One Up, One Down, For US Film Tax Encouragement

by Mike Godfrey, Tax-News.com, New York

14 January 2002

California Governor Gray Davis announced a tax incentive plan last Friday to help stop 'runaway' film productions fleeing to Canada and other states. "Hollywood is under siege and we have to come to their rescue because it is so identified with this wonderful state," Davis said.

He has proposed a 15% wage-based tax credit for employees involved in California-produced films that would become effective in July 2004 if it passes the state Legislature. "We're creating an atmosphere that lets filmmakers know that California really wants their business," Davis said during an address to the Hollywood Entertainment Labor Council, "This stimulus package will provide a substantial boost to California's entertainment community."

Davis made the announcement in Burbank, called the Media City because it is the home and workplace to thousands of industry professionals. Burbank stands to benefit substantially from Davis's plan. "Burbank is the center of TV in LA," Screen Actors Guild President Melissa Gilbert said. "I'm overjoyed it's happening."

The films affected by Davis' plan would fall within certain budget restrictions and the credit would apply to the first $25,000 of each workers' pay. Similar federal legislation for a 25% tax credit is pending to stop runaway productions nationwide.

Meanwhile, in Washington DC, a petition asking the federal government to impose countervailing tariffs on US films produced in Canada with Canadian government subsidies was withdrawn last week. Film and Television Action Committee President Brent Swift said his group needed more time to produce documentation to support the petition submitted to the Commerce Department early last month. Swift said the decision to temporarily withdraw the petition "in no way" indicated a "weakening of our resolve to level the playing field."

Canadian officials said they were not surprised that the petition was being withdrawn. "This confirms what we've been saying from the beginning, that the footing wasn't very solid to support this action," said Mia Chen, a spokeswoman for Canada's Department of Foreign Affairs and International Trade. The petition alleged that Canada was engaged in unfair trade practices by illegally enticing US productions with tax credits that give substantial cost breaks to productions that film in Canada and use Canadian workers.

The proposed remedy was to fine companies an amount equal to the subsidies before the film could be released in the US. The major studios, independent producers and many trade unions have opposed any such tariffs and called the effort shortsighted and potentially dangerous for an industry that makes billions of dollars a year selling American films elsewhere.

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