Publications

The Bottom Line on Film Tax Credits

John Carnwath

January 8, 2014

Createquity

Excerpted

About a year ago the New York Times ran a series of articles on corporate tax breaks, complete with a web-accessible database of state tax incentives for businesses. All in all, the Times discovered 1,874 state and local incentive programs that give out a combined $80.4 billion to corporations each year. To put those figures in perspective, the tax breaks doled out by Oklahoma and West Virginia are worth about one-third of those states’ entire budgets. Manufacturing is the most highly subsidized industry, receiving about $25.5 billion in tax breaks annually, followed by agriculture and oil, gas, and mining. Fourth on the list? Surprisingly, it’s the motion picture industry, which nets about $1.5 billion in state and local tax credits per year.

What’s behind this $1.5 billion tax rebate for filmmakers? While industries such as agriculture have been subsidized for decades, state and local tax credits for film productions are relatively new. Louisiana was the first state to introduce such an incentive in 1991, and other states were slow to follow suit. Only four states offered incentives to movie producers in 2002, but once the idea caught on it spread like wildfire, and by 2010 forty-four states offered some form of incentive to filmmakers. The specifics vary from state to state, but typically the financial incentives (for which TV productions, industrial videos, commercials, and sometimes even video games are eligible) consist of some combination of tax credits, cash rebates, employment rebates, sales tax and lodging exemptions, and fee-free use of shooting locations. In order to qualify, productions must generally satisfy certain conditions, such as spending some percentage of their total budget locally, shooting a certain percentage of the footage in-state, employing a certain quota of local residents, or exceeding a minimum amount of in-state spending. In addition, some states require that the action of the films take place in a local setting or even demand that the film depict their state in a positive light in order to qualify for tax credits.

To be clear, the film industry isn’t supported out of any particular concern for cinematic art, nor are politicians incentivizing the production of films because they think we’d be better off as a society if we had more movies and TV shows to watch. As is the case with many other corporate tax breaks, the main reason for offering tax credits for filmmakers is simply jobs, jobs, jobs. State officials don’t particularly care if a company is making movies, auto parts, or toothpaste if it has the potential to create a lot of jobs for local residents. Officials want those jobs in their legislative district rather than someone else’s. They are willing to dangle tax breaks as bait on the assumption that the jobs created by the firm will bring more money into the local economy than the government will lose by providing the tax break.

So how effective are the tax incentives for film and TV productions in generating jobs and/or revenue? That depends on whom you ask. Or who funds the research you’re looking at.

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