Rebates and tax credits help to lower production costs on rental soundstages and equipment
PHOTO: SHANE BROWN/FX NETWORKS
Wall Street Journal 7/19/21
More than a dozen states—including the home of Hollywood—are bolstering or considering expanding tax credits and incentive programs for movie and television production, hoping shoots can re-energize their economies. Meanwhile mega productions from WarnerMedia, Apple Inc. and Netflix Inc. NFLX -0.39% have been filming in states that recently expanded their incentive programs, such as Oklahoma, Montana, Oregon and Kentucky. In Oklahoma, Martin Scorsese is filming the drama “Killers of the Flower Moon.” California’s program attracted Netflix’s psychological thriller series “You,” along with HBO’s “Westworld.” “With the demand for content, it’s the perfect time to be where we are,” said Tava Maloy-Sofsky, director of the Oklahoma Film and Music Bureau. While the pandemic shut down a lot of film production, rising vaccination rates and lowering Covid-19 case counts means movie making is back. Also, a multitude of streaming services that became popular during the pandemic are scrambling to make as many new shows as possible. Some production teams decamped to states that were less restrictive about gathering during the pandemic, and those municipal leaders want to keep the economic boost flowing. Others are reupping prior programs and seeing the opportunity in the streaming boom’s demand for space to film. In Oklahoma, lawmakers in May more than tripled the cash rebates offered to productions such as the coming Matt Damon film “Stillwater.” California lawmakers, meanwhile, voted Thursday to approve a bill that would offer studios state tax credits for constructing soundstages as well as efforts to boost film and TV diversity. In March 2021, the Kentucky Legislature revived its tax-credit program after closing it to new applicants in 2018 during a budget crunch. In May, the Montana governor signed an amendment to raise the film tax-credit cap by an additional $2 million. And in Oregon, a new bill increased the cap on one of the state’s credit programs from $14 million to $20 million in total. Many of the states expanding their film programs are hoping to replicate the success of Georgia, which has experienced a surge in production since offering a tax credit of as much as 30%. Today, Walt Disney Co. DIS -3.64% spectacles, such as “Avengers: Endgame,” regularly film there and have contributed to a deep bench of local crew workers and soundstage inventory that shows little sign of slowing down. But newer state entrants have a long way to go. In Oklahoma, 33 film and TV productions have qualified for the state’s cash rebate this fiscal year. A Kentucky Film Office report found that the program gave an average of about $8.9 million annually in tax credits from 2015 to 2018. Both state programs remain relatively small compared with California or Georgia, where dozens of movies and TV shows were filmed in 2019 alone. “This business is risky,” said Vans Stevenson, the senior vice president of state government affairs at the Motion Picture Association. “There’s a ton of competition. Nobody knows if a movie, television or streaming series is going to find an audience or not. Production finance is crucial, and being able to save as much money or reduce your production costs is a huge factor.” And there are risks to moving filming away from established areas. Political winds shift and make a region more or less popular for filmmakers. Some studios faced calls to leave Georgia after the state instituted stricter voting-access laws this year. The infrastructure to support costumes, props and other tech needs may be lacking, adding to the years it can already take to establish film as a major industry in a state. ‘Production finance is crucial, and being able to save as much money or reduce your production costs is a huge factor.’— Vans Stevenson, senior VP of state government affairs at the Motion Picture Association Kentucky restored its tax-credit program in March 2021. However, lawmakers are split on whether the program has been worth it. A Kentucky Film Office report said its program created nearly 1,400 jobs from 2009 to 2018, but the Kentucky Center for Economic Policy described these programs as “an ineffective and extraordinarily expensive giveaway.” The programs have proven controversial even in states that have embraced them in the past. This year, Georgia has required audits of productions with more than $2.5 million in tax credits, a rule that will gradually extend to more productions receiving tax credits. Louisiana, Hawaii and Massachusetts all failed to pass bills to expand their film tax-credit programs as recently as this month. Many state governments became interested in developing film tax-credit programs after makers of the 2002 musical film “Chicago” shot the film in Toronto, and these states wanted to tap into the opportunities such programs could offer. Afterward, these new programs also required takers to build the infrastructure needed to expand their industries, including rental film equipment, lighting and soundstages. More than 30 states in the U.S. offer some kind of tax incentive for film studios, including refundable and transferable credits, as well as rebates and grants. Studios can reduce the amount they pay the IRS in taxes, and savings rates can be as high as 45%, such as in Illinois. In Oklahoma, movies and shows can see as much as 38% of cash spending covered under the new plan, which ratchets up rewards for filming in rural communities or luring back Oklahoma natives who have left the state. Montana Studios Chief Executive Steve Grover, who has lobbied in support of the state’s program since 2017, said Montana needed to develop the infrastructure to support its film industry if a tax-credit program was going to be successful. Mr. Grover added that constructing additional soundstages—soundproof buildings that film crews use for shooting—is a key step in doing so. In January 2020, local studio Shadowcast Partners bought a vacant complex to convert into a $19.1 million film complex that was to include three 20,000-square-foot soundstages, offices, interior filming rooms and apartments and condos for employees. But after Montana legislators passed a lower-than-expected increase to the film tax-credit cap, county commissioners stepped back from the plans.
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