Don't Mess With Taxes

The iconic Hollywood sign is still there, but films no longer are limited to Los Angeles backlots. They're made across the United States (and world), with film makers choosing locations based in many instances on available tax breaks. (Photo by Dmitry Rogozhin via Wikimedia Commons)

You haven't been to a movie theater in years. You don't pay for streaming services. But chances are you have been covering the production costs for recent movies and television shows.

That's because 33 states and the District of Columbia offer tax breaks to movie makers and more.

The only states that currently don't offer tax benefits for films to be made within their borders are Alaska, Arizona, Delaware, Florida, Idaho, Indiana, Iowa, Kansas, Michigan, Missouri, New Hampshire, North Dakota, South Dakota, Vermont, West Virginia, Wisconsin, and Wyoming.

The tax benefits once again are in the spotlight as the Academy Awards near. This year, Oscar nominees "Licorice Pizza," "Being the Ricardos," "Tragedy of Macbeth," and "King Richard" are among those whose statuette dreams were underwritten by tax breaks.

Hooray for Hollywood allure: The tax breaks for multimillion-dollar productions are controversial. Some states have been ripped off by unscrupulous filmmakers. Others have helped subsidize projects that didn't provide anywhere near the fiscal returns promised.

Still, the appeal of movie stars wandering your streets has its appeal. I know. I grew up in West Texas hearing stories of Rock Hudson, Elizabeth Taylor, and James Dean and the making of "Giant." That happened when I literally was a baby, the silver screen glow continued to shine.

That's part of the reason that of the states now without tax breaks for movies and other productions, Arizona and Florida are working on offering them.

Sunshine State lawmakers renewed efforts to lure major film productions to the state through a tax credit incentive program. Florida legislators also are working on tax break that would make the state a production hub of streaming content for, among others, corporate resident Walt Disney Company.

Officials in another sunny clime across the country are trying to resurrect their film production tax break program. Arizona lawmakers are moving a measure that would provide tax credits to those who produce and film productions in the state. The credits would offset any Grand Canyon State taxes that production companies would pay while there.

The Arizona effort is despite the financial failure of such tax breaks years ago. A 2009 report by state commerce officials found that tax credits designed to lure Hollywood producers to Arizona in 2008 actually cost the state $6.3 million. The math showed while the productions generated about $2.3 million in additional state and local taxes, it came at the cost of more than $8.6 million in Arizona film credits.

States still hope for production pay-offs: California, which has long fought the loss of Hollywood's power to other locales, both within the United States and globally, still depends on movies for much of its revenue.

That's why Golden State residents — and lawmakers and cities and the film industry itself — continue to lobby for production tax breaks they argue are necessary for the West Coast home of Hollywood to remain a major player. And yes, I was thinking of the late, great Robert Altman's Tinsel Town roman à clef masterpiece The Player when I typed that.

The Los Angeles County Economic Development Corporation (LAEDC) for the Motion Picture Association, a trade body for the major studios, says in a new report that California lost out on nearly $8 billion in economic activity, 28,000 jobs, and more than $350 million in state and local revenue when film and TV projects chose to film elsewhere in recent years.

"If these productions had stayed in the state, California would have reaped the economic benefits. Instead, the loss of this spending in California cost the state $7.7 billion in generated economic activity," according to the study.

Geographic pride: And while money obviously is important, state pride plays a role in the creation and continuation of production tax breaks. Yes, bad policy often is enacted thanks to emotional, not practical, reasons.

Some Arizonans support the renewal of the tax benefits because films ostensibly set in the state actually are filmed elsewhere. State Sen. Stephanie Stahl Hamilton of Tucson says, for example, it's wrong that "Only the Brave," the 2017 movie about the 19 Granite Mountain Hotshots who died while fighting the 2013 Yarnell Hill Fire, was filmed in New Mexico.

The reason the movie makers moved east one state was because the Land of Enchantment offered more generous tax breaks. New Mexico also is a frequent stand-in for movies set in my native Texas, again thanks to production tax benefits.

Even one of the most popular streaming shows, Kevin Costner's western soap opera Yellowstone, moved locations because of tax benefits.

The show's first three seasons were filmed mostly in Utah. But it moved the fourth season's filming to Montana because of, you got it, the Treasure State lived up to its nickname with more lucrative tax breaks.

Multiple types of tax breaks: Movie production incentives, or MPIs, take many forms. Among the most popular are:

• Tax credits: The most common form of incentive is a tax credit that allows the taxpayer a credit against state income tax liability owed in that jurisdiction. They generally come in two forms —
• Refundable versions, where the state repays production companies' excess production credits after all income tax is paid, and
• Transferable refundable, where the production company can transfer their tax credits to a local company to reduce or eliminate their tax liability.
• Rebates: Rebates are another form of incentive that provide direct cash payment at the applicable rate for qualified production expenditures.
• Grants: Some states utilize grant programs that operate very similarly to rebates.
• Bonuses: These are additional perks offered to producers, such as shooting at locations free of cost, special permissions for filming in public places, hiring local staff, or discounts while buying from local businesses.
• Tax exemptions: Many states also offer sales tax exemptions on a variety of local purchases made, giving productions further incentive to spend locally.

Some counties and cities offer additional tax breaks to sweeten production deals.

They also are available in many cases to productions beyond film and television. Video game productions often have utilized the tax breaks, as have, at various times, theatrical and musical venues.

And as with any tax law, the film-related tax breaks can be complicated, for both the states handing them out and the productions applying for them. For now, though, all agree that they are key to the movie making process.

That's just a little tax tidbit to keep in mind as your watch the 94th annual Oscars this Sunday, March 27.

You also might find these items of interest:

• Movie and TV production tax credits, trick or treat?
• Did tax credit cut cause Pixar to close its Vancouver office?
• 'Love & Taxes' funny on screen, but not filing in real life is no laughing matter
• State film production tax breaks again in spotlight with 2021 Oscars nominations

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