Multistate Film Credit

Hello Internet. Actually, based on our traffic numbers, it’s a bit presumptive to say hello to the entire internet. Realistically, hello Mom, the four people who clicked this blog from my Facebook link, and the seven people who found this through our surprisingly high Google page rank. (Go Withum Marketing Team!!!).

Today I want to talk about money. More specifically about the government giving you money. Even more specifically, about the government giving you money for making movies and TV shows.

Film production incentives are offered by various states as an incentive to film in that state. Currently there are 39 states that offer some form of film production credit (including Washington DC and Puerto Rico). In general terms, certain states offer a tax credit in relation to the film’s overall qualifying budget. Essentially, if you spend $X in qualified costs in a specific state, that state will give you Y% of $X as a production incentive. In the coming weeks and months, I will discuss specific State credit programs. For now I want to discuss some general issues that you should evaluate when analyzing a credit program.

Transferable/Refundable/Neither:

Some states offer transferrable credits which essentially means that when you are approved for a credit, you can exchange the credit with another taxpayer or the government for cash. The advantage of a transferrable credit is that you can access cash immediately to finance your project, unlike refundable credits which are not issued until (usually) after the film is completed. The disadvantage of transferring credits is that sometimes the amount of credit is reduced on transfer. E.g. credits may only receive 90% of their value on sale.

A refundable credit first offsets your state tax liability and then the remainder of the credit is returned to you. For instance, Bill is going to make a film. He secures a $100,000 tax credit from state A. His film makes a profit and he owes State A $20,000 in taxes. The first $20,000 of credit reduces his state tax liability to $0. The remaining $80,000 of credit is refunded to Bill. The downside of refundable credits is that the benefit is received after the film is shot and the money is spent. Refundable credits can also be a powerful fundraising tool, as I will discuss in a subsequent post.

Some state credits are neither transferable nor refundable. Let’s try to avoid these whenever possible.,. as the utility of these credits is somewhat diminished.

Restrictions and Rules:

Credit packages are the brain child of state assemblies and as such are packed with narrow rules, red tape and tight rope walking. When evaluating these restrictions keep in mind that production credit packages are implemented to benefit the state’s film industry and economy and the restrictions are in place for these reasons. The efficacy of these programs is debated.

Several credit packages have requirements that the project may only employ state residents. Others require that the project shoot in certain locations while others require a certain minimum number of days shooting. There are also requirements for minimum spends, max spends and state level overall spending caps.

There are also content based restrictions. Some states allow production credits for feature films only, some states exclude documentaries, etc.

Conclusion:

Some of my readers may be working on productions where incentive productions will be one of many factors in deciding where to shoot. Other readers are operating on small budgets and will use whatever credits that are offered to maximize their value. Others are my mom. Hi Mom.

If you have questions about film credits, please contact a member of Withum’s Sports and Entertainment group.

— Alex

About WithumSmith+Brown, PC

WithumSmith+Brown, PC is a full service, regional certified public accounting and consulting firm with over 900 employees.
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