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US States Axe Film Tax Credits

by Leroy Baker, Tax-News.com, Washington

08 June 2011


The Tax Foundation (TF) has pointed that more American states are abandoning film tax credits as they fail to live up to their promises to encourage economic growth and to raise overall tax revenue.

US states, it says, claim that film tax incentives create jobs, but the jobs created are mostly temporary positions, often transplanted from other states. "Furthermore," it says, "the competition among states transfers a large portion of potential gains to the movie industry, not to local businesses or state coffers.”

In 2010, a record 40 states offered USD1.4bn in film and television tax incentives, compared to only four states offering a total of USD3m in 2000. All told, the TF discloses that US states have provided nearly USD6bn for such programmes over the past decade.

However, 2010 will likely to be the peak year of film tax credits, since many states are ending their programmes to conserve tax revenues in this period of fiscal deficits, preferring to use the money for other priorities.

In that respect, the TF points out that Arizona ended its program after 2010 and efforts to renew it have not advanced, while Iowa, Kansas and New Jersey have suspended their programmes, and Arkansas, Idaho and Maine have appropriated no funds for their programmes for 2011. It adds that Washington legislators have dropped their programme as part of a budget deal.

That, the TF calculates, will bring the number of states with programs down to 35 as of next year. Additionally, existing programs are being pared back or challenged in Alaska, Connecticut, Georgia, Hawaii, Michigan, Missouri, New Mexico, Rhode Island and Wisconsin.

It concludes that while some states, such as Nevada, Utah and Virginia, are still putting more film tax incentives together, the merits of film tax incentives, which were “once universally applauded as great economic development tools and tourism boosters”, are now being rigorously debated.

At a minimum, the TF believes that film incentive programs should be required to report how many dollars in incentives were provided per each full-time job created by qualified productions. "Programmes should be reviewed periodically for their effectiveness by legislative oversight or a third party,” the Foundation says.

A comprehensive report in our Intelligence Report series examining tax-sheltering arrangements for investors, including Venture Capital, Forest Finance and Film Finance in a number of key jurisdictions, is available in the Lowtax Library at http://www.lowtaxlibrary.com/asp/subs_reports.asp and a description of the report can be seen at http://www.lowtaxlibrary.com/asp/description_report5.asp
TAGS: tax | investment | economics | film finance | tax incentives | fiscal policy | budget | tax credits | United States

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