An excerpt from
PRODUCTION INCENTIVES. How to Boost Your Budgets by Leveraging Film Tax Credits, Cash Rebates and More…a Special Report — January 2010
Incentives 101: How to Compare and Analyze State Incentive Programs
By Christine Peluso, Tax Credits International, Inc.
With so many options available for filmmakers, careful analysis of each film tax credit program is critical. The following should be considered before green-lighting any project.
- Size is NOT everything: In general, the amount of the awarded tax credit is determined by multiplying the percentage (Michigan 40%, Connecticut 30%, Massachusetts 25%) by the project’s “qualified expenditures”. However, the definition of “qualified expenditures” varies from state to state. Therefore, one cannot simply multiply the anticipated “in-state spend” by percentage to compare programs, but must instead first determine what expenses are considered qualified. Without the help of an expert, or “placement specialist”, only the savviest of producers will monetize the full value of the credit. Do not be seduced by the size of the credit….but instead pay special attention to allowable or “qualified” expenses when comparing programs.
- “Recapture” is a red flag that pricing may not be optimal. States that retain the right to “recapture” an issued tax credit, or invalidate it after it has been purchased by a “good faith” buyer, experience erratic pricing, as the buyer is assuming potential risk. If you must film in a recapture state (Georgia* and Rhode Island, for example), identify a buyer in advance, and get a signed purchase agreement prior to shooting. If possible, retain an independent CPA verify the project’s expenses. It will add value to your credit in a recapture state.
- Plan ahead. As a result of the recent economic crisis, many reliable buyers suffered losses which affected their ability to absorb tax credits. This impacted the price that the credits will fetch in the market, as demand was reduced. However, those producers who got a commitment in advance were not negatively impacted. This should be standard practice in any market, if possible.
- Select a reputable Placement Specialist to help wade through the requirements of the tax credits and exclusively sell your credit for the highest applicable price. By engaging just one company to represent your interests, you eliminate the danger of having multiple parties bidding against one another and effectively bidding your pricing down.
- Start early. The sooner you begin preparing for the tax credit, the greater value it will have in the end. Accounting and payroll systems should be established to “flag” qualified expenses and production accountants should be well-briefed regarding the requirements of the tax credit program. Again, a Placement Specialist will help orchestrate all the parties so that the maximum value of the credit will be realized in the end.
*Georgia now offers a voluntary state audit option which removes recapture.