Will New Tax Policy Put Vollywood in Austin, Texas?

February 10, 2014 — Leave a comment


Hollywood is the movie production capital of the United States. Bollywood is Hollywood’s Indian counterpart.

So what exactly is Vollywood? It could refer to whichever region becomes the video game production capital of our country. New tax policy, not any video game cheats, is what could help Austin, Texas gain this title of Vollywood.

In the early 1900s, California was able to create Hollywood with its temperate climate and the help of a semi “tax break.”

During this time, Thomas Edison owned the patent to the first motion picture camera, and he formed the Motion Picture Patents Company. The newly formed company charged hefty taxes for anyone that made, edited, or produced movies. To avoid the enforcement of this costly movie production tax, a group of producers moved to the West Coast to get as far away from Edison’s home of New Jersey. Using this new “tax break,” these rogue producers created what we know as Hollywood.

Tax evaders do not fuel this newest march out West; instead, tax incentives spark this movement of video game producers to the land of the Lone Star State.

The tax incentive program offers cash grants to video game production companies for wages paid to Texas residents, along with other spending in the state. The Texas legislature has put aside $85 million to help jumpstart this program next year.

However, there are only around 5000 residents in the video game industry who currently reside in the state. Texas should keep its foot on the pedal if it wants to become the mecca of the video game world. Washington, New York, Massachusetts, and Illinois could also take the title since they have the next highest number of video game industry workers residing in their states.

Josh Havens, a spokesman for Gov. Rick Perry, said in an e-mail that unlike programs in other states, the one in Texas “focuses on keeping money in the state by providing grants to qualified projects for Texas wages paid and in-state spending. Video game companies that spend at least $3.5 million in Texas can now apply for a 20 percent base reimbursement from the commission, plus a sales tax exemption on production equipment.”

Logo_TPIIn addition to the incentive money on the table, the state looks like a winner in the battle to house the video game industry since the state does not tax income tax.

According to Reuters, housing the video game industry could be a huge win for the city of Austin since analysts projected the industry to make $66 billion in revenue in 2013 and $78 billion by 2018. The top three software publishers, Activision Blizzard; Electronic Arts; and Take Two Interactive, have a combined $10 billion in annual revenues.

To understand how this industry is a cash cow, note that Grand Theft Auto V came out in September 2013; it made $800 million in worldwide sales and $1 billion within three days. Avatar, the highest grossing Hollywood movie of all time, took seventeen days to reach the $1 billion mark in worldwide sales.

The Tax Foundation points out that tax incentives alone will not help Austin take the award for becoming the video game capital of the world.

To win this distinction, the state will have to watch how other factors pan out nationwide.

Austin will need to show that it can positively influence the quality of life for Gen Y programmers and graphic artists. It will also have try to attract major video game publishers like Activision, EA, and Take Two to Austin. In particular, the city needs to create a network for growth of a support system of investors, app developers, and console manufacturers.

There are some other caveats that Austin should look out for when bringing the video game capital to its backyard. Hollywood was able to sustain itself because of the good weather in California, and because, producers, editors, and actors all moved in close proximity to each other.

The weather and close living proximity do not seem like necessities for the video game industry since most video game producing companies are located in the frequently cold areas of the world: Iceland, Finland, and Washington State. Similarly, video game producers do not have to come into centralized offices since most can just work from their computers at home.

The average salary for video game industry employees is about $90,000 per year. The New York Times also points out that Texas is home to twenty-four colleges and universities that offer video-game-related courses and programs. For a state that has a sulking economy, housing this industry could be just what this state needs.

Finally, with the help of the Entertainment Software Association and Pricewaterhouse CoopersGamesIndustry International compiled a list of twenty-eight other states and their respective credits for video game and movie industries. Scroll through to see what incentives these states offer!

State/Territory Program Incentive Notes Agency
Alabama Alabama Film Incentive Rebates on 35% of Alabama labor, 25% of non-payroll expenditures Total production cost must fall between $500,000 and $20 million Alabama Film Agency
Arkansas Arkansas Film Commission Rebates on 20% of qualifying expenditures, plus 10% for Arkansas labor Companies must spend $200,000 on the project in a six-month period Arkansas Film Commission
Colorado Colorado Film Incentive Rebates on 20% of Colorado expenditures Program has limited funding each fiscal year Colorado Office of Film, Television, Media
Connecticut Digital Media and Motion Picture Tax Credit 10% to 30% tax credit on Connecticut expenditures Credits issued on a sliding scale; only >$1 million productions get full 30% credit Department of Economic and Community Development
Florida Entertainment Industry Financial Incentive Program 20% to 30% tax credit on expenditures (including wages) $8 million incentive cap per project Office of Film & Entertainment
Georgia Entertainment Industry Investment Act 20% to 30% tax credit Project must spend minimum $500,000 on qualified Georgia expenditures, entire program has a fiscal year cap of $25 million Georgia Film, Music & Digital Entertainment Office
Hawaii Motion Picture, Digital Media, & Film Production Tax Credit 15% to 20% tax credit on Hawaii expenditures $8 million cap per qualified production Hawaii Film Office
Louisiana Digital Interactive Media and Software Development Incentive 35% tax credit on labor, 25% tax credit on expenses No cap, no minimum requirement, option to take a rebate worth 85% of tax credit Louisiana Economic Development
Maine The Maine Attraction Film Incentive Tax rebate on 12% of Maine resident labor, tax credits on 5% of other production expenses Minimum qualified expenditure of $75,000, credit cannot exceed taxes owed Maine Film Office
Michigan 2013 Film and Digital Media Incentive 32% of payroll, 27% of production expenditures Minimum $100,000 spend required, incentives reduced beginning in 2015 Pure Michigan Film Office
Mississippi Motion Picture Production Incentive 25% rebate of base investment made in the state, 30% of resident payroll $50,000 minimum spend to qualify, $8 million rebate cap per project Mississippi Department of Revenue
New Jersey Edison Innovation Digital Media Tax Credit Program 20% tax credit for payroll and production expenses Minimum $2 million of qualified expenditures, half of which are NJ resident salaries, must create and maintain 10 new full-time jobs with minimum $65,000 salary New Jersey Motion Picture & Television Commission
New Mexico NM Refundable Film Production Tax Credit 25% tax credit on labor and qualifying expenditures No minimum spend requirement, claims to be submitted annually New Mexico Film Office
North Carolina Digital Media Credit 15% of wages, 20% on research expenses paid to NC schools Minimum $50,000 spend to qualify; $7.5 million cap on credits received North Carolina Department of Commerce
Ohio Ohio Motion Picture Tax Credit 35% tax credit for resident wages, 25% for other expenditures Minimum $300,000 Ohio spend to qualify Ohio Film Office
Puerto Rico Puerto Rico Production Tax Credit Program 40% tax credit on wages, production costs Minimum spend of $100,000 Puerto Rico Film Commission
Rhode Island Motion Picture Tax Credit 25% tax credit on wages, production costs Minimum spend of $100,000, $5 million cap on credit Rhode Island Film and TV Office
Texas Moving Image Industry Incentive Program Up to 17.5% of wages and expenses No cap on amount, $100,000 minimum spend required Texas Film Commission
Utah Motion Picture Incentive Program Up to 20% tax credit on payroll and in-state spending $6.8 million annual incentive cap for the program Utah Film Commission
Virginia Virginia Motion Picture Production Tax Credit Up to 20% tax credit for wages and expense, plus up to an extra 20% on wages if eligible spending tops $1 million Minimum $250,000 in-state spending to qualify Virginia Film Office
Wisconsin Wisconsin Film Tax Credit 25% wages and expenses Wages for first three years of development must top $100,000 Department of Tourism

JDKatz: Attorney's At LawJDKatz, P.C. is a full-service law firm focused on tax lawbusiness and transactional lawestate planning and elder law. 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, or visit http://www.jdkatz.com.

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