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Film Tax Incentives – Another One Bites the Dust

by Jeff Steele

In my recent post on Hungary’s financial woes, I cautioned filmmakers to steer clear of state incentives that are based on transferable credits, due to so many losses in the private sector.  Subsequent to that, The Incentives Office reported that New Jersey canceled their tax credit program — I’m reasonably certain that Pennsylvania and Michigan will follow suit.  Michigan, with its two recent fraud cases(both involving proposed film studios), as well as the departure of its film commissioner, Janet Lockwood, has become too risky to shoot in.  Michigan’s tax credit program has always had very vocal political opposition, which may now finally have the foothold necessary to kill the program.  I know at least one filmmaker who was prepping in Michigan, but has since left for Canada, in the wake of what’s happing there.  I hear that Pennsylvania, with its $2bn in debt, is also teetering on the verge of discontinuing their program.

New Mexico, which has been one of the best tax credit success stories in the country, is no longer riding high on the inflated natural gas prices that bolstered their ability to create the credit as well as the state’s film investment fund.  I won’t go so far as to say that their tax rebate is in imminent jeopardy, but I will predict that their film fund (which served as little more than an interest free facility for Lions Gate) will not survive the states mounting debt, coupled with its diminishing gas revenues.

Georgia has been seeing a drop in its retail pricing to end-user tax payers; in turn, producers should not expect to net more than 70 cents on the dollar as an advance on its credit.  Puerto Rico and Illinois, however, appear to be going strong and have great crews and resources; in addition, Chicago has a talent and crew base that’s hard to beat.

Louisiana, however, is still going strong.  With the state’s buy-back guarantee of 85 cents on the dollar, they’ve pretty much become a de facto rebate state (like Massachusetts).  This makes Louisiana the only other transferable credit program that can be banked by senior lenders, which means you can get your presales, gap and tax credits all wrapped-up in one loan (lending up to 90% of the 85% guarantee — that’s almost as good as Canada!)  If you can sell the certified credit on the open market for more than 85 cents, then the overage will help to pay down your loan that much faster.  It’s still not as lucrative as most rebate states, which give you dollar for dollar, but Louisiana does have the infrastructure, post, and crew that many states lack.

The good news is that most tax credit loans are relatively short in duration, when compared to your production loan, so there can be some degree of foresight into what the political and economic landscape of any particular state will be, nine months from now.  The key is to work with somebody who knows.  The film commissions will never copto any impending doom on their own horizon, but they’ll be quick to point out what brewing in other states.

Bottom line, there are still many states with great programs, just do your homework and keep your eyes open and ear to the ground.

14 Responses leave one →
  1. July 16, 2010

    I hear you, Jeff. Your observations seem to be pretty spot on. And Arizona’s tax incentive is scheduled to end this year. What’s your understanding of the latest in California?

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    • Jeff Steele permalink
      August 30, 2010

      BMK, I predict that California’s tax credit will be deliverd by three separate letters: I…O…U.

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  2. July 16, 2010

    Hmmm. I wonder which state is No. 3 in production revenue behind California and New York?

    Getting bank on 90% of the 85% incentive? Wow. Who wouldn’t want that?

    I would want to shoot in a state that provides these incentives, crew talent and wonderful locations.

    I wonder if anyone knows of one?

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  3. Scott Hillman permalink
    July 19, 2010

    I am just curious whats going to happen when Californias Tax credit kicks in.

    Which is to say its probabbly going to implode before it even begins, but it might be an intresting transition not just for the LA industry but the industry in all the states. As they move to compete with what looks to be a speculitive program, when the speculation comes do they might be in a good position to get more of the industry.

    This is why i suspect that New Mexico credit programs isn’t going anywhere becuse in someways it has the most to loose.

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    • Jeff Steele permalink
      August 30, 2010

      See my new post: Matthew Vaughn’s UK Film Fund
      I think California should increase their credit and structure there’s this way as well.

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  4. Scott Hillman permalink
    July 19, 2010

    Out of curiousity Jeff, do you know of any filmmakers out there who are going after say Alabamas Tax Credit?

    Looking at the you see the same 5 or 10 names everwhere, but looking at incentive lists you see a lot of states with pretty generious programs. Is there something i am missing here.

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  5. July 21, 2010

    Excellent article as always Jeff. However I tend to disagree with you strongly on Michigan. Clearly I am biased as I helped with the passage of the legislation as the founder of Michigan Film Production and FilmBudget.com and a native producer based there and in Los Angeles. The political climate has been vocal on the subject with seemingly everyone having a voice on the Michigan incentive. However, 90% of the legislature voted for the incentive in 2008 which has brought 42 films or so each year since and around $300 Million in production spend, kick-started a clean industry and motivated a creative and technical talent pool to launch the film and tv business there. A huge advantage is that it is a cash rebate providing a check to the filmmaker without the need to broker a tax credit. At 40-42% it is indeed the highest. The real political opposition has been from one loud misguided legislator whom is term limited this year whom just does not get it and has been the constant source of gloom and doom on the subject. There is immense and widespread support for the Michigan Film Tax Incentives for film, tv, music, video games and entertainment infrastructure in government, the real clamor is about transparency and balancing the needs of the state budget with the wisdom of jump starting the industry there, which has massive public support. Rightfully so some people are requesting more transparency in the spend than Hollywood is generally comfortable with and so far the film office has obliged. Treasury is increasing its oversight and scrutiny mostly in light of other states issues of malfeasance. Of the scandals you mention, one was upon a never approved studio deal incentive and the other was just bad business planning and victim of the credit crunch to my understanding. The $75 Million studio complex is on track and there are several other studios and soundstages now and building for the future. Michigan is a great place to make films, witness Clint…

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  6. July 21, 2010

    The NC political climate has also been vocal on the subject and New Bern resident and Gov. Bev Perdue is being fully supportive of the NC incentive. Gov. Bev Perdue signed Senate Bill 943 allowing production companies a 25 percent tax credit for film projects in North Carolina, up from the previous credit of 15 percent. The bill also set minimum spending and hiring requirements for qualifying film companies working in the state.
    “This legislation will help grow our $91 million motion picture industry, preserve and create thousands of jobs and increase investments in yet another emerging economic cluster,” said Perdue. “Providing a strong foundation for North Carolina’s film industry is essential as we work to build a strong and sustainable economy through increased diversification.”
    July 2010 Aaron Syrett Director NC Film Office a marketing agency charged with recruiting motion picture and TV projects to North Carolina stated that “In the past couple of years North Carolina has made some pretty aggressive moves to keep the film industry in North Carolina, including this legislative session which just ended.”
    The NC General Assembly made the following improvements to the incentive:
    HB 1973:
    • Eliminates the 15% and Alternative Film credit.
    • Creates a 25% film Incentive.
    • Increases per project cap to $20 million (was $7.5 million) –
    • Defines, employee fringe contributions, including health, pension and welfare contributions as qualifying expenses.
    • Defines perdiems, stipends, and living expenses as qualifying expenses.

    HB 713:
    • Eliminates the 6.9% corporate income tax on the incentive taken by a production company. This allows the production company to realize a full 25% of qualifying expenses
    For further information about the NC film industry see: ncfilm.com

    The springs still flow and the water is fine in Eastern NC

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  7. Matt permalink
    July 22, 2010

    And now this for New Mexico

    From THR

    http://www.hollywoodreporter.com/hr/content_display/film/news/e3ic0d7c3a6d02f0164260491bb3ea8193c

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  8. July 26, 2010

    It never ceases to amaze me how producers look at the numbers and then run to states with no infrastructure. At the end of the day, you only diminish your potential rebates and then have to deal with so many production problems, is it really worth it?

    Consider shooting in Canada!
    Ontario + Quebec have a 25% all-spend program, plus additional tax credits for VFX. Manitoba is currently 35% and they also “deem” crew, enabling you to bring crew in from other provinces.

    Add these to a currency differential and bankable tax credits and why consider any other option?

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  9. July 28, 2010

    Jeff
    Good piece, but you fail to mention Washington state.
    Since 2007, we have had a great, though underused, program.
    In 2009 our rebate rose to 30% on all Washington spend for features spending over 500,000, series spending over 300,000 per episode, and commercials spending over 150,000.
    The rebate is CASH, paid within 30 days of submission of final documents to the program. No tax credits, no questions on funding. The funds are in their own account and once allocated to a specific project, they don’t go anywhere else.
    Marty Oppenheimer

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    • August 7, 2010

      I second Marty’s comment on Washington State rebate. We are doing post production accounting on a feature that shot up in Washington. Washington Film Works is very helpful, we have done multiple filings and received rebate in a very timely fashion which helps cash flow. Great Experience. Here is website if anyone needs it. http://www.washingtonfilmworks.org/

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      • Johnathan Krystal permalink
        August 18, 2010

        Is Washington Film fully funded or is there a “cap” on production expenditures? Are they a first-come first-served agency? For example if three 100 million dolallar productions come to Seattle in a month are they each going to get their 30 mil at the end of the production guaranteed?
        Thanks, I couldn’t tell by their web site.

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  10. August 17, 2010

    Is anyone aware of a comprehensive guide to the major incentive programs?

    Preferably a single source for all 50 states and the major non-U.S. locations, and information regarding results from the incentive.

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