Film Incentive Script Change

Film Incentive Script Change


It is apparent that much of the debate over the value of film incentives may be unnecessary.  Facts are facts, and it’s time to use them.  It is my belief that if more people properly understood how state film incentives actually worked, the vast majority of film incentive backers would no longer support them.  The misunderstanding about film incentives in the general public, much of the press and (sadly) even many state lawmakers stems from how film incentives are framed.  Hollywood productions, we are told in news story after news story, are lured to a given state because of “tax incentives”.  It’s time to refer to film incentives for what they actually are: Cash Incentives, not tax incentives.

Why is the term “tax incentives” so problematic?  Let’s use Louisiana as an example.  When the average person hears Louisiana is luring film and television productions because of the state’s 30% tax credit, they believe the state is luring a taxpaying entity (the production company) and taxing them 30% less than everyone else.  For the uninformed, Louisiana may not be collecting 100% of the taxes the production company owes, but it’s still collecting 70% of taxes from a production company that would not have come to Louisiana without the incentive. One of the comments to my recent post about Relativity Media and the Hawaii film incentive shows how this mistaken mindset typically plays out:

Unless I’m misunderstanding a tax credit, the state will not be paying out cash to qualifying companies. They will rather be collecting less tax. Therefore, the increase in production spending, publicity, jobs, etc. make the decrease in tax income worthwhile. Without these incentives the production industry will not grow rapidly or significantly. Would you rather collect 20% of $1M or 40% of $0? Without the incentive the production goes elsewhere, which means we collect nothing in taxes, create no jobs, etc.

Sadly, the commenter (like so many) is absolutely “misunderstanding” film tax credits.  The false understanding is perpetuated by the constant use of the misleading  “tax incentive” term.  The false understanding about how the incentive actually works leads to the equally false talking point/belief that “70% of something is better than 100% of nothing.”  If the production companies actually paid and owed taxes in Louisiana, the line of reasoning and the talking point would be valid.  But this is NOT how film incentives actually work.

NEWS FLASH AMERICA:  Production Companies almost never owe or pay taxes in any state except California.  This is an indisputable fact and it’s also the reason film credits are either transferable or refundable in every state other than California.  Don’t believe me?  Take the example above for Louisiana; the state film office makes it perfectly clear production companies almost never owe taxes:

A tax credit can be applied toward Louisiana state income tax.  Since most motion picture investors do not have Louisiana tax liability, the credit can not be personally utilized.  This is why the tax credit is fully transferable.

But maybe you are a film backer from Massachusetts,  North Carolina, Pennsylvania or even the Canadian Province of Saskatchewan and you think it works differently in your location.  Guess what?  It works the same way:

  • In Massachusetts, 92% of credits issued thus far were sold and just 8% used for actual owed taxes
  • In North Carolina, over 75% of credits were refunded by the state for cash from 2008-2010
  • In Pennsylvania, over 98% of credits issued were sold and just 1.3% used for actual owed taxes
  • In Saskatchewan, 98% the credits were refunded directly as cash and just 2% used for actual owed taxes

Production companies are not gaga for film incentives because it helps them with their taxes, they are in love with film incentives because they represent CASH used to cover a huge portion of the budget.  Thus, for a $100 million film shooting in Louisiana, $30 million of that spending is coming from the state taxpayers and the actual cost to the production company is just $70 million.  Translation: states are spending money to help pay for movies, not reduce filmmaker taxes when offering film incentives.

For the producer, it is literally money for nothing.  For the state taxpayers, it means $30 million that can’t be spent to build a school, pave roads, pay teachers or firefighters etc.  The 30% credit means an actual CASH cost to the state.  Again, you don’t have to take my word for it because the filmmakers are often quite candid about how this ridiculous windfall benefits them.  For example, William Doyle, the lead location manager on “The Curious Case of Benjamin Button”, said the Louisiana tax/cash credits were “cash….literally right off the top of your budget”:

I think that the only way that this movie was made possible was what Louisiana was doing to foster a new industry, which were massive tax credits, and tax credits are basically cash.  You can sell them on the open market.  It’s literally right off the top of your budget.

Ask yourself the following question:  if we have $30 million in state revenue, should it be spent on a needed new school or to help pay for a film like “Green Lantern”?  Most, of course, would pick the school.  Public dollars for a public service.  But would spending on either make money for the state??  No one in their right mind argues that a state makes money when it pays to build a school.

Even though the economic impact of constructing a $30 million school (just like making a movie) will employ hundreds of people (painters, electricians, architects, drivers, carpenters etc.) that will mean millions spent at countless local vendors, everyone recognizes that building the school is still a net cost to the state.  After all, if the state made money building schools, it would always be spending millions to build them.  But such spending does not make money, it costs money.  Spending $30 million to finance a movie is no different.  Be it a film or a school, it’s still the government spending $30 million.

Don’t many people in America (liberal and conservative) typically complain government spending is out of control?  If spending $435 for a hammer or $600 for a toilet seat was outrageous in the 1980s, how is spending $35 MILLION on “Green Lantern” not outrageous times infinity??  Everyone complains America is crumbling, yet rather than building roads we are making movies.  How is this rational to anyone?

A Call to Action:

At every opportunity, and in every future post, I will urge people to educate themselves about how film incentives work by reading the FILM INCENTIVES 101 post.  Ideally, that post should be the first post anyone reads before any other on film incentives.  Knowledge is power, please help spread it.

In addition, this site will now use the more accurate “Cash incentive” term rather than “tax incentive” for state film incentive programs.  The confusion has gone on long enough.  If you ever write about or discuss film incentives, I urge you to also use “cash incentive” rather than “tax incentive”.

Again, once more people understand how film incentives actually work, debating their value may quickly become a thing of the past.  It’s time for the madness to end.

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