Hollywood Gets Welcome Tax Boost In California Budget

by Leroy Baker, Tax-News.com, New York

20 February 2009

Former actor and current Governor of California, Arnold Schwarzenegger, has succeeded in his quest to provide a more attractive fiscal environment for Hollywood's movie industry with the inclusion of new tax credits in the state's recently-approved budget.

Hollywood has long been complaining that it is losing business with film makers increasingly choosing to locate production in other US states which offer attractive tax incentives, such as Michigan, New Mexico and New York. While California's new incentives may not be as ambitious as the tax packages in some of these states, it is hoped that it will nevertheless stem the flow of 'runaway' production to other territories.

The new tax measures, which are set to take effect in 2011, will provide new TV shows and films with a 20% tax credit on qualifying expenses such as crew wages, technical equipment and catering costs (known as 'below the line' expenses). The scheme will also provide a 25% tax credit for TV shows and low-budget independent films with budgets of between USD1m and USD10m, which relocate to California. However, the scheme's budget is capped at USD100m per year, and the 20% tax credit for new films will only apply to productions worth less than USD75m - restrictions that some industry insiders believe will reduce the attractiveness of the tax breaks compared with other states, where some tax schemes are not capped.

Nonetheless, the tax package has been welcomed by US film and television industry groups, including the American Federation of Television and Radio Artists (AFTRA), the Directors Guild of America (DGA), the Motion Picture Association of America (MPAA) and the Screen Actors Guild (SAG).

“For the past 10 years, a united entertainment community has been telling state officials that our industry is threatened by runaway film and television production," the groups wrote in a joint statement.

"Film and television productions have been leaving California for tax incentives in other states and countries for years now, and like everybody else, entertainment industry workers are suffering in this economic climate. We applaud the passage of this incentive which will help make California competitive and not only save the jobs that are being lost but generate much needed revenue for the state," the statement added.

According to a 2005 study by the California Film Commission, a film costing USD70m adds at least USD10.6m in tax revenues to state coffers, while a USD17m film brings at least USD1.8m in product sales tax and payroll income tax, and a one-hour TV drama budgeted at USD2.2m would generate USD260,000 in tax revenue to the state.

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