Whether you’re a publicly held movie studio conglomerate producing and distributing substantial numbers of films annually commanding significant shares of box office revenues worldwide or an independent filmmaker, movie production tax incentives should certainly be considered and incorporated into the tax planning process to properly tax effect the cost of filmmaking.
Synopsis of Movie Production Tax Incentives
Movie Production Tax Incentives (MPIs) are tax benefits offered on a state-by-state basis throughout the United States to entice, as applicable, in-state qualified phases of filmmaking production such as the Qualified Pre-Production Phase, the Qualified Production Phase, and the Qualified Post-Production Phase. It should be duly noted that it is fairly common practice in the movie studio industry to shoot the aforementioned phases of qualified production throughout several locations (e.g., Qualified Production Phase in the City of Los Angeles in California, USA and the Qualified Post-Production Phase in the City of Vancouver in British Columbia, Canada) and consequently it is critical to be cognizant of incentives available, as applicable, not only state by state within the United States but also country by country worldwide.
While the applicable Qualifying Production Activities (QPAs) vary significantly from state-to-state, many common QPAs include, but are not limited to, feature films, episodic television series, relocated television series, television pilots, television movie, and mini-series. In contrast, as a caveat, many states generally consider the subsequent productions to be non-qualified production activities and consequently not eligible for MPIs such as documentaries, news programs, interview/talk programs, instructional videos, sports events, daytime soap operas; reality programs, commercials, and music videos. Additionally, while the applicable Qualifying Production Expenditures (QPEs) also vary significantly from state-to-state, many common QPEs include, but are not limited to, salaries, facilities, props, travel, wardrobe, and set construction. It is always critical to establish clear nexus between QPAs and corresponding QPEs.
The structure, type, and size of the incentives vary significantly from state to state. Many MPIs may include tax credits, tax rebates and/or exemptions (e.g., sales and use tax exemptions on movie production equipment, sales and use tax exemptions on lodging, etc.) while other state incentive packages may include cash grants, fee-free locations among many other diverse and advantageous incentives. The state-by-state legislative histories and policies driving MPIs are clearly aimed at increasing economic growth at the state and local levels through filmmaking and television production throughout the United States, while curtailing the departure of movie production to other countries.
Approximately forty states currently offer MPIs with most being either transferable (e.g., transferable credits allow production companies that generate tax credits greater than their tax liability to sell those credits to other taxpayers, who then use them to reduce or eliminate their own tax liability) or refundable (e.g., refundable credits are such that the state will pay the production company the balance in excess of the qualified expenses).
It is critical to design and implement a sustainable methodology that will incorporate all applicable MPIs to obtain the proper tax effect of the cost of filmmaking regardless of the size and structure of the movie studio or production conglomerate. Tax incentives matter whether your client is one of the “big six majors” (e.g., Paramount Motion Pictures Group (Viacom), Warner Bros. Entertainment (Time Warner), The Walt Disney Studios (The Walt Disney Company), NBC Universal (Comcast), Columbia TriStar Motion Pictures Group (Sony), and Fox Filmed Entertainment (21st Century Fox).) or a leading independent producer/distributor commonly referred to as the "mini-majors" (e.g., Lionsgate Films, The Weinstein Company, Open Road Films, CBS Films, DreamWorks Studios, and MGM Pictures) or a smaller production and/or distribution company known as independents or “indies.” As a direct result of these advantageous MPIs, filmmakers may be able to jubilantly end their productions saying, “Lights, Camera, Action and Tax Cut!”
Peter J. Scalise serves as the Federal Tax Credits & Incentives Practice Leader for Prager Metis CPAs, LLC a member of The Prager Metis International Group. Peter is a BIG 4 Alumni Tax Practice Leader and has successfully represented entertainment industry clients over the past few decades for their specialty tax incentive needs including the “Big Six Majors”, the “Mini-Majors” as well as many independent production studios and film finance companies.
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