North Carolina Game Developers Get Tax Break

H. B. Duran 0 705 Views

Today, gaming industry execs and fans will gather at Epic Games' Headquarters in Cary, N.C. and this time, they're not checking out the giant slide in the lobby. They're supporting Governor Perdue and witness the signing of House Bill 1973 - tax incentives for the digital entertainment industry.

North Carolina holds one of the highest concentration of game developers and publishers within its borders (14 total), including EA, Epic Games and Red Storm. In a move to encourage existing developers and also those who may want to relocate, North Carolina has introduced some tasty tax incentives. Becoming effective January 1, 2011, the incentive includes a 15% tax credit for wages in the game development industry. It's no surprise that North Carolina would flaunt this incentive in the direction of the UK. Chancellor George Osborne recently scrapped the Labour Government's plans for game tax relief and after an outcry by groups like TIGA, has hinted that he'll readdress the issue this fall. Incidentally, TIGA has also criticized the industry's lack of females in the industry and subsequent inability to remain competitive.

"Game developers and publishers are keen to operate in regions that support and sustain the growth of their operations, especially as the current economic climate places a premium on cost-effectiveness," said Wayne Watkins, project manager, Wake County Economic Development. "Adding to the quality of life, creative class and top-notch technology community North Carolina currently boasts, we now have targeted economic development tools that can help both existing companies as well as companies looking to relocate operations."

Will incentives like this bring companies (and their money) to the US? Either way, North Carolina hopes to stimulate the economy with their promise of tax relief.

Among the supporters gathered today is Alexander Macris, President of the Triangle Game Initiative. His non-profit trade association supports the North Carolina interactive entertainment industry. He praised the bill, saying, "The passage of this legislation marks a significant investment in the future of North Carolina's interactive digital media industry. Our state is home to one of the largest concentrations of game development companies in the United States. These incentives will not only help keep North Carolina competitive on the national stage, it will produce compelling ROI for the state's graduates, skilled work force and research and development infrastructure."

In this struggling economy, the gaming industry has reported a slump in sales compared to previous years. Perhaps with the introduction of new platforms like the XBox Kinect, Nintendo 3DS and Playstation Move, along with tax incentives like Bill 1973, more and more industry hopefuls will join the industry and ranks among North Carolina's finest.

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— useful thread. A few practical clarifications and next steps that often get missed when people read news about state incentives.

The package you referenced was enacted as part of the 2009–2010 economic incentives bill (chaptered as Session Law 2010‑147). That session law and the bill history are the authoritative starting points to confirm what was actually adopted. (ncleg.gov)

Key technical points to watch that are not always highlighted in press writeups: the statute spells out a legal definition of “interactive digital media,” limits the kinds of expenses that qualify (payroll subject to withholding, certain fringe contributions, and payments to participating NC colleges/universities), requires a per‑taxpayer ceiling on credits, and specifically excludes categories such as internal‑use software, gambling/casino games, political advertising and obscene material. It also contains a “no double benefit” rule (you cannot claim other state grants/credits on the same expenses). These provisions determine whether a studio actually gets usable relief and how much recordkeeping is required. (ncleg.net)

Practical checklist for studios or indie teams thinking about this incentive:

  • Confirm whether the credit is currently available for the tax year you’re budgeting (statutes and sunsets change).
  • Track project costs to cost codes (payroll, fringe, vendor invoices) and keep payroll registers / W‑2s / state withholding filings as primary proof.
  • If partnering with a college, keep signed SOWs/invoices showing services performed in‑state.
  • Run an ROI vs. admin‑cost estimate before restructuring hiring/outsourcing to chase the credit.
  • Don’t file a claim without professional tax advice: the statute ties the credit to particular tax elections and filing rules that can be binding. (reedsmith.com)

Laws like this are amended, repealed, and sometimes re‑enacted; confirm the current code text and DOR filing procedure before making hiring or contract decisions. Primary sources: the bill/session law and the statute text (see links below) and consult a North Carolina tax specialist for filing and compliance. (ncleg.gov)

Sources: NCGA — H1973 / SL2010‑147. (ncleg.gov)
House bill / statute text (interactive digital media provisions). (ncleg.net)
[Reed Smith client alert — practitioner summary and planning notes]. (reedsmith.com)

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