Credit against *what* taxes?

May 13, 2009 1:31 PM

Help me understand tax credit incentives for filming movies in a particular city/state. How would the production company get enough taxable state income to make a credit worth it?
posted by smackfu to law & government (6 comments total)

Your question is somewhat vague. Are you wondering what makes the credit "worth it" for the production company or the city/state?

In short, as I understand it, the production pays less in taxes by virtue of having the credit. In exchange, the production boosts the economy by hiring employees, buying goods, renting real estate, etc.. in the municipality offering the incentives. As a result, the municipality gets to take in income/payroll/sales/property/etc... taxes on all that economic activity. It's kind of like the store giving out free hot dogs at the door: they give you an incentive with the idea that you'll spend more inside as a result.
posted by zachlipton at 1:40 PM on May 13

A lot of the tax credit incentives are refundable (i.e., if you get a $10,000 tax credit and you don't use it, they give you $10,000 cash) or transferrable (i.e., if you get a $10,000 tax credit you can sell it to a company that does owe that much in taxes and they'll give you something less than $10,000 cash).
posted by katemonster at 1:45 PM on May 13

(By "they give you $10,000 cash" I mean the state does).
posted by katemonster at 1:47 PM on May 13

katemonster has it. They're "refundable", hence the production company receives x percentage of the eligible amount spent minus tax obligations to the municipality. This can be a TON of money and is often the main influence when companies decide where to shoot a particular film.

A simplified example: Let's say Paul Blart Mall Cop 4: Closing Time has a production budget of $100 million. The state of Connecticut offers a 30% refundable tax credit for all eligible film production spend that occurs in Connecticut. This includes all services performed and purchases made within the state, and all crew labor (assuming local crew).

Let's say $60 million of the $100 million total the production company spends on the movie is eligible per the CT tax credit law. They would receive a payment of $18 million (30% of 60) minus whatever outstanding Connecticut taxes are owed. The effective budget of the movie is reduced from $100 milliion to $82 million. You basically get $100 million worth of movie for $82 million.

Where I work we're prepping a movie to shoot 10,000 miles away in Australia because the amount received via Australian tax credits vastly outweighs the amount it would cost to travel people to and from Australia throughout production -- by millions of dollars.

Certain tax credits can also be sold in advance, so in the above scenario, you wouldn't necessarily have to pony up the full $100 million to fund the production. You could sell the anticipated credit and end up only needing $82m.

So in summary, it's HUGE.
posted by hamsterdam at 5:41 PM on May 13

Wisconsin is currently -- amid recession-borne budget concerns -- reconsidering its own new film tax credit. The largest recipient has been Public Enemies^, which received $4.6 million in state tax credits -- nearly the entire estimated spending in Wisconsin, which was about $5 million to $7.5 million (the latter is the studio's estimate). Most of it paid for salaries.

The state's Commerce Department has a presentation arguing against the credit, with a number of colorful charts. They're not Tufte, but they sort of explain that people misunderstand how the program works and that they view it as a windfall that brings little to the state (e.g. an out-of-state contractor who travels here for the movie and then goes home) while taking cold hard cash from state coffers. Despite this gubernatorial push, the incentives are receiving popular support from newspapers around the state, and the Tourism Board is promoting the film, in the hope that future fan visits will bring dollars to the state. The film commission also wants a pipeline of steady work for local skilled professionals.

A hidden cost, by the way, has proven to be some local police and fire services as well as infrastructure changes and repairs that were not fully dotted and slashed before production. These are pretty much swallowed by local governments.

Incentives are good for the industry, but they can be complex in how they actually interact with the state and the production.
posted by dhartung at 10:35 PM on May 13

In housing development, developers sometimes sell their tax credits to others.
posted by salvia at 12:57 AM on May 14