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With Incentives,
Filmmakers Remain Stateside
***
Almost all 50 U.S.
states are offering tax incentives
November 07,
2007
By Ann Donahue
Producer Clint
Allan had a choice when putting together his new TV series:
film it in North Carolina -- or don't film it at all.
"Whittaker Bay" is a teen drama in the vein of "Dawson's
Creek." And as was the case with "Dawson's," the incentives
offered by the state of North Carolina to film there gave
Allan the chance to create a low-budget TV series with
high-quality results.
The first eight episodes of the series, which is currently
out to buyers, have been shot in Wilmington. And Allan
has found that the renowned Southern hospitality extends
to the burgeoning entertainment industry in the area.
"The community is so, so excited about a new show," he
says. "They're willing to bend over backwards everywhere
we go, from crew to craft services. And it's a beautiful
place, with mountains, the Piedmont and the coast, and
we can shoot almost all year round."
The "Whittaker Bay" production received a reduced 1% "privilege"
tax rate and a 15% tax credit on goods and services expenditures
while filming in North Carolina. Heading out of Southern
California wasn't a hardship at all, Allan says, because
of the depth of the materials available in the Tar Heel
State. "We have everything we need to film here, from
crew to equipment rentals," he says, and all those incentive
savings on the bottom line helped Allan figure out the
make-or-break decision of where to bet his bottom dollar.
"Monetarily, there's no way we could film in L.A."
With the vast majority of states offering these kinds
of incentives to the film industry, there is cautious
optimism that the lure of cheap, foreign locales like
Canada and Eastern Europe won't be as strong to filmmakers.
According to the fall 2007 report by entertainment payroll
analyst Axium International, all but five states offer
some type of film production incentive in the hopes that
productions will set up shop. This is a tremendous increase
since 2004, when just nine states and Puerto Rico were
offering these kinds of incentives.
When looking at the specifics of the incentives offered
by each state, it's useful to get a primer on the broad
definitions of what sort of lures are offered. According
to the Axium report, production companies need to be familiar
with several key bits of terminology when researching
enticements.
A "certified credit" is an investment tool, one that has
been approved by the state for sale to investors. A "loan-out
company" works as something of a headhunting service in
the filming location, providing contacts of qualified
actors and crew. A "qualified expense" is one that each
individual state allows to be included when a rebate or
credit calculation is made. A "refundable credit" is a
payment made by the state to the production company, given
that the production company doesn't owe any income tax
and that a verifiable tax return has already been filed.
Finally, there is the "transferable credit," one that
may be transferred one or more times and is applied against
a taxpayer's state income tax.
It's a lot of jargon, but knowing the ropes can truly
help productions, according to Jeff Begun, who wrote the
2007 report for Axium. "Five years ago, it went from no
incentives to a lot," he says. "New states are getting
into it, amounts that are being given are going up, and
regulations are being refined."
And while the types of incentive offered vary wildly,
there are certain states that have received acclaim for
their structures in place to attract production. In brief,
Louisiana has a transferable income tax credit of 25%
on purchases made from a vendor within the state, and
eligible expenses include set construction and operation,
wardrobe, makeup, food and lodging, and music -- if it's
performed by Louisiana musicians. Such incentives were
a tremendous help in getting the New Orleans film production
schedule back on its feet after the ravages of Hurricane
Katrina: Tony Scott directed Denzel Washington in "Deja
Vu" in the aftermath of the disaster, and David Fincher's
upcoming "The Curious Case of Benjamin Button," with Brad
Pitt, also was filmed in the city.
Another state held up as an example of innovative incentives
is New Mexico, where the recent Christian Bale-Russell
Crowe Western "3:10 to Yuma" was filmed. Two major programs
are offered to lure out-of-state filmmakers: a 25% production
tax rebate and a film investment loan. As its name implies,
the rebate refunds one-quarter of all direct production
expenditures, while the film investment loan offers productions
up to $15 million per project with participation in lieu
of interest payments. This is particularly attractive
to low-budget productions, in that the loan amount can
constitute 100% of the film's cash financing as long as
the project is budgeted for at least $2 million and that
amount is covered by collateral.
Others have instituted clever rebates based on marketing
the most out of their natural and not-so-natural resources:
Knowing the lure of those endless white vistas in 1996's
"Fargo" (shot in both Minnesota and North Dakota), Minnesota
offers a "Snowbate" that rebates up to 15% of in-state
production costs. Florida offers an additional 2% rebate
for productions that can be deemed "family-friendly."
And, apparently having learned some lessons from the Dust
Bowl era, Oklahoma offers a production incentive that
includes "expatriate Oklahomans," those who have left
the state to reside elsewhere. With a substantial number
of video game companies in Austin, Texas offers a grant
for 5% of in-state spending up to $250,000 for all games
produced there. Wyoming offers a 15% rebate for any story
that is set in the state. Begun says that Alaska and Alabama,
two states currently without incentives, are starting
to explore the opportunities that they offer. And, with
the dollar weakening, Begun says the combination of a
fantastic exchange rate and the incentives offered by
states are even starting to attract foreign productions
to the U.S.
All these incentives, however, are something of a double-edged
sword. What about those states that aren't as innovative
in their offerings as Louisiana and New Mexico, but aren't
as skimpy as the states that are offering zero? States
like, for instance, California? Currently, California
offers state-owned and operated properties for filming
for essentially free. In addition, there's no sales tax
on production services, and the state lodging tax is waived.
And despite Los Angeles being the birthplace of the entertainment
industry and all the infrastructure and experience that
comes with that, many are saying that it's not enough.
Now Los Angeles has to fight for productions not only
with overseas locales, but with the incentives offered
by other states.
Vance Van Petten, executive director of the Producers
Guild of America, says the situation in California is
dire. "In a couple of years, Los Angeles will be the filmmaking
capital in name only, very much like Detroit is considered,
historically, the birthplace of the auto industry." Van
Petten says the responsibility for offering tax incentives
on par with those proffered by other states -- and to
compete with overseas filming hot spots like the Czech
Republic, Romania and Lithuania -- falls squarely on the
shoulders of the state legislature. "They do have fine
craftsman in many of these places, and they can build
sets and give it a good look at very, very cheap wages,"
Van Petten says of overseas competition. "The economies
are just so much more attractive."
From his work at the PGA, Van Petten says the California
State Assembly has been receptive to introducing more
tax incentives for productions in California, but the
state Senate has been consistently opposed to such measures.
"They're afraid it's corporate welfare," he explained.
"But labor-based tax incentives are the best benefits
because they really do help the average film worker, the
producers and crew that work on these productions. We
need all the production workers to really lean on their
California senators, tell them to get off their butts
and make them think straight."
On a more local level, the outlook is just as grim for
Los Angeles County, according to a February 2007 report
released by the Los Angeles County Economic Development
Corporation. With the potential for labor disputes in
2008, the entire industry faces a period of upheaval --
one that could have a drastic impact on local productions.
According to the report, entertainment industry employment
in the country was anticipated to rise by 4,500 during
the current year, but faces a falloff of almost half that
much in 2008 thanks to the potential of strikes. And any
uncertainty in the entertainment industry sets off a ripple
effect in Los Angeles County's overall economy.
Jack Kyser, chief economist for the LAEDC, agrees with
Van Petten on the need for politicians in Sacramento to
take some kind of action. "You have this strange mind-set
up in Sacramento where incentives would be corporate welfare
for the big film companies," he says. "They really don't
quite get how the indie production companies or the small
studios work." Amid the local labor squalls, Kyser says
it's very important for the unions to also make their
voices heard at the state level in support of such incentives.
One of the biggest competitors to film production in California,
Kyser says, isn't just overseas and states with attractive
incentives, but New York, a place not exactly known for
being cheap. With its Empire State Film Production Credit,
New York offers a 10% tax incentive for film and TV projects
created on soundstages in New York state; and for those
who venture into Manhattan, there is an additional 5%
credit under the Made in NY Incentive Program. "New York
offers the second-largest film production center in the
U.S.," Kyser says. "Obviously you have to wonder, 'Why
are these people offering these incentives?' Money is
not just going out the door. You have to say all these
states are not fools."
And, besides all the nuts and bolts of financing, members
of the production can also feel at ease filming at a place
with all the familiarity of the good ol' U.S. of A. but
without the same sort of intensity that comes with a production
based in Los Angeles. Actor Tim Woodward Jr. is the star
of "Whittaker Bay," and has come to feel perfectly at
home in Wilmington. "It's just a completely different
environment," he says. "The sets are a lot friendlier
-- there's a lot more people who are hungry, who are straight
out of school. But you also have people that have worked
on all these major shows like (the CW's) 'One Tree Hill'
and 'Surface.' It's not like New York or L.A., where it's
more uptight, competitive and cutthroat. It's a lot of
fun all the time."
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