More Shenanigans in Louisiana

More Shenanigans in Louisiana

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Last week, I wrote an extensive post about the cost vs. benefit of Louisiana’s film incentive program.  That post was limited to the cost to the state, the return in tax revenue to state coffers and the employment impact.

After laying the ground work, I wanted to do a follow-up post that pokes holes in their program by getting into some nitty gritty details.

The recent economic impact report for Louisiana (by BoxStarr Consulting) had painted a pretty rosy picture about how mature the industry was becoming:

The proportion of total film production budgets spent in Louisiana has also increased significantly, from 34 percent in 2006 to 64-80 percent in 2010. In 2006 when the law changed to specify that only in-state spending would qualify for tax credits, productions spent approximately 34 percent of their budgets on in-state goods and services. By year-end 2010, that number is estimated to have hit 64 percent, indicating a widespread proliferation of Louisiana-based businesses servicing the industry. When the total spending is adjusted to eliminate mega-productions which tend to import more crew and vendors into Louisiana, and focuses on Louisiana projects budgeted at $20 million or less (90 percent of all film projects in the state), which use more Louisiana goods and services, the in-state spend average climbs even higher, to about 80 percent.

This shift in spending is significant because it reflects the growing maturity of the film industry in Louisiana. For example, services that once had to be performed in Los Angeles can now be secured in Shreveport, and jobs that were once found only in Burbank, CA are now based in New Orleans. Thus the brain drain is slowly being reversed in this sector, with Louisiana natives and their families returning to the Pelican State.

On its face, the 2006 change to the program making only in-state spending eligible sounds like a great idea.  Hypothetically, California-based businesses would no longer be benefiting at Louisiana’s expense and new businesses would, naturally, be compelled to open in Louisiana to offer services that productions could apply the incentive on.  The Bureau of Labor Statistics data, which the BoxStarr report relies heavily upon as a credible authority and data source, does show some growth in the total number of establishments in the motion picture industry located in Louisiana.  But not that much.  In 2006, there were 204 and by 2010 there were 245.  It seems highly unlikely the 41 new businesses could have helped account for such a dramatic increase on in-state spending:

So what could be going on?

Theory 1:  Louisiana changed its rules, hoping it would benefit the state. 

Theory 2:  Hollywood noticed the change and producers found a way around them.

I am inclined to suspect the latter.  Call me crazy.  How, one might ask, would one get around this rule and make it look like new in-state spending benefiting a Louisiana company rather than one in California?  Thanks to a prop-shop manger who shared their experience, Louisiana’s in-state spend requirement is very easy to get around:

I rent props to Cast and Crew on Set/ABRAHAM LINCOLN VAMPIRE SLAYER which is filming in New Orleans, Louisiana. My price to the customer is $50,000.

I send my bill to Cast and Crew on Set. They then re-rent my props to ABRAHAM LINCOLN VAMPIRE SLAYER, charging the client the local parrish sales tax, which in this case is 9%.

This qualifies the $50,000 order to be classed as a local spend and eligible for the Louisiana tax rebate.

Now, this is where it gets interesting. In 26 years I have never charged any of my clients sales tax on rentals. When we started our company 25 years ago we elected to pay the sales and use tax on our merchandise when we purchase the stock. This exempts us from charging our clients sales tax for rentals. If ABRAHAM LINCOLN VAMPIRE SLAYER rented my props in California the price would be $50,000. To rent the same props in Louisiana, the price is $54,500.

If you are shooting in Louisiana because you want the 30% tax credit, but,  you need items from out of state, you pay the 9% sales tax plus whatever the pass through company charges. That 30% rebate gets dwindled away with local taxes and handling charges very quickly.

In short, the practice above explodes the myth that there is a growing “local” industry in Louisiana.  There has been some growth, to be sure, but much of it is a paper tiger.  The resident on the street sees filming activity, notices one of the 245 film industry establishments–like Celtic Media Center in Baton Rouge–and assumes all of the new spending is benefiting Louisiana.  But the vast majority of what looks “local” on paper and in reports is, in reality, not local at all.  Annecdotally, even Craft Services vendors and California catering companies have recently gone to Louisiana.  If Louisiana’s infrastructure has matured by leaps and bounds, how come they need to import Craft Services folks to hand out potato chips on set??  And are there no catering companies in Louisiana??

The other myth the email helps debunk is the common saying that “it’s too expensive to film in California.”  This is factually not true.  The only reason Louisiana is cheaper is because the government is artificially lowering costs with a 30% subsidy.  Take away the subsidy, and the prop is cheaper in California.

The Louisiana Loophole……

Turning to another issue with the Louisiana incentive I  just learned about concerns the amount of credits that can be issued for the multimillion dollar salaries for Hollywood celebrities, like Tom Cruise or the cast of “Twilight”.  I was under the false impression the credit only applied to the first $1 million in compensation paid to a celebrity.  Boy was I wrong.  The language in the law provides:

To the extent that base investment is expended on payroll for Louisiana  residents employed in connection with a state-certified production, each investor shall be allowed an additional tax credit of ten five percent of such payroll. However, if the payroll to any one person exceeds one million dollars, this additional credit  shall exclude any salary for that person that exceeds one million dollars.

The Louisiana Legislative Fiscal Office informed me about how this provision is actually working.  Because of the way the law is written, the cap limiting the credit to just the first $1 million paid applies only to legal residents of the State of Louisiana.  None of the major stars and celebrity talent who shoot in Louisiana are legal residents of the state.  Tom Cruise lives in Beverly Hills, not Baton Rouge.  In effect, the law is discriminating against Louisiana residents in favor of out-of-state talent!  If Tom Cruise is paid $10 million for the film he is about to start shooting in New Orleans, the Louisiana taxpayers will be out $3 million as the state subsidizes the mega salary of an out of state celebrity.

The Louisiana film incentive:  still benefiting other states, favoring non-residents over Louisiana citizens.  Madness.

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