Film Tax Credit

  • Wednesday, September 12, 2018

In 2013, lawmakers created a new, transferable tax credit for film production in Nevada. The credit is worth up to 19 percent of total production costs and can be applied against most state taxes. 

A unique characteristic of the credit is its transferability, meaning that film producers who qualify for the credit can sell it on a secondary market to speculators or to Nevada-based firms that can use the credit. Other states have created similar transferable tax credits in recent years and an online exchange has emerged to facilitate trading of these credits. Typically, the final recipient who intends to use the credit will acquire it for 70 to 85 cents on the dollar, while film producers can gain up-front liquidity to finance a film through sale of the asset.

The state Office of Economic Development, which administers the new tax credit program, was authorized to award as much as $20 million annually in transferrable film tax credits through the end of calendar year 2017. However the 2017 legislature passed a new law which caps the amount of available film tax credits at $10 million per fiscal year, although any unused portion can be carried forward to future years.

Key Points 

The value of the credit far exceeds film producers’ actual tax liability. The Office of Economic Development is instructed to reward qualified applicants a tax credit equaling 15 percent of total production costs at minimum, but applicants can qualify to receive up to 19 percent of production costs. The value of this credit far exceeds any Modified Business Tax or sales tax liability that film producers are likely to accrue during the course of shooting a film. That means the credit is essentially a direct subsidy from state taxpayers for film production.

Film tax credits have been a net loser in other states. Advocates of tax credits for film production — almost always from the film industry — like to cite Louisiana’s program as a model of success, as they did during hearings for SB 165. In 1992, Louisiana became the first state to offer a film tax credit for “investment losses in films with substantial Louisiana content.”

In 2005, nonpartisan legislative staff reviewed the impact of the credit and determined that it resulted in major losses for the state’s general fund even after accounting for any boost in employment or tourism that could be attributed to the credit. For each of the years 2006 through 2011, the Legislative Fiscal Office estimated that the credit would result in a net loss to the general fund of at least $48 million.

In North Carolina, as well, legislative fiscal staff reviewed the impact of $30.3 million in film tax credits awarded in 2011. “Under the most plausible assumptions,” report staff, “the Film Credit likely attracted 55 to 70 new jobs to North Carolina in 2011… The Film Credit created 290 to 350 fewer jobs than would have been created through an across-the-board tax reduction of the same magnitude.”

Similarly, in Ohio, an analysis of that state’s film tax credit performed at Cleveland State University reached similar conclusions: Only $5.9 million of the $28.3 million awarded in tax credits has returned to the state in the form of additional revenue. In other words, Ohio loses 79 cents on the dollar.

After failing performance, other states are now eliminating film tax credits. Nevada chose to enact its film tax credits at a time when other states are scaling back or ending them. Since 2009, at least eight states have either eliminated their film tax credits are stopped appropriating money for them. Nine other states have scaled back the value of the credits offered or the total amounts available for the credit.

Recommendations

Eliminate the film tax credit. Nevada has much greater needs for tax dollars than to subsidize wealthy film producers.


 

Source: State of Louisiana, Legislative Fiscal Office, “Film and Video Tax Incentives,” March 2005.

Year

States with Film Incentive Program

Incentive Amounts Offered

1999 and earlier

4

$2 million

2000

4

$3 million

2001

4

$1 million

2002

5

$1 million

2003

5

$2 million

2004

9

$68 million

2005

15

$129 million

2006

24

$369 million

2007

33

$489 million

2008

35

$807 million

2009

40

$1.247 billion

2010

40

$1.396 billion

2011

37

$1.299 billion

Source: Tax Foundation, “More States Abandon Film Tax Incentives as Programs’ Ineffectiveness Becomes More Apparent,” June 2011.


blog comments powered by Disqus