North Carolina Issues $58 Million in Film Tax Credits in 4yrs

North Carolina Issues $58 Million in Film Tax Credits in 4yrs

from: Stop-Runaway-Production.com

North Carolina Issues $58 Million in Film Tax Credits in 4yrs, Refunds $44 Million as CA$H

Mark Binker, a journalist at North Carolina’s WRAL.com, did a fantastic bit of reporting this week about North Carolina’s film incentive.  North Carolina offers a refundable tax credit of 25% on qualified spending and a $20 million per-project cap.

As I pointed out in a previous post that included data for Massachusetts and Pennsylvania, productions have virtually zero tax liabilities and the vast majority, if not all, of the tax credits issued in those two states were sold to third parties for cash.  With a transferable tax credit (Massachusetts & Pennsylvania) the free money from the state’s taxpayers is more indirect because of the sale to a third party.  But in a place like North Carolina or New Mexico, where the credits are refundable, the cash handout comes DIRECTLY from the same state coffers that fund things like education, health care and public safety.  North Carolina teachers, as a matter of fact, have been getting killed by massive cuts from the state.

Once again, the real value of film tax credits is free cash to offset the budget, as very little was used for actual tax liabilities.  According to data from the North Carolina Dept. of Revenue, over 75% of issued credits from 2008 to 2010 were refunded as free cash money:

If the amount of credits refunded in 2011 is similar to the rate refunded vs. claimed from 2008 to 2010, producers will be getting almost $23 million in free cash from North Carolina.  The grand total of cash handouts from the $58.5 million issued as credits from 2008-2011: over $44 million.  Some of the lucky recipients of North Carolina’s free cash for filmmakers program include:

  • $1.77 million for the upcoming Piranha 3DD (can’t wait for that one!)
  • $5 million for Journey 2
  • $234,865 for Eyeborgs
  • $432,000 for April Fools Day
  • And over $27 million for four seasons of One Tree Hill

To be fair, Piranha 3DD spent $7.1 to make the movie in North Carolina, but over half of the $3.6 million in wages was paid to out-of-state actors and talent like Christopher Lloyd, Ving Rhames and David Hasselhoff, who will be spending their wages outside of North Carolina.  Still, let’s take a look at what North Carolina taxpayers are getting for their $1.77 million:

Looks AWESOME!  Thank you for laying off teachers North Carolina, cause I can’t wait for the naked stripper life guards to get eaten!

Detailed spending and credits issued are included for all projects awarded North Carolina’s incentive from 2007-2011 at the end of this post.

Once again, in the comments section to Binker’s article, it was clear that there is a total lack of understanding amongst seemingly intelligent people who back the incentive.  In response to a comment I made to address the confused people who truly believe film incentives are about lower taxes, one of the film backers wrote:

I think you’re confusing how a tax credit works. If you would normally pay $1000 in taxes and the government offers you a $500 tax credit, you pay $500 in taxes. If the government offers you $2000 in tax credit, you pay $0. The government does not pay you $1000.

In the case of Hunger Games, the production was eligible for $15M in a tax credit (according to the article). But this means they paid some amount of taxes greater than that. For the sake of argument, we might say that they paid exactly $15M and their tax liability is now $0. In that case, the state still benefits from the injection of $$$ to the economy.

If we didn’t offer this incentive, it’s certainly possible they would have shot here anyway, in which case great, we benefit $15M in taxes above what we did. But if they chose not to shoot here at all, you lose any tax revenue and any economic injection.

Um, yes…under North Carolina’s REFUNDABLE tax credit, the government DOES pay you the $1,000.  Free Cash!  I offered the following response, which I hope this person saw:

I agree that is how a normal tax credit works. However, the NC film incentive is a refundable tax credit. Any excess credit over the tax liability is refunded in cash. Did you not see the chart in the article above? In 2008, for example, the state issued $11.5 million in tax credits and refunded $9.6 million back as a cash payment. Only $1.9 was used to satisfy actual tax liabilities. But the rest of the unused credit was refunded as CASH. Hence in your hypothetical with Hunger Games, if their tax liability is $0, they get a CASH refund from the DOR for $15 million. It’s money off the top of the budget. Once people realize how these film incentive programs actually work, they not the big fans they thought they were.

If states keep shelling out free money like North Carolina, The Hunger Games may go from fiction to reality.

Detailed North Carolina Film Incentive Production Data 2007-2011:

 

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