Incentives: Bringing Movies To a State Near You

July 20, 2012 — 1 Comment

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Movies are expensive.  They are expensive to watch and incredibly expensive to create.  The amount of money it costs to make a movie including pre-production, film and post-production, but excluding distribution costs for a major studio movie was about $65 million when the MPAA stopped tracking the number in 2006 and has risen since then. The most expensive films commonly cost more than $200 million to make now

That is a lot of money, which can lead to a healthy tax revenue for the states that the movie is produced in.  So how do states convince producers to shoot movies in their state? One word, Incentives.

Movie production incentives are offered on a state-by-state basis throughout the United States to encourage in-state film production. These incentives came about in the 1990s in response to the flight of movie productions to other countries such as Canada.

Since then, states have offered increasingly competitive incentives to lure productions away from other states. The structure, type, and size of the incentives vary from state to state. Many include tax credits and exemptions, and other incentive packages include cash grants, fee-free locations, or other perks. Proponents of these programs point to increased economic activity and job creation as justification for the credits.

Others argue that the cost of the incentives outweighs the benefits and say that the money goes primarily to out-of-state talent rather than in-state cast and crewmembers. Studies of the costs and benefits of incentive programs show different levels of effectiveness.

Here are some the incentives offered by some states:

  • Movie Production Incentives (MPIs): “Movie Production Incentive” is an umbrella term referring to any incentive states offer filmmakers to encourage film production in-state.
  • Tax Credits: Tax credits remove a portion of the income tax owed to the state by the production company. Production companies must often meet minimum spending requirements to be eligible for the credit. Of the 28 states that offer tax credits, 26 make them either transferable or refundable. Transferable credits allow production companies that generate tax credits greater than their tax liability to sell those credits to other taxpayers, who then use them to reduce or eliminate their own tax liability.  Refundable credits are such that the state will pay the production company the balance in excess of the company’s owed state tax.
  • Cash Rebates: Cash rebates are paid to production companies directly by the state, usually as a percentage of the company’s qualified expenses.
  • Grant: Grants are distributed to production companies by three states and the District of Columbia.
  • Sales Tax Exemption & Lodging Exemption: Exemption from state sales taxes are offered to companies as an incentive. Many states offer exemption from lodging taxes to all guests staying over 30 days, but these incentives are highlighted for production companies.
  • Fee-Free Locations: An additional incentive states offer is to allow production companies to use state-owned locations at no charge.

Massachusetts

In January 2011, the Massachusetts Department of Revenue released its third annual report detailing the impact of the state’s film tax incentive program, specifically focusing on the productions and tax credits of 2009.

The report’s key findings for 2009 showed:

  • 86 productions generated $82.4 million in state tax credits.
  • The film tax incentive program generated $10.4 million in new tax revenue, partially offsetting the cost of the tax credits.
  • Productions spent $310 million in new spending attributable to the tax credit program.
  • Accounting for production spending going to in-state people and businesses versus out-of-state people and businesses, the film tax credit program resulted in $32.6 million in new spending for the Massachusetts economy. The film tax incentive program generated additional Massachusetts state GDP of $168.5 million and personal income of $25.2 million.
  • The cost to the state for the jobs created by the film tax credit program was $324,838/FTE job.

At a 2011 legislative hearing on the film tax credit program, policy analysts from Massachusetts think tanks criticized the film tax incentive program. Critics have also complained that much of the tax credit money goes to cover the pay of celebrity actors.  Debate within state government over the value of the tax credits in the face of budget shortfalls led Governor Deval Patrick to attempt to cap the tax credit in 2010.

JDKatz, P.C. is a full-service law firm focused on tax law and estate planning. We are dedicated to minimizing your existing liability and risks while providing valuable tax planning to streamline your tax issues in the future. Please call us at 301-913-2948 to schedule an appointment to meet with one of our trusted attorneys.

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