites, cable television stations, streaming services, or public broadcasting stations.

(b) The term does not include the coverage of news, local interest programming, instructional videos, commercials distributed only on the internet, infomercials, solicitation-based productions, nonscripted television programs, feature films consisting primarily of stock footage not originally recorded in Montana, or projects containing obscenity as defined in 45-8-201(2), MCA.

(17) "Qualified production activity" means the production of a new film, video, or digital project in this state and approved by the Department of Commerce, including only feature films, series for theaters, television, or streaming, pilots, movies and scripted shows made for television or streaming, televised commercial advertisements, music videos, corporate videos, industrial films, production for website creation, television specials, sports events, video games, interactive entertainment, prereleased interactive games, and sound recording projects used in a feature film, series, pilot, or movie for television.

(a) The term includes the production of projects filmed or recorded in this state, in whole or in part and in short or long form, animation and music, fixed on a delivery system, including film, videotape, computer disc, laser disc, and any element of the digital domain, from which the program is viewed or reproduced and which is intended for multimarket commercial distribution via a theater, video on demand, digital or fiber optic distribution platforms, digital video recording, a digital platform designed for distribution of interactive games, licensing for exhibition by individual television stations, groups of stations, networks, advertiser-supported sites, cable television stations, streaming services, or public broadcasting stations.

(b) The term does not include the coverage of news, local interest programming, instructional videos, commercials distributed only on the internet, infomercials, solicitation-based productions, nonscripted television programs, or feature films consisting primarily of stock footage not originally recorded in Montana, projects containing obscenity as defined in 45-8-201(2),MCA, or projects not shot, recorded, or originally created in Montana.

(18) "Resident" has the meaning provided in 15-30-2101, MCA.

(19) "State-certified production" means a production engaged in qualified production activities and certified by the department of commerce as provided in 15-31-1004, MCA.

(20) "Underserved area" means a county in this state in which 14% or more people of all ages are in poverty as determined by the U.S. Census Bureau estimates for the most current year available.

AUTH: Ch. 352, Sec. 12, L. 2019

IMP: Ch. 352. Sec. 12, L. 2019

REASON: The proposed rule is necessary for the Department of Commerce to implement procedures and administer the Montana Economic Development Industry Advancement Act (MEDIA) as required by HB 293 of the 2019 Legislative session Ch. 352, Sec. 12.

NEW RULE II APPLICATION FOR STATE CERTIFICATION OF PRODUCTION (1) A production company begins the state certification process by submitting the following information on an application form provided by the Montana Film Office:

(a) Production company's name, primary business address, telephone and fax numbers, incorporation information, federal tax identification number, and the name of at least one principal company officer or manager;

(b) Address and telephone and fax numbers of the production company's Montana office or Montana registered agent;

(d) Statement that the applicant meets the definition of production company;

(e) Title of production;

(f) Type of production;

(g) Proposed dates of production from preproduction, to start, to completion of principal photography;

(h) Copy of synopsis or production script;

(i) List of production locations;

(j) Statement production does not contain obscene material;

(k) Statement production will include Montana promotion;

(l) Statement regarding minimum base investment; and

(m) Any other information requested by the Montana Film Office.

(2) A production application is complete when all of the information requested on the application form has been provided to the Montana Film Office by the production company, all follow-up information requested by the Montana Film Office has been provided by the production company, the application form has been signed by the manager, agent, president, vice president, or other person authorized to represent the production company, and a $500 application fee has been received by the Montana Film Office.

(3) A complete production application must be submitted by the production company before the start of principal photography.

AUTH: Ch. 352, Sec. 12, L. 2019

IMP: Ch. 352. Sec. 12, L. 2019

NEW RULE III STATE CERTIFICATION OF PRODUCTION (1) The Montana Film Office, after review of a complete application, shall provide written notification to the production company applicant as to whether the production qualifies as a state-certified production within 30 days of receiving a complete application.

(2) Written notification that the production qualifies as a state-certified production shall include a certification number.

(3) Written notification that the production fails to qualify as a state-certified production shall include a summary explaining why the production failed to qualify as a state-certified production.

(4) If the production fails to qualify as a state-certified production, the production company may modify and resubmit its application within 30 days of the date of the initial written notification of the failure.

(5) A modified application submitted beyond 30 days of the date of the initial written notification of the failure will be considered a new application and must be accompanied with a $500 application fee.

AUTH: Ch. 352, Sec. 12, L. 2019

IMP: Ch. 352. Sec. 12, L. 2019

NEW RULE IV APPLICATION FOR STATE CERTIFICATION OF PRODUCTION WITH BASE INVESTMENT OF LESS THAN $350,000 BUT GREATER THAN $50,000 (1) In addition to the information submitted pursuant to [NEW RULE II], Application for State Certification of Production, a production company submitting an application for production with a base investment of less than $350,000 but greater than $50,000, shall submit the following:

(a) Professional qualifications of key crew members, such as producer, director, writer, director of photography, cast, and financial or distribution partners; and

(b) Qualifications and experience of production company in relation to the proposed production.

AUTH: Ch. 352, Sec. 12, L. 2019

IMP: Ch. 352. Sec. 12, L. 2019

NEW RULE V STATE CERTIFICATION OF PRODUCTION WITH BASE INVESTMENT OF LESS THAN $350,000 BUT GREATER THAN $50,000 (1) The Montana Film Office may approve on a case-by-case basis an application for a commercial, music video, production for website creation, video game, interactive entertainment, or experimental or low-budget project that plans a base investment of less than $350,000 but more than $50,000.

(2) The Montana Film Office, after review of a complete application, shall provide written notification to the production company applicant as to whether the production qualifies as a state-certified production within 30 days of receiving a complete application.

(3) Written notification that the production qualifies as a state-certified production shall include a certification number.

(4) Written notification that the production fails to qualify as a state-certified production shall include a summary explaining why the production failed to qualify as a state-certified production.

(5) If the production fails to qualify as a state-certified production, the production company may modify and resubmit its application within 30 days of the date of the initial written notification of the failure.

(6) A modified application submitted beyond 30 days of the date of the initial written notification of the failure will be considered a new application and must be accompanied with a $500 application fee.

(7) Written notification that the production met the requisite qualifications but was not selected for approval by the Montana Film Office as a state-certified production shall include a summary explaining why the production was not selected for approval by the Montana Film Office as a state-certified production.

AUTH: Ch. 352, Sec. 12, L. 2019

IMP: Ch. 352. Sec. 12, L. 2019

NEW RULE VI STATE CERTIFIED PRODUCTIONS ELIGIBLE TO USE THE MONTANA SCREEN CREDIT (1) A production company may include the Montana screen credit provided by the Montana Film Office in a state-certified production provided the production company submits a written request to include the Montana screen credit in a state-certified production and the Montana Film Office approves the request in writing.

(2) The Montana Film Office may approve or deny a request to include the Montana screen credit for any reason.

AUTH: Ch. 352, Sec. 12, L. 2019

IMP: Ch. 352. Sec. 12, L. 2019

NEW RULE VII REVOCATION OF STATE CERTIFICATION (1) If the Montana Film Office determines that a production company has violated its statement that the proposed production does not contain any material or performance that would be considered obscene under 45-8-201(2), MCA, or violated its statement that the production will include a qualified Montana promotion, the Montana Film Office may revoke the state certification of the production.

(2) Prior to revoking the state certification of the production, the Montana Film Office shall provide written notification to the production company of the Montana Film Office’s determination.

(3) The production company and the Montana Film Office have 30 days from the date of the written notification to resolve the determination informally.

(4) If the determination is not resolved within the 30-day period or the production elects in writing not to participate in informal resolution, and the Montana Film Office provides written notification the state certification is revoked, the production company has the right to a hearing before the Department of Commerce on the revocation of the state certification as provided in Title 2, chapter 4, part 6, MCA.

AUTH: Ch. 352, Sec. 12, L. 2019

IMP: Ch. 352. Sec. 12, L. 2019

NEW RULE VIII APPLICATION FOR STATE CERTIFICATION OF POSTPRODUCTION COMPANY (1) A postproduction company begins the state certification process by submitting the following information on an application form provided by the Montana Film Office:

(a) Postproduction company's name, primary business address, telephone and fax numbers, incorporation information, federal tax identification number, and the name of at least one principal company officer or manager; and

(b) Estimate of the credit postproduction company will claim.

(2) An application must be submitted in the year in which the postproduction company plans to claim the credit.

(a) A postproduction company claiming the credit multiple years shall submit an application each year the postproduction company claims the credit.

(b) The $500 application fee is only required the initial year a postproduction company submits an application.

(3) A postproduction application is complete when all of the information requested on the application form has been provided to the Montana Film Office by the postproduction company, all follow-up information requested by the Montana Film Office has been provided by the postproduction company, the application form has been signed by the manager, agent, president, vice president, or other person authorized to represent the postproduction company, and a $500 application fee has been received by the Montana Film Office.

AUTH: Ch. 352, Sec. 12, L. 2019

IMP: Ch. 352. Sec. 12, L. 2019

NEW RULE IX STATE CERTIFICATION OF POSTPRODUCTION COMPANY (1) The Montana Film Office, after review of a complete application, shall provide written notification to the postproduction company applicant as to whether the postproduction company qualifies for the tax credit for postproduction wages within 30 days of receiving a complete application.

(2) Written notification that the postproduction company fails to qualify for the tax credit for postproduction wages shall include a summary explaining why the postproduction failed to qualify for the tax credit for postproduction wages.

(3) If the postproduction company fails to qualify for the tax credit for postproduction wages, the postproduction company may modify and resubmit its application within 30 days of the date of the initial written notification of the failure.

(4) A modified application submitted beyond 30 days of the date of the initial written notification of the failure will be considered a new application and must be accompanied with a $500 application fee.

AUTH: Ch. 352, Sec. 12, L. 2019

IMP: Ch. 352. Sec. 12, L. 2019

FISCAL IMPACT: The fee estimate requirements of 2-4-302(1)(c), MCA, cannot be determined at this time. The number of applicants and requests for certifications from production companies is currently unknown to the department.

4. Concerned persons may submit their data, views, or arguments either orally or in writing at the hearing. Written data, views, or arguments may also be submitted to the Department of Commerce, Legal Department, 301 South Park Avenue, P.O. Box 200501, Helena, Montana 59620-0501; telephone (406) 841-2596; TDD 841-2702; fax (406) 841-2771; or e-mail [email protected], and must be received no later than 5:00 p.m., December 6, 2019.

5. The Office of Legal Affairs, Department of Commerce, has been designated to preside over and conduct this hearing.

6. The department maintains a list of interested persons who wish to receive notices of rulemaking actions proposed by this agency. Persons who wish to have their name added to the list shall make a written request that includes the name, e-mail, and mailing address of the person to receive notices and specifies for which program the person wishes to receive notices. Notices will be sent by e-mail unless a mailing preference is noted in the request. Such written request may be mailed or delivered to the contact listed in 4 above or may be made by completing a request form at any rules hearing held by the department.

7. The bill sponsor contact requirements of 2-4-302, MCA, apply and have been fulfilled. The primary bill sponsor, Representative Wylie Galt, was contacted on October 21, 2019 by e-mail at [email protected].

8. With regard to the requirements of 2-4-111, MCA, the department has determined that the adoption of the above-referenced rules will not significantly and directly impact small businesses.

/s/ Garrett R. Norcott /s/ Tara Rice

Garrett R. Norcott Tara Rice

Rule Reviewer Director

Department of Commerce

Certified to the Secretary of State October 29, 2019.