While California hasn’t passed a specific production tax incentive, Sacramento lawmakers have been willing to solve other problems for the industry. Last year, the Legislature passed and Governor Schwarzenegger signed Senate Bill 1428 authored by Senator Jack Scott (D-Pasadena). This measure clarified the historic practice of payroll companies being considered as “statutory employers” for the purposes of unemployment and related payroll taxes.Why should you care? How does it affect the money you earn? Because most payroll taxes are computed as a percentage of total wages. Many have a cap. If there is no way to add everything up and each production is dinged for the max (and you are too)… well, that’s a lot of dough!A bit of background: At the Federal level production workers paid through payroll companies (like Entertainment Partners or Cast and Crew) and are considered employees of the payroll company for purposes of deducting Social Security and Medicare taxes. In legal terms, the payroll company, not the production company, is considered the “statutory employer.”If you work on staff, you probably notice the time of year when you have hit the maximum contribution for Social Security and your employer no longer deducts that amount. The employer doesn’t have to pay it anymore either. For 2006, the tax was 6.2% on the first $94,500 in income. If are paid by through a payroll service, the service can aggregate all your income and you still max out at $94,500. If the Feds treated each production company as a separate employer, each one would take out the 6.2% (and pay the same amount themselves) no matter how much you earned in a year. You could get that back when you file your taxes, but you would have given Uncle Sam an interest free loan for the duration.For over 30 years In California, payroll services had operated under the same theory for payment of Unemployment Insurance, the Employment Training Tax, and State Disability Insurance (SDI). However, California law didn’t clearly define payroll services as statutory employers.A few years ago when the State’s unemployment insurance reserves became dangerously low, State officials starting looking for additional sources of revenue. They believed that somehow they might be able to collect more if they assessed each company. They also figured that perhaps they could collect more in other taxes too.Here’s one example of what could have happened to your paycheck in California.The current rate for California State Disability Insurance (SDI) is 0.6%. The income cap per year is $83,389 and the maximum amount of tax is roughly $500. Let’s say you make $120,000 in a given year spread out among three productions. Each production is treated separately. Therefore, your SDI would be 0.6% of your total income without the ability to cap it. So instead of paying $500, your tax would be $720! Another interest-free loan—this time to the Golden State!To clarify the law and make it consistent with industry practice and Federal definitions, Entertainment Partners sponsored legislation and Senator Scott carried the bill. Additional supporters included the Teamsters, SAG and AFTRA. It was introduced in February 2006 and passed both houses of the Legislature without a single “no” vote. The Governor signed it in September. It took effect on January 1.As the bill moved through the Legislature, it became clear that the State probably wouldn’t make any additional money and might even loose revenue, and overturning a historic and effective practice could further jeopardize California production. Hardly the result anyone could afford.Newsclips DigestUK: Film Spending in Britain Shoots Up 50%Spending on film production in Britain increased by nearly half to £840.1 million last year from £568.8 million in 2005, making it the second-best year on record. The UK Film Council credits the revised tax credits. The new tax relief is available on UK production spending. For films that cost up to £20 million, the relief is worth up to 20% of the budget. For those films budgeted at £20 million and over, it is worth 16%.Source: Times Online, Amanda Andrews.India: Sony Imageworks Creates Outpost Sony Pictures Imageworks (SPI) has picked up a 51% equity stake in Chennai-based visual effects and animation studio FrameFlow, which will become Imageworks India. The entity expects to quadruple its workload in the coming years and deepen its capabilities through investments in infrastructure, technology and training. Imageworks India also plans a significant growth in its current talent base of from 80 employees up to 300.Source: BusinessofCinema.comMichigan: Wolverine State Joins the Ranks of Incentive ProvidersUnder the new incentives, production companies will receive rebates from 12% to 20% depending on how much they spend. Commercial production accounts for most of Michigan’s production revenue averaging $1 billion per year.Source: Detroit Free Press NY: Studio Space to Double at Brooklyn Naval YardSteiner Studios will be developing a seven-story 289,000 sq. ft. tower located at the entrance to the Navy Yard. The building was built by the Navy in the 1940s but has been vacant for 20 years. Steiner Studios plans to renovate the building and create smaller sound stages for second-unit production, commercials, music videos and still- photography, along with postproduction facilities, warehouse space, wardrobe facilities and office space.Source: BusinessWire Kathleen Milnes’ monthly column focuses on private-sector initiatives and public policy in the entertainment industry. Milnes is founder of The Entertainment Economy Institute, a nonprofit research and education company. To be added to her mailing list, contact [email protected].
Written by Kathleen Milnes
