MOVIE PRODUCTION INCENTIVES (Terminology, Facts and Tips)

MOVIE PRODUCTION INCENTIVES (Terminology, Facts and Tips)

Movie production incentives are tax benefits offered on a state-by-state basis throughout the United States to encourage in-state film production. These incentives came about in the 1990s in response to the flight of movie productions to other countries such as Canada. Since then, states have offered increasingly competitive incentives to lure productions away from other states. The structure, type, and size of the incentives vary from state to state. Many include tax credits and exemptions, and other incentive packages include cash grants, fee-free locations, or other perks. Proponents of these programs point to increased economic activity and job creation as justification for the credits. Others argue that the cost of the incentives outweighs the benefits and say that the money goes primarily to out-of-state talent rather than in-state cast and crew members.

Studies of the costs and benefits of incentive programs show different levels of effectiveness. Some states have attempted to evaluate the economic impact of their movie production incentives to establish whether the benefits outweigh the costs.

State film incentives refund or rebate a qualified portion of the money spent in the state back to the production. So, say a production has $1,000,000 in qualified spending. If they shoot in a state with a 25% incentive they will get $250K back from the state. In some cases, that money will come as a check. Every state is different, but when a production is finished spending money in the locale and/or when the entire production is done, an accounting is provided to the state. Then that is vetted internally before any check or voucher is released. In other cases the production will receive it as a tax credit that they will then have to go out and sell to a company that can use that credit.

Film is a great industry for states. Very few businesses look to spend 100% of their capital the way a film does. We come to a place and we spend. We employ people directly to work on local crews, indirectly we support a lot of ancillary businesses—catering, hotels, lumber, paint, supplies, office equipment, vehicle rentals, gas, parking, car services. No producer wants to bring in a lot of non-local crew—it's more expensive for the production—but department heads often have to come in, like the director of photography, the first assistant director, costume designer, production designer, art director, etc. These people come, many bringing families for longer shoots or summer shoots. The production covers the employees' travel, housing and per diem. They stay in hotels. They rent cars. They spend their per diem. And that all has an economic effect that benefits the state.

Plus, from my perspective, we're a pretty clean industry. We like to hire locally and have a lot of entry-level positions on productions, that, while they may be short term, they still provide the kind of training that is essential to working in this industry long-term.

HISTORY

The development of movie production incentives stems from the perceived economic benefits of film-making and television production in the US. As the TV and film industries grew through the 1990s, so did concern over runaway productions, TV shows and films that are intended for a US audience but are filmed in other countries in order to reduce production costs. The issue of runaway productions gained further traction after Canada adopted a movie production incentive program in 1997.

Overall economic losses to the US due to runaway productions are difficult to measure, as the perceived economic benefit of film production could include benefits from tourism in the short and long-term, local job creation, and any number of other benefits. Most methods of measuring such economic benefit apply a multiplier to production costs in order to account for the lost opportunities from taxes not collected, jobs not created, and other revenues that are lost when a film is made outside of the US. A 1999 study by The Monitor Group estimated that in 1998 $10.3 billion was lost to the US economy due to runaway productions.

Also in the 1990s, U.S. states saw the opportunity to launch their own production incentives as an effort to capture some of the perceived economic benefits of film and TV production. Louisiana was the first state to do so in 2001, and in 2002 passed legislation to further increase the scope its incentives. Over the next three years Louisiana experienced an increase in film and television productions some of which were nominated for Emmy Awards. The perceived success of Louisiana's incentive program did not go unnoticed by other states, and by 2009 the number of states which offered incentives was 44, up from 5 in 2002. Critics have suggested that the increase in states offering incentives mirrors a race to the bottom or an arms race because states continue to increase the scope of their incentive packages to compete on a national level to not only maximize their individual benefits but also to stay ahead of their competitors.

TYPES

• Movie Production Incentives (MPIs): "Movie Production Incentive" is an umbrella term referring to any incentive states offer filmmakers to encourage film production in-state. …
• Tax Credits: Tax credits can remove a portion of the income tax owed to the state by the production company, but since most production companies are limited purpose business entities they often incur very little, if any tax liability. The use of the word "tax credit" or "tax rebate" often results in public confusion, as they layperson may think the program is a refund of taxes paid by the production, when it is actually based on a significant percentage of the production's actual spend and the amount is awarded regardless of whether the entity pays taxes (which they generally do not) (as explained by Louisiana's Chief Legislative Economist: “It’s got nothing to do with tax...We’re just using the tax-filing process and the Department of Revenue as the paying agent for a spending program. That’s what we’re doing.”) Production companies must often meet minimum spending requirements to be eligible for the credit. Of the 28 states that offer tax credits, 26 make them either transferable or refundable. Transferable credits allow production companies that generate tax credits greater than their tax liability to sell those credits to other taxpayers, who then use them to reduce or eliminate their own tax liability. Refundable credits are such that the state will pay the production company the balance in excess of the company's owed state tax. …
• Cash Rebates: Cash rebates are paid to production companies directly by the state, usually as a percentage of the company's qualified expenses. …
• Grant: Grants are distributed to production companies by three states and the District of Columbia. …
• Sales Tax Exemption & Lodging Exemption: Exemption from state sales taxes are offered to companies as an incentive. Many states offer exemption from lodging taxes to all guests staying over 30 days, but these incentives are highlighted for production companies. …
• Fee-Free Locations: An additional incentive states offer is to allow production companies to use state-owned locations at no charge. …
• National or regional film funds are limited government-sponsored grants for which a production must specifically apply. …
• Tax shelters, relief, or waivers allow investors tax breaks on their investments. …

FILMING A MOVIE INTERNATIONALLY

Filming a movie internationally has more benefits than merely exotic locale. In an effort to create jobs and stimulate local economies, many countries worldwide essentially pay productions to shoot within their borders. These production incentives vary significantly in structure and scope from country to country, but the end goal is universal: a symbiotic financial relationship between the country and foreign film productions. For a film with limited resources, shooting abroad could be just the ticket.

There are, of course, caveats to consider when comparing incentives. Each country stipulates a unique set of requirements, but the main issues to flag are the minimum amount of qualifying local expenditure (which can be high), local employment regulations, and whether or not the country requires the film to pass a cultural eligibility test.

International production incentives should not be confused with co-productions, which are multi-country productions that operate based on government treaties.

Below, we've broken down the world's most attractive production incentives by continent. Based on our research, you should start thinking seriously about setting your next film in Colombia (60% cash rebate), Fiji (50% cash rebate), or Canada (30% to 70% tax credits).

ARGUMENTS

PROS

Proponents of production incentives for the film industry point to increases in job creation, small business and infrastructure development, the generation of tax revenue, and increased tourism as positive byproducts of the incentives. Supporters also maintain that MPIs are a net benefit to the states because they attract productions that would have gone elsewhere.

The immediate effect of a tax incentive is the direct production spend for the region in hotel rooms for visiting cast and crew, lumber for sets, food for catering, fuel for trucks and generators, to the secondary expenditures of crew members who go to local restaurants for dinner, the dry cleaners for their laundry, and the need for everyday sundry items from toothpaste to shampoo. These expenses average in the millions of dollars on a typical Studio feature which usually carries approximately a 100 traveling crew members and employs another 100 crew locally.

Second, if the area did not previously have an existing infrastructure, the production provides hands-on training for local employees to learn the stock in trade of film making and helps to develop the experienced crew base that will make the area more valuable in reducing the number of crew a production will need to import the next time around.

Film tourism has become a significant multiplier of the initial investment by the region in providing increased tourism marketing opportunities at a fraction of the media buy necessary through taking advantage of the extensive marketing efforts by a studio. The impacts of film tourism have been met with skepticism, as examples of the phenomenon tend to be anecdotal and a reliable method for measurement is hard to come by. Academic study of film tourism points to key elements that are needed for film tourism: iconic locations (like the baseball field in "Field of Dreams"), commercial success and on-location filming in the places where the underlying story is set. Most films produced in leading incentive states do not meet these criteria.

CONS

Those who oppose movie production incentives offer arguments that refute those made by supporters of the programs.

Movie production incentives do not necessarily result in the creation of jobs. Rather, the economic impact is that of a transfer of jobs from one location or state to another. Additionally, unless the state in question has a consistent stream of productions, the project-based nature of the film and television industry generates short-term jobs that eventually leave specialized laborers out of work.

States have a tendency to use vague language and refer to successes in other states when advocating in support of production incentives. Critics maintain that information is selected to present positive results, and that states rely too heavily on perceived successes in other states without adequately considering how available resources within the state will impact their respective economies.

States often incorrectly use economic measurements, such as a multiplier or an increase in different types of tax revenue, to promote film tax credits. When comparing multipliers across different projects, movie production incentive multipliers tend to be smaller than those for other investment projects (e.g. nuclear power plant, hotels). Revenue from alternate taxes not covered under tax credit policies do not always cover the original cost of the given film tax incentives.

Grants require films to pass sensitivity tests in order to ensure a state is seen in a positive light, which may lead to censorship issues.

Politicians focus on immediate, short-term projects because it is politically easier to change these incentive policies. However, a focus on improving baseline tax policies to incentive long-term private investment in industry would lead to higher levels of job creation, productivity and economic development.

Critics propose that unilateral or multilateral moratoriums and federal intervention be used to solve these economic inefficiencies.

Sources: Google, Wikipedia, Pinterest, IBIS World, Canada Film Capital, Luther, William, Movie Production Incentives, Kristy Puchko, Cinema Blend, Hollywood Reporter, IMDB, Variety, No Film School, Emily Buder

Please note: All states, countries and incentives may change or eliminate their programs at any time and without notice.