What are production incentives? Where are they available? Production Incentives are offered as cash rebates, tax credits, or up-front/back-end production funding. In addition, numerous jurisdictions offer sales, use, excise, and gross receipts tax relief in the forms of deductions, credits, exemptions, and waivers.
The federal government and most U.S. states offer production incentives for motion picture and television productions. A number of jurisdictions also offer incentives for commercial advertisement, digital programming, post-production, video game production, animation, and other production types. More than a dozen international jurisdictions offer production incentives for foreign producers.
Why are they granted? Governments have long used incentives to foster economic growth, build infrastructure, and create jobs. Incentives are used to attract industries that are viewed as important to the local community. Production of filmed entertainment is especially amenable to incentives because it is highly mobile, environmentally "clean," capital- and labor-intensive, and effective in promoting tourism.
What are the different types of tax credits? Tax credits can be refundable or non-refundable, and transferable or non-transferable.
Refundable Tax Credits A refundable tax credit functions in the same way as a production rebate, but it is administered by the local taxing authority, and claimed by filing a tax return. The production company must file a tax return regardless of whether it has any income or owes any tax in the jurisdiction. If the production company does owe tax, a refund will be granted for the excess of the credit over the amount of tax owed. In some cases, banks or other lenders can monetize refundable tax credits so that the production company can get the money earlier. Generally speaking, a cost is associated with an advance of the funds.
Transferable Tax Credits A non-refundable tax credit may be transferable or non-transferable. A transferable tax credit is one that may be sold or assigned to a local taxpayer. This transfer can be handled directly by the production company or indirectly through the use of brokers. Brokers will generally charge a commission. In addition, the production company will need to discount the credit from its face value to entice local taxpayers to purchase them. Lastly, tax credits may be recaptured by states after audit. Some states have recapture provisions with recourse to the buyer of a credit.
Jurisdictions vary in how they regulate these transfers. Some jurisdictions permit a single credit to be divided among multiple transferees. Others permit multiple transfers, allowing transferees to sell all or a part of the credit they purchased to another taxpayer.
Non-Refundable, Non-Transferable Tax Credits A non-refundable, non-transferable tax credit can generally be carried forward and used to reduce taxes in subsequent years if the production company has no current tax liability. Each jurisdiction sets forth the period of time within which the tax credit can be carried forward.
What is up-front or back-end funding? These funds are made available to qualifying productions from local taxpayers in exchange for advantageous tax treatment from the local jurisdiction.
What is an eligible project? Each jurisdiction defines the types of projects eligible for the incentive benefits. In some jurisdictions, television projects are excluded. In other jurisdictions, the scope of eligible projects is very broad, including film, TV, video, digital programming, interactive games, commercial advertisements, animation, etc. Some pilots and treatments qualify. There are frequently exclusions for "adult programming," news, weather, sports events, infomercials, reality shows, etc. In addition, many jurisdictions require that the project be intended for commercial exhibition and/or that a distribution deal be in place.
What is a qualifying project? Most jurisdictions have a minimum spend test; some have a minimum number of local shooting days/stage days, resident employee requirement, or some other test so that the project will satisfy the jurisdiction's goals in building its local industry, revenue base, employment, etc.
What is a qualifying expenditure? Each jurisdiction defines the goods and services that constitute qualifying expenditures for purposes of calculating the incentive benefit. In most jurisdictions, local goods and services directly used in the production are included in the benefit-calculation base. Some jurisdictions allow expenditures incurred in other jurisdictions, but used for local production, to qualify. In some cases, both pre-production and post-production will be included. In most cases, marketing and distribution expenses will be excluded. Entertainment Partners' handling fees and Workers' Compensation insurance fees are qualified expenditures in many jurisdictions. Please contact Joseph Chianese or Marco Cordova for more information.
Many jurisdictions have an annual cap on the amount to be awarded under the incentive program. Others have a cap on the amount that can be awarded to a specific project. For TV, there may be episode caps and series caps. Many jurisdictions also have qualifying expenditure caps on salaries. For some jurisdictions, salaries paid to highly compensated individuals, usually $1,000,000 or more, are excluded from the benefit calculation.
Employment Issues Are the cast and crew subject to tax in the jurisdiction where the filming occurs? If so, what steps must be taken to ensure compliance? If any members of the cast or crew have established personal service or loan-out corporations through which their services are provided, is the corporation required to register to do business in the local jurisdiction? Are payments to the corporation subject to tax and/or withholding in the local jurisdiction to qualify for the incentive benefits? Is the corporation subject to tax at the entity level in addition to the tax imposed on the talent?
Residency RequirementsIs there a test for qualified residents? When is the test applied (e.g., date of payment, date of services, date of claim, etc.)? How is it proven?
Can a local company be used to qualify goods and services that are unavailable or do not originate within the jurisdiction as eligible spend? If so, what requirements must be met?
Confidential Financial InformationIf confidential financial information is required as part of the application and/or certification process(es), how can it be protected from public disclosure?
End CreditsDoes the jurisdiction require an acknowledgement of support as a condition to receipt of the benefit? If so, what are the requirements?
Local AdviceLocal film offices are set up to enhance local production. Contact with the local film office will enable you to find locations, coordinate crews, and access local goods and services. Find out which local auditing and legal services will be needed.
Sunset DatesMany production incentive statutes are limited in duration. The statute will have a termination date or "sunset date" after which the benefits are no longer available. Will your project be qualified before the incentive expires?
This Matrix provides a general listing of qualifying production expenditures—specifically purchases and rentals of tangible production equipment and supplies for U.S. jurisdictions. These expenditures are broken down into in-state vendors (as defined by local law) and out-of-state vendors.
The Matrix also lists U.S. jurisdictions that qualify fringes (e.g., pension, health, welfare, vacation, and holiday) and taxes (e.g., FICA, FUTA, SUI, and Medicare). However, the Matrix does not address all production-related costs, such as services, financing costs, and insurance premiums. Jurisdictions may qualify certain fringes (e.g., taxable per diems versus non-taxable per diems) and certain taxes, but the Matrix does not provide a detailed listing of all qualified fringes and taxes, if applicable.
Some jurisdictions require qualified expenditures to be subject to taxes (e.g., sales, gross receipts, income, and excise taxes) for these expenditures to qualify. The Matrix does not address each jurisdiction's taxation requirements.
Most jurisdictions do not qualify marketing, advertising, and development expenditures. Note that some jurisdictions provide a detailed list of qualifying expenditures, as noted on the Matrix. In addition, certain jurisdictions may qualify out-of-state vendors on a case-by-case basis, even if the Matrix indicates "NO." Please consult with the local Film Commission to confirm qualifying vendors.
The Matrix should be used as a starting point for your production incentives research on qualifying production expenditures. Please contact your legal or tax advisors to confirm how a particular incentive will apply to your project.
This Matrix provides a general listing of qualifying compensation for U.S. jurisdictions. Compensation categories include: above-the-line payroll (e.g., cast, directors, and producers) and below-the-line payroll (e.g., crew). Each of these categories contains information for both resident (as defined by local law) and non-resident payrolls. The Matrix does not address compensation and project caps. (Please refer to the "Compensation and Project Caps" section for each jurisdiction).
The Matrix does not differentiate between compensation paid directly to an employee and payments through a personal service corporation or a loan-out company. Many jurisdictions require compensation to be subject to federal or state income taxes and/or withholding taxes for these expenditures to qualify. The Matrix does not address each jurisdiction's taxation requirements.
Most jurisdictions do not qualify compensation for marketing, advertising, and development expenditures. Some jurisdictions have a listing of qualifying expenditures available that will provide more detail than what is listed on the Matrix.
The Matrix should be used as a starting point for your production incentives research to determine qualifying compensation expenditures. Please contact your legal or tax advisors to confirm how a particular incentive will apply to your project.
This Matrix provides a general overview of the types of nontraditional programming eligible for the production incentives summarized for U.S. jurisdictions. Nontraditional programming categories covered in the Matrix include talk shows, reality shows, game shows, documentaries, news, webisodes, animation, commercials, industrials, music videos, interactive media/video games, and sporting events.
Some jurisdictions require wide or national distribution/syndication to qualify some or all programming categories. The Matrix does not address either (1) specific distribution/syndication requirements for any nontraditional programming, or (2) minimum spend or criteria required for any nontraditional programming category. (Please refer to the "Project Criteria" section for each jurisdiction. Note that the "Project Criteria" section may not include minimum spend information or all project criteria for each nontraditional programming category, so please review the jurisdiction's applicable law for specific requirements.)
Most production incentives statutes address film, television, and video projects, but do not specifically address each of these 12 types of programming. Many statutes address some, but not all, of these nontraditional programming categories, while other statutes are very general. Finally, some states have specific production incentives statutes for particular types of nontraditional programming (e.g., commercials or animation).
To assist our clients in evaluating the best location for their particular project, we have compiled information from the underlying statutes, regulations, rules, and guidelines, including the published "policies" on the respective Film Office websites. The information obtained from these sources is noted.
To assist our clients further, we have corresponded with each of the Film Offices to supplement our information.
The Matrix should be used as a starting point for your production incentives research to determine the eligibility of specific projects. Note that the project criteria may vary for different types of programming. Please contact your legal or tax advisors to confirm how a particular incentive will apply to your project.