The Complete Film Production Handbook Notes Chapter 5 Incentives Eve Light Honthaner Mary Walbridge
Incentives Hot buzzword Where is the best program Must have legal astuteness to analyze complex legislation, complicated tax issues Deal with state officials Producers, studios, & networks want to know where they will save money
From Runaway production to TV, features, intended for US release, exhibition being produced shot in other countries Canada
Then the American Jobs Act 2004 Section 181- allowing an immediate 100% write off of certain audiovisual works This allows investors or production entities to claim up to $15 million ( $20 million in a low income area) in a years or years the funds are being spent In US Not sexually explicit films or videos Can not capitalize expenses being written off
Modified K1 Section 181 Accountant must file Letter on production stationery attesting to what is invested and spent 181 guidelines
To be eligible you must have Completed screenplay Completed budget All investment documents Filmed at least one day of principal photography with one speaking role
Section 181, the Federal tax incentive spurring the production of film and television in the United States is about to suffer, reports David Robb at Deadline, a quiet death at least for the time being. Filmmaker has covered Section 181 extensively, with Daniel J. Coplan s article from last summer explaining in detail how the incentive benefits independent film producers and investors. In brief, it allows investors to deduct 100% of their investment against their Federal taxes in the year of the investment. That s opposed to depreciating that investment over multiple years. For a high net work individual, that could mean a Federal income tax savings of 30% of the investment. Originally implemented as part of 2004 s American Jobs Creation Act, under George W. Bush, Section 181 has been allowed to lapse before, but it s always been brought back. Sometimes, that lapse has been lengthy. For example, it expired January 1, 2015 but then, almost 12 months later, was renewed again and made retroactive for the whole year. With a new President (and one who was not given much support from the film industry, despite his own entertainer roots), a new Congress, and an all-around aura of unpredictablility, no one is holding out much hope that Section 181 will be renewed again. But you never know. With filmmaker and producer members of his inner circle including chief strategist Stephen Bannon and Treasury Secretary Steven Mnuchin who have undoubtedly personally benefited from the incentive, it s certainly possible that it will rise again. Follow this space.
Section 199 Doesn t have to be renewed yearly
Section 181 Some feel for all the paperwork & time involved, it doesn t generate enough money Investors don t like it in a poor economy because their passive income is liable to have taken a hit
40 states have incentive programs Attitudes toward these vary Taxpayers should not have to subsidize Hollywood bigwigs Too much temptation to inflate budgets for bigger payouts Rebate & tax credit coffers can run dry in a shaky economy
Competition is intense Many countries are entering the race
What to consider Incentives come in many different sizes and flavors Cash rebates Tax credits Production funding Hotel occupancy tax waivers Location fees Depressed areas
Contact Film commission Original legislation State s dept of revenue Tax attorneys in the state People who have shot there
Ask Would production company have to reside in jurisdiction Register its business in jurisdiction Local taxes Filing fee costs and audits Which expenditures qualify are good spend Labor rebates
More Questions Crew have to be paid through payroll company Certain % of filming in jurisdiction Does a certain amount of money have to be spent to qualify How long is incentive program voted in for
Questions Subject to Audit Required to hire a CPA Caps imposed on a show, employee on how much to claim Finite fund the state draws from Transferable tax credits which company will be willing to buy tax credits
Questions Can you monetize or draw on the rebate before completion of film Can you sell the tax credit immediately How long will it take to get Must you hire a certain number of crew Must you give screen credits
Infrastructure Sound stage Certified labs Equipment house Qualified crew Right to work state
Some of the US states that have solid infrastructure New Mexico Louisiana North Carolina Pennsylvania Massachusetts
Rebates A cash rebate is the amount of money paid to a qualified production company based on qualified expenditures made or jobs created in the state
Tax Credits Tax credits can be refundable or nonrefundable, transferable or nontransferable and they are administered by local taxing authority
Refundable Tax credits A refundable tax credit functions like a rebate but it is claimed by filing a tax return
Transferable Tax credits Can sell the tax credits to local taxpayer often to corporations that would buy them to offset tax liabilities
Nonrefundable Nontransferable Tax credits Can generally be carried forward and used to reduce taxes in subsequent years
These programs are Complicated, constantly changing