Filed in: Community, Featured, Film, Television
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The State of Incentives

The entertainment industry is mobile, technologically clean, and capital and labor-intensive, making it an attractive business to many communities. Film production incentives by federal governments, various states and other local jurisdictions are enacted to encourage economic growth, build infrastructure and promote job creation. Aside from sales tax exemptions/refunds and hotel tax relief, cash rebates, tax credits, up-front and backend funding are the types of production incentives used to lure motion picture and television production companies to a specific country or state. Although incentive programs can change with ebb and flow of political tides, many are at an all-time high.

To determine which state has the best incentives for a production depends on the answers to a number of questions relevant to the specifics of a particular project.

Is there a cap on the amount of eligible salary for each individual? Are non-resident wages included, or does the state only allow the salary of residents to qualify? Is there a sufficiently large and qualified crew base, or will crew need to be brought in, adding per diem, transportation and housing costs to the budget – costs, which may or may not be considered qualified costs for a particular state’s incentive.

What type of production qualifies for the incentive? Again, depending on the state, a feature film or television series may qualify while non-traditional programming like a talk show or sporting event may not.

What are qualified production expenditures? To name a few, these expenses may include: set construction, wardrobe, makeup, photography and sound synchronization, lighting, editing, lab services, facilities and equipment rental, vehicle leases, food and lodging, special and visual effects, and other direct costs of producing the project in accordance with normally accepted industry practices.

What type of incentive – a rebate/grant or a tax credit – is offered? Rebate and grant programs are similar. After program requirements are met, both rebates and grants return cash payments to the eligible production companies. No income tax return is required.

Tax credit programs provide the production company with several different types of tax credits: refundable/nonrefundable, and/or, transferable /nontransferable. In jurisdictions offering a refundable tax credit, the production company must file the appropriate tax return claiming the tax credit. A refund will be issued if the production tax credit exceeds the company’s tax liability. With a nonrefundable tax credit, the production company must either apply the credit against its existing tax liability in that state, or transfer/sell/assign the credit to a taxpayer that does have a tax liability in the state. If a project is unable to use a nonrefundable credit, it is imperative to allow for the discounted value of the credit in the budget as well as the cost to transfer the nonrefundable credit.

To make the best financial decision for any production, it is important to stay current with production incentives. A new incentive program may offer a more beneficial incentive to attract business to a state, while last year’s top program may have added a cap or sunset clause to their program.

Michigan

Some of Michigan’s generous film incentives are facing proposals to be pared back by the new governor and the partisan shift to the right in the state legislature. As of this writing, bills H 5844 and S 796 offer 30%, 40% and 42% tax credits that are transferable and refundable, but can’t be carried forward. Labor credits of 40% are allowed for resident below-the-line, and all above-the-line personnel regardless of residency. An additional 2% credit is allowed when filming in certain “core” communities, such as Detroit. Non-resident below-the-line labor receives a 30% credit. The crew base has grown exponentially in the last couple of years with both aggressive training programs and migration of film workers to the state. A screen credit and CPA audit are required of program participants. The minimum spend is $50,000.

Because of the proposed $25 million cap, the film office only has $14.4million in tax credits left to distribute in the current fiscal year. Only a handful of tax credits have been approved for 2011. Incentive applications, such as the one for season two of Detroit 1-8-7, are currently under review, pending new legislation, but any decision is premature as ABC has not yet announced if they will be renewing the program for a second season. Under the Michigan Film Office’s new policy, the approvals require review by the Michigan Economic Development Corporate Committee. In order to stretch the fund, MFO seems to be approving low-to-medium budget projects. Higher cost projects like the $58 million sequel to Mr. and Mrs. Smith, while not rejected, chose to take the project elsewhere prior to receiving a decision. All 38 of the projects that would like to film in Michigan would cost nearly $124 million, substantially above the cap amount. Since the incentives took effect several years ago, approximately $648 million dollars have been invested in Michigan’s economy by film, digital media and television projects. In an attempt to convince the Michigan legislature not to downsize the economic-boosting industry of the past three years, film industry lobbying efforts are heating up, so check with the film office for the latest news.

Washington DC

Washington DC passed bill #B 583 that made into law rebates of 42% of qualifying direct production expenditures subject to D.C. tax and 21% of expenditures that are not subject to D.C. tax. The 30% rebate of qualified personnel expenditures applies to resident above-the-line and below-the-line compensation. 50% of qualified job training expenditures and 25% of the base infrastructure investment are also rebated. The minimum spend is $250,000 with no cap, and funding is determined on a case-by-case basis, subject to the availability of funds. There is no sunset, but an annual review by Dec. 31 of each year determines program funding for the fiscal year concluding Sept. 30. No screen credit or CPA audit are required. Before production commences an application must be submitted. Response time varies.

New York

New York State passed bills #S 6060, #S 7798 and # A 9710 that offer a 30% refundable tax credit for each below-the-line resident and nonresident with no minimum spend amount or per project cap. The state has a generous annual cap of $420 million. A robust crew and talent base, plus extensive production and post facilities keep New York a top filming location. There is a screen credit required but no CPA audit. The sunset date is December 2014. New York City, enacted bill #S 6060 that gives an additional 5% refundable tax credit to each below-the-line resident and nonresident, also with no per project cap or minimum spend amount, but an annual cap of $30 million. Again like the state incentive, a screen credit is required but no CPA audit. The sunset date is December 2011.

Illinois

Illinois has enacted bills H 2482 and S 1981 that give a 30% qualifying local spend and 15% resident wage tax credit for employment of residents in geographic areas of high poverty or high unemployment. An experienced crew and talent base as well as access to facilities and services, primarily in the Chicago area, add to the appeal of filming in Illinois. On March 30, the Illinois Senate passed a bill, SB 398 that replaced the five-year sunset proposed by the House with a 10-year sunset. The change is expected to be passed by the House and signed into law by the Governor. This action preserves the current tax credit program until 2021 and benefits television series in production. The credit is not refundable, but is transferable and can be carried forward five years. A minimum local spend is $50,000 for projects less than 30 minutes and $100,000 for productions over 30 minutes. A screen credit and CPA audit is required. Application should be submitted five days before filming with a response in about 1-2 weeks.

Louisiana

Louisiana passed a similar bill # 478 that gives a 30% base of qualifying local spend including the payroll for residents and non-residents and a 5% wage tax credit of resident payroll up to $1,000,000. The credits are refundable, transferable and can be carried forward 10 years, with a minimum local spend of over $300,000. A screen credit and CPA audit are also required. Jefferson Parish in Louisiana passed bill #110061, that gives a 3% rebate on a minimum spend of $150,000 (with a per project cap of $100,000, and an annual cap of $1.5 million). It also requires a screen credit and CPA audit. Louisiana is a right-to-work state with a crew base that is 8-9 deep statewide.

Alaska

Alaska enacted bill S 230 that gives a 30% base tax credit with an additional 10% on resident wages, plus a 2% credit for expenditures in rural areas and a 2% seasonal credit for expenditures between Oct. 1-March 30, for a total credit of up to 44%. Tax credits are not refundable, but are transferable and can be carried forward three years. They require a minimum spend of $100,000 in a 24-month (36-month) period with no per project cap. The aggregate tax credit is $100 million, which sunsets July 1, 2013 or when the funding cap is reached. Like so many others, Alaska requires a screen credit and CPA audit. Companies should submit incentive applications before production commences. Expect a response in 2-4 weeks.

California

California has bill #AB 15 until June 30, 2014 that gives a 20% tax credit for a feature film with a total budget between $1M and $75M; a MOW or miniseries with a budget of at least $500,000; a new series licensed for original distribution on basic cable with a minimum TV season budget of $1 million. A 25% tax credit is available to television series, without regard to length, that relocate to California or “independent films.” To be considered an independent film certain criteria must be met: the qualified expenditure budget of a production must not exceed $10 million; the production cannot be owned by a publicly-traded company or a publicly-traded company does not own more than 25% of the producing company. Both below-the-line resident and nonresident labor is qualified. The tax credit is not refundable but is transferable for Independent projects and can be carried forward five years. Non-Independent projects may utilize the tax credits against their state tax liability or sales and use taxes; it can be utilized by an affiliated company. There is no per project cap, but the annual cap is $100 million. All program projects require both a screen credit and a CPA audit. Despite a lower percentage incentive, major benefits of filming in California are the deep crew base and available support infrastructure. Applications are accepted on June 1 for the start of the next fiscal year’s funding July 1. Pending credit availability, applications are accepted year round, however with the amount of filming normally done in California, it is best to apply early since the incentive is administered on a first-come, first-served basis. Principal photography must begin no less than 30 days after the date the application is submitted, but no later than 180 days after the date of approval (credit allocation letter date). If filming in San Francisco, California bill #162-09 gives additional refundable rebate of 1.5% on wages and all city costs. The per project cap is $600,000 and the annual cap is $1.8 million with no minimum spend amount. Currently available until June 30, 2012, legislation has been introduced to extend the credit until July 1, 2019. There is a screen credit required but no CPA audit.

Washington State

One of the most appealing aspects of Washington State’s incentive program is that it is a cash rebate as opposed to a tax credit. The unappealing aspect of the program is that it is scheduled to sunset June 20, 2011, if the legislation is not renewed. The Washington State legislature enacted bill SB 6558 in 2006 which created the incentive program and the 30% rebate. There is no per project cap but the annual cap for the program is $3.5 million. There is a minimum spend of $500,000 for features, $300,000 for television series and $150,000 for commercials. Only resident labor is qualified. There is a three-deep crew base statewide and a crew directory is available online at www.WashingtonProductionIndex.com. Prior to the start of principal photography, the production company must apply for and receive a Funding Letter of Intent and enter into a contract with Washington Filmworks (WF). Principal photography must begin within 120 days after receiving the Letter. Funding is based on the economic opportunity for Washington communities and businesses. Each production that receives WF assistance is required to complete a survey within 60 days after the completion of principal photography. There is a screen credit required but no CPA audit. Enhancements to the Washington Motion Picture Competitiveness Program were introduced through HB 1554 and SB 5539 in January 2011. The bills have been amended in committee but the legislation to maintain the program continues to be considered.

Oklahoma

Oklahoma has a 35% cash rebate for films and non-transferable income tax credits for construction of OK film/music facilities (10% to 25% credit). An additional 2% rebate is available for documented expenditures if a production company spends at least $20,000 for the use of music created by an Oklahoma resident and recorded in Oklahoma or for the cost of recording songs or music in Oklahoma. There is a low annual cap of $5 million, but with the minimum budget for films set at $50,000 with a local spend of over $25,000, the incentive can be appealing to indie filmmakers. Qualifying labor includes below-the-line wages paid to Oklahoma residents and salaries for resident and nonresident above-the-line personnel paid to loan out corporations or limited liability companies registered to do business in Oklahoma. No more than 25% of the total rebated amount can be compromised of qualifying above-the-line salaries. Two crews deep for smaller non-union independent films (under $10,000,000), but because Oklahoma is a right-to-work state, there are limited union crew. Applications must be submitted at least 60 calendar days, but no more than 180 days prior to the start of production and all documents must be submitted no more than 90 days after the payment of all Oklahoma expenditures. The sunset date is Dec. 31, 2014. Rebates will be paid out immediately after all requirements have been met with no fiscal year delay. Oklahoma also offers a point-of-purchase (POP) sales tax exemption for sales of tangible property or services to a production company for use in an eligible production. However, the production company is not eligible to receive both the rebate payment and an exemption from sales tax.

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