July 25, 2008
Making a film has never been easy. Raising the cash, securing a bankable cast and finding a distributor are the obstacles most independent filmmakers face. And while independent producers have always had to leave no stone unturned when raising film financing, in today’s economy filmmakers, perhaps now more than ever, must look for alternative methods to finance their productions.
One resource that has become increasingly available to filmmakers in recent years is state tax incentives. “All of the states are beginning to offer tax credits,” says Peter M. Graham II, principal at New York-based 120dB Films, a film finance company. States offer such credits in an effort to attract film production and spending in their local economies.
So, just how do these tax credits work? First, it should be understood that the filmmaker must provide the initial funds to actually shoot the film. The tax credits can then effectively result in reducing the film’s overall budget after the respective production company files state tax returns for the appropriate year. Some states, such as Michigan and New York, allow for refundable tax credits. Such tax credits essentially allow the filmmakers to receive a cash refund should the tax liability incurred on the production fall below the eligible tax credit. For example, if come tax day the production owes $100,000 in taxes to the state in which the film was shot, yet has earned a tax credit in that state of $150,000, that production would receive a refund of $50,000. Non-refundable tax credits, on the other hand, would allow a credit to reduce the aforementioned tax liability to zero, but would provide no such cash refund.
Graham points out that Michigan offers the most generous tax credits available. This past spring, Michigan state legislators passed a bill to provide filmmakers with up to a 42% refundable tax credit. That credit extends across the board on qualified expenditures–including those for the film crew, locations, studio and equipment rental, food and lodging, and other miscellaneous costs. Under this scenario, a film budgeted at $10 million in qualifying production expenditures in the state, could be eligible for more than $4 million in tax credits.
Tax credits can often mean enormous savings for small, independent productions. Jeff Clanagan, CEO and president of Codeblack Entertainment, got the benefits of Louisiana’s program when he shot the film Mama I Want to Sing there in 2007. “The film’s budget was $4 million, and we saved approximately $600,000,” says Clanagan, who received the savings in the form of a cash refund and who strongly advocates using the programs.
New York, California, New Mexico, Connecticut, and Massachusetts have also been aggressively pushing their tax credit incentives. In fact, this past spring, New York state and New York City tripled the combined tax credit to up to 35%, which includes a 5% additional credit for productions shooting in one of the five boroughs of New York City. For a complete list of states offering film