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HomeNewsFed Tax Changes May Limit Runaway Production

Fed Tax Changes May Limit Runaway Production

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By Jack EganFor the first time, the U.S. Congress has done something tangible to deal with the threat of runaway production, handing out incentives to encourage more jobs in the domestic film and television industry and keep shoots from going abroad.The provisions are aimed mainly at filmed productions costing $15 million or less that spend at least 75 percent of their budget on services performed in the United States. They are expected to benefit small independent films, movies-of-the-week and television miniseries as well as some episodic TV shows.The anti-runaway subsidies were tucked into a bill with $136 billion in corporate tax breaks, euphemistically called The American Jobs Creation Act. The legislation was originally designed as a vehicle for the elimination of trade sanctions against the U.S. But by the time Congress rammed the act through just before adjourning in early October, the legislation was chock full of multibillion dollar handouts for many industries.But the Hollywood studios were left without goodie bags. Some observers chalked that sleight-of-hand up to payback from a Republican Congress to the movie industry because its Washington lobbying group, the Motion Picture Association of America, had recently picked Dan Glickman as its chief spokesman. Glickman is not only a Democrat but a veteran of the Clinton Administration.Miraculously, the anti-runaway provision survived, perhaps because the cost of funding it was far smaller than the breaks sought by the studios. The victory was especially sweet for members of the Runaway Production Alliance, which had spent four years pressing forward on obtaining incentives to keep shoots within the United States.Cheering loudest was the Directors Guild of America, which paid for much of the lobbying effort for the alliance. “It is the DGA’s hope that this ground-breaking federal tax-incentive legislation, in combination with a growing number of state and local incentives, will stem the tide of film and television productions, and the jobs they create, from going abroad,” declared DGA president Michael Apted.“It’s significant that for the first time Congress stepped in and dealt with how much economic activity these productions create, and the multiplier in terms of jobs,” noted Jean Prewitt, president of the Independent Film Television Alliance.There were few critics to be found. Even Gary Dunham, president of the International Cinematographers Guild, was positive, though a bit skeptical. He has opposed government subsidies as “a race to the bottom” and has backed trade legislation against Canada and other countries as a way to equalize the playing field by eliminating foreign subsidies. “I’m not going to be against something if it’s going to create more jobs and keep productions in this country, so this is a good move, provided it actually delivers,” said Dunham.According to estimates, direct benefits from the bill’s provisions could reduce net costs by 12 to 17 percent for qualifying productions. These savings can be leveraged further by combining them with tax incentives available to filmmakers from an increasing number of individual states like New Mexico, Louisiana and Arkansas. It’s no coincidence that Senate Finance Committee member Blanche Lincoln, Democrat, of Arkansas was a strong supporter of the bill. Also, New York is in the process of passing $100 million in production incentives.Total breaks from the federal legislation plus state incentives could reduce costs on a small-to-medium budget film by 25 percent, or more. California, though still the center of world movie and TV production, has no extra state tax incentives. What that could mean is the debate in Los Angeles over runaways will be as much about productions moving to other states as it’s been about going to other countries like Canada to harvest special tax subsidies. That’s likely to raise pressure on Gov. Arnold Schwarzenegger and the legislature in Sacramento to pass some tax provisions so the home-grown industry can remain competitive.There’s a kicker in the federal legislation that allows breaks on productions with budgets of up to $20 million for filming done in areas designated as a low-income communities or economically distressed. Again, Arkansas and Louisiana come to mind. Areas of California, even parts of Los Angeles, might qualify as distressed locations.

Written by Jack Egan

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