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Sunday, March 20, 2011

CA Film Credits Hearing on March 21, 2011

The California Assembly Revenue & Taxation Committee is holding a joint oversight hearing on the Film and Television Tax Credit Program. Whoever published the agenda was creative - it reads like a movie premiere event - take a look - here. Very nice!

I think it is a sad state of affairs when California - home of Hollywood, needs to have tax incentives to help the movie and television industry. But, competition for this business by other states and countries leaves California having to compete in a similar fashion by offering subsidies to producers.

In a few other states, this has been very controversial in practice because of stories in the press about the money going to wealthy stars who are unlikely to spend their money in the state, for lavish set properties or lavish equipment for the crew. See for example, Michigan and Iowa.

A few other states have examined their tax incentives including the film credit. For more information on this see Nellen, "States Examining Business Tax Incentives," AICPA Corporate Taxation Insider, June 2010. Massachusetts issued a report in January 2011 on its incentives and Iowa, a year earlier.

Mark Robyn of the Tax Foundation will be testifying on March 21. The Tax Foundation opposes film credits as they violate a few principles of good tax policy. (See Tax Foundation Special Report of January 2010 - here.)

In looking for statements or reports on the benefits of such credits, I found:

  • 2008 State Tax Notes article on Louisiana film credits
  • Pennsylvania PR Newswire story of 3/8/11 and $60 million of film credits

While tax policy weighs against the tax incentives, economic development may weigh in favor - but at what cost to the state versus the many other spending items in the California budget seeking scarce dollars? Should be an interesting hearing!

What do you think?

1 comment:

Unknown said...

Although the film credits have been adopted by many states, it's not in the best interest of Californians to do the same.

Most states, such as Iowa & Michigan, use this incentive to attract movie business something they otherwise won't have. Another benefit is that movies might potentially promote the state to improve tourism business. However, incentive alone won't create an environment that will keep the movie production in the long run. That's why we saw many temporary projects completed in those states who offered the film credits, but nothing permanent. Meanwhile, movie producers understand that the credits are the offered by politicians and can be taken away at any time. So they are hesitant to invest in fixed assets or training labor forces.

CA, on the other hand, has everything to offer to make great movies: great talents, perfect weather, and the benefit that movie stars don't need to travel far to go to work which are all very attractive.

California is facing a budget crisis already. We can't afford to offer credits and lose even more revenue. Meanwhile, overseeing compliance of the credit will increase the state's administrative cost.

In my opinion, instead of offering film credits, CA should focus on improving infrastructure, improving local government efficiency to shorten the permit application process and to invest in education to bring more talented directors, producers, writers, composers, actors, etc to the market.