House Bill 1522

AN ACT TO PROVIDE AN INCOME TAX AND FRANCHISE TAX CREDIT FOR TAXPAYERS THAT ARE DIGITAL INTERACTION APPLICATION COMPANIES AND INVEST IN DIGITAL INTERACTION APPLICATIONS; TO DEFINE CERTAIN TERMS FOR THE PURPOSES OF THIS ACT; TO PROVIDE FOR THE AMOUNT OF THE CREDIT AUTHORIZED IN THIS ACT; AND FOR RELATED PURPOSES.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MISSISSIPPI:

SECTION 1. (1) For the purposes of this section, the following words and phrases shall have the meanings ascribed in this subsection unless the context clearly indicates otherwise:

(a) "Base investment" means the actual funds expended in Mississippi as production expenses for design or development of a certified digital interactive application, including costs for payroll and component parts.

(b) "Certified digital interactive application" means a digital interactive application or a component part thereof approved by the Department of Revenue.

(c) "Component parts," with respect to digital interactive applications, means all elements that are integral to the functioning or development of such applications. Some examples of component parts are software, computer code, image files, music files, audio files, video files, scripts and plays, concept mock-ups, software tools and testing procedures. Component parts also shall include, but not be limited to, computer servers, workstations, server racks, hard drives, optical drives, monitors, keyboards, integrated video and audio equipment, networking routers, switches, network cabling and any other computer-related hardware necessary to create or operate a digital interactive application.

(d) "Department of Revenue" means the Department of Revenue.

(e) "Digital interactive application" means any of the following:

(i) Software applications developed for mobile or fixed telemetry wireless devices;

(ii) Simulation software produced by a branch of the Armed Forces of the United States, or produced by a third party pursuant to a contract with a branch of the Armed Forces of the United States;

(iii) Interactive educational or training software; and

(iv) Technology designed to stream live or prerecorded video content over the Internet to large simultaneous audiences.

"Digital interactive application" shall not include software primarily designed and developed for institutional, private or internal purposes; largely static Internet sites designed to provide information about a person, business, company or firm; or products regulated under the Mississippi Gaming Control Act.

(f) "Digital interactive application company" means an individual or entity that meets the definition of "doing business" in Mississippi set forth in Section 27-7-23 and that is engaged in the business of producing a digital interactive application. "Digital interactive application company" shall not mean or include any company owned, affiliated, or controlled, in whole or in part, by any company or person that is in default on a loan made by the state or a loan guaranteed by the state, nor with any company or person who has ever declared bankruptcy under which an obligation of the company or person to pay or repay public funds or monies was discharged as a part of such bankruptcy.

(g) "Expended in Mississippi" means an expenditure performed in the state. Transactions that are subject to a statutory exclusion, deduction, or exemption provided in another law of this state shall not be considered to be expended in Mississippi.

(h) "Payroll" includes all salary, wages and other compensation sourced or apportioned to Mississippi, including related health and retirement benefits.

(i) "Person" means an individual, corporation, partnership, limited partnership, limited liability company, joint venture, trust, estate or association.

(j) "Production expenses" means preproduction and production expenditures occurring in the state directly relating to a certified digital interactive application including, without limitation, the following:

(i) Testing software, source code development, patches, updates, sprites, three-dimensional models and level design;

(ii) Costs associated with photography and sound synchronization, lighting and related services;

(iii) Rental of equipment;

(iv) Purchase of prepackaged audio files, video files, photographic or libraries;

(v) Purchase of licenses to use prerecorded audio files, video or photographic files; and

(vi) Development costs associated with producing audio files and video files to be used in the production of the end product under development.

"Production expenses" shall not include postproduction expenditures for marketing and distribution; nonproduction related overhead; leasing or purchase of real property; amounts that are later reimbursed by the state or any other governmental entity; amounts paid to persons or entities as a result of their participation in profits from the exploitation of the production, design or development of the certified digital interactive application eligible for the tax credit authorized in this section; the application fee; or state or local taxes.

(k) "Request for certification" means a digital interactive application company’s request to the department for certification of a digital interactive application.

(2) (i) Subject to the provisions of this subsection, a digital interactive application company may earn and shall be granted, upon approval of its request for certification by the department, a tax credit in an amount equal to seven percent (7%) of its base investment in a digital interactive application. Such credit shall be granted during the taxable year during which the digital interactive application company submits its request for certification, as well as the following two (2) taxable years.

(ii) The tax credit authorized under this section shall be allowed against the income tax liability owed by a digital interactive application company under Section 27-7-1 et seq. and/or franchise tax liability owed by a digital interactive application company under Section 27-13-1 et seq. for the taxable year in which the credit is earned as well as the three (3) immediately preceding taxable years. However, the amount of the tax credit applied by a digital interactive application company in a taxable year shall not exceed the total tax liability of the digital interactive application company for such taxes for that taxable year reduced by the sum of all other credits allowable to such digital interactive application company, except credit for tax payments made by or on behalf of the digital interactive application company. If the tax credit allowed under this section exceeds the total tax liability of the digital interactive application company for such taxes, then any unused credit may be carried forward by the digital interactive application company as a credit against subsequent tax liability for a period not to exceed five (5) taxable years.

(3) (a) All entities taxed as corporations for Mississippi income tax purposes shall claim any credit allowed under this section on their corporation income and franchise tax return.

(b) Individuals shall claim any credit allowed to them as individuals under this section on their individual income tax returns.

(c) Entities not taxed as corporations shall claim any credit allowed under this section on the returns of the partners or members.

(4) The department shall adopt and promulgate rules and regulations necessary to carry out the intent and purposes of this section, and shall adopt rules and regulations further defining the terms used in subsection (1)(e) of this section.

(5) (a) Upon approval of a digital interactive application company’s request for certification, the department shall submit an initial certification to the digital interactive application company. The initial certification shall include a unique identifying number for each certified digital interactive application.

(b) Upon completion of all or a portion of a certified digital interactive application, the department shall review the production expenses and, if approved by the department, issue a final tax credit certification letter to the digital interactive application company. The certification letter shall include the identifying number assigned to that certified digital interactive application in the initial certification.

(c) An individual or entity claiming a tax credit under this section in a given taxable year shall claim such credit on its state tax return for that taxable year.

(6) A digital interactive application company applying for the credit shall be required to reimburse the department for any audits required in relation to granting the credit.

(7) If the department finds that funds for which a digital interactive application company received credits under this section are not actually expended in Mississippi as a production-related cost of a certified digital interactive application, then the digital interactive application company’s tax liability against which the credits were applied for such taxable year shall be increased by such amount necessary for the recapture of credit provided by this section.

(8) Credits previously granted to a digital interactive application company, but later disallowed, may be recovered by the department through any collection remedy authorized by law and initiated within three (3) years from the date of filing of the tax return for the taxable year in which the credits were earned.

SECTION 2. This act shall take effect and be in force from and after its passage.