Hey, we’re also “providing jobs” on Wall Street!
At least $335 million of the state’s controversial film tax credits have been sold off to corporations and individuals that critics say likely have nothing to do with the movie the perk was intended for, in a secondary market largely shrouded from public view, a Herald review of state records has found.
…
“The big loser is the Revenue Department,” said Bob Tannenwald, a former economist at the Boston Fed and now an adjunct lecturer at Brandeis University. “First of all, 82 percent is an underestimate because a good chunk of the tax credits that are currently being held by film producers will be ultimately sold on the secondary market. … And the fact that industries that have little to nothing to do with film production are buying them should catch the attention of policymakers and make them question whether the tax credits are good policy.”
via Filmmakers have sold off at least $335M in state filmtax credits | Boston Herald.
So if you get the credit but don’t owe enough tax, you get to sell the credit! Cha-ching!
Even yet still more evidence to croak this lousy, wasteful policy.
UPDATE: Well I’ve learned something, as usual, from the hive mind. Transferable tax credits are not exceptional, but … (from hesterprynne)
and the LIHTC [Low Income Housing Tax Credit] is that the film tax credit is uncapped. The state treasury is on the hook for as much film tax credit money as movie and TV producers choose to make it. By contrast, the federal LIHTC has a cap — this year’s cap is $15.4 million for Massachusetts. The film tax credit varies widely from year to year, but a 10 year average puts it at more than twice the LIHTC.Beneficiaries of the film tax credit have persuaded the Legislature to reject proposals to cap that program, with the result that the state fisc is pretty much at the mercy of the moviemakers.
So it’s the lack of a cap that’s the problem. More on Hester’s objections to the film tax credit detailed here.
pogo says
While I’m not defending the film industry subsidy, transferable tax credits is what makes ALL tax credits work.
For example, if I were a solar energy company that got $100,000 in tax credits, what do I do if I only made $10,000 in profit? I can’t use most of my tax credit. So I sell the remaining tax credit to a company with a large profit at 90 cents to the dollar. I get (almost) the full advantage of the tax credit and some big company decreases their tax bill by 10%.
If the tax credit wasn’t transferable, I won’t make the investments in my solar company to earn the $100,000 in tax credits, because I don’t generate that much in profit to offset the credit. You can not like the film industry tax credit. But if you end making tax credits transferable, you ruin it for more “noble” incentive programs you may support.
sethjp says
HUD’s Low Income Housing Tax Credits (LIHTC) work the same way to help generate affordable housing. The developer sells the credit upfront in order to generate the money to subsidize the development of the affordable units. If not for the transferability of the credits, the entire program wouldn’t work.
hesterprynne says
and the LIHTC is that the film tax credit is uncapped. The state treasury is on the hook for as much film tax credit money as movie and TV producers choose to make it. By contrast, the federal LIHTC has a cap — this year’s cap is $15.4 million for Massachusetts. The film tax credit varies widely from year to year, but a 10 year average puts it at more than twice the LIHTC.
Beneficiaries of the film tax credit have persuaded the Legislature to reject proposals to cap that program, with the result that the state fisc is pretty much at the mercy of the moviemakers.
sethjp says
I certainly see no reason that the film tax credit should remain uncapped when other tax credit programs, ones that most would argue are significantly more fiscally and socially important to the state, are capped. I don’t think that we disagree in this regard. I’m merely arguing (along with pogo) that, while there are plenty of reasons to dislike the film tax credit program, the fact that the credits are transferable shouldn’t be one.
hesterprynne says
that a tax credit that is both transferable and uncapped is a disaster in the making.
Added insult: the state also throws in an exemption from the sales tax for companies taking advantage of the film tax credit.
(More of my many gripes about the film tax credit are here.)
jconway says
Glad you re-linked it here
hesterprynne says
…glad you liked it!
Andrei Radulescu-Banu says
Another gripe: only projects that spend more than $50,000 in Massachusetts qualify for the payroll credit.
This all but guarantees that small, artsy productions are left in the dust, while big, million dollar Hollywood soaps soak all the benefit.
Which really means that we’re not encouraging the local film industry – and instead this is a giveaway to out of state productions just willing to temporarily relocate for filming in Mass (after which, they happily move to the next tax heaven).
petr says
… As the film credit is both capped and scoped: capped at 25% and scoped for films in which either greater than than 50% of the total production costs, or days filmed, were incurred within the confines of the CommonWealth. This precludes a company from filming a day or two in Boston and filling in scenes from Vancouver or elsewhere and trying to claim the credit. This also precludes ‘green screen’ films which do a lot of scenery shots but most of the ‘action’ occurs as CGI added to an actor before a green screen… (unless, of course, the CGI company is a CommonWealth firm…)
A film with a million dollar budget and a 30 day shoot has to either spend $500,001 in the CommonWealth or shoot here for at least 16 days. For this they receive a 25% credit on the taxes they would otherwise pay. The sales tax exemption only covers production costs and/or catering costs specific to the film: fuel, hotel and equipment sales are still taxed.
Andrei Radulescu-Banu says
How about we cap the movie tax credit at zero.
This is ridiculous. Really, the Massachusetts tax payers, some struggling from this day to next, have nothing better to do than line up the pockets of wealthy actors and producers?
Johnny Depp’s salary for Black Mass was $20M. The film tax credit includes 25% credit for payroll.
How much did this millionaire actor do on the back of the MA taxpayers? To me, it looks like a cool $5M.
No tax money should have gone to Black Mass. It was a dark, not really enjoyable movie. And it definitely was not high art.
jconway says
Nearly all of the prominent films made here in the last decade since the Departed have basically depicted us as criminals (The Town, Black Mass) immature misogynists (Ted and Grownups movies) or were generic genre pieces that could’ve been set in ‘anytown, USA’ (the Eraser, Surrogates, Knight and Day, the heat come to the top of my head here). Paul Blart and American Hustle filmed here but were set in Jersey! My favorite is when I saw the Proposal with my fiancee in theatres she said ‘wow I didn’t know Alaska is so pretty’ “actually hon, that’s Rockport and I’ll take you there next time we go home”.
I enjoyed some of these films, particularly the The Town (underrated in my opinion, even if was heavily derivative), but really, we don’t need another crime movie set here. We don’t need another movie where out of towners mangle the accent while depicting us as racially insensitive homophobes and misogynists. And we definitely don’t want to subsidize filmmakers using us as a stand in for Jersey!
Andrei Radulescu-Banu says
The Town was good – and it really made a difference that the director was a local. I bet, however, that The Town was gonna be made in one form or another regardless of the tax incentive.
SomervilleTom says
My family all enjoyed “Next Stop Wonderland“. Fun, quirky, filled with local scenes and flavor, it’s a real treat.
It did not require nor receive (to my knowledge) a tax credit.
jconway says
That was a small budget indie picture and was shot entirely in the area without requiring a massive subsidy. It was pretty good too.
petr says
… having been made in 1997 it did not receive the circa 2005 enacted film credit.
Although, at a budget of 1 million dollars it surely would have been eligible for the credit, had the credit been enacted then…
I’ve not seen it, but it apparently features The Burren, one of my favorite watering holes (both for the presence of a fine selection of whisky and the absence of television screens)
Andrei Radulescu-Banu says
A lot more effort should go into grants and subsidies for local theaters, for example. We’re told, in the news, that a number of struggling theaters have closed, or have been kicked out of their venues. A tenth, really one hundredth of this MA Film Credit could have revitalized the whole theater scene through increased Massachusetts Cultural Grants.
johnk says
which for the most part I would think is the case. Let me ask this question, so what that it’s transferable. The credit amount is unchanged, so if it’s sold we’re still on the hook for the same amount we were anyway.
“The big loser is the Revenue Department”
Why, specifically in relation to transfers?
hesterprynne says
Film company receives tax credit equal to 25 percent of its production and payroll costs. Let’s say that credit is worth $1 million.
Film company owes hardly any taxes (in part because the state throws in an exemption from the sales tax). Let’s say the taxes owed are $100 K.
The other $900 K in credit would be worthless to the film company because it owes no taxes. But it can sell the credit to financial services company, which does owe taxes. Going rate is about 90 cents on the dollar. Financial services company pays film company $810 K for the credit and uses it to pay $900 K of its state taxes, leaving the state treasury short by $90 K.
Repeat.
johnk says
There are many credit programs out there for lower to middle class families which a phased out depending on AGI. But the movie industry gets to keep all tax credits.
Okay, DeLeo needs to explain that one.
petr says
Any film that spends more than $50K in the CommonWealth is eligible for the 25% payroll tax credit for any payroll tax tied to that $50K (and salaries over $1 million are exempted from this). So if a film company hires one Boston guy for one day for $50K, they can claim a credit on 25% of the payroll taxes they paid when they paid the guy the $50K. If, instead, they paid a Hollywood executive for one day of location scouting in Boston they have to figure out if that exec, during his/her stay in the CommonWealth, while on film company business, earned more than $50K and can claim credit for the taxes they payed out on the guys salary for that $50K only. If, on the third, hand, they hired 6 extras from Sommerville for one hour at $10/hr, then they get to claim 25% each of the taxes paid on the $10 each they gave the extras.
But that is entirely separate from the 25% production cost credit wherein the film company receives tax credit equal to 25 percent of its production costs ONLY for production costs exceeding 50% spent on and/or in the CommonWealth or for productions where greater than 50% of the shoot occurred in the CommonWealth. So if they are making a twenty million dollar film with a 100 day shoot, the company ONLY gets the credit if they can prove they either spend 10 million in and/or on the CommonWealth or spent 51 days actually shooting the film IN the CommonWealth. And the credit is capped at $7 million.
The exemption from the sales tax is for production related expenses alone, including catering. It does not include fuel, hotel and equipment costs. If, for example, they have to build a set or construct something for the movie, they can consider this as a production cost purchased for the movie. They cannot, however, purchase a new movie camera or trailer and say it’s only for this film… that’s equipment cost that’s not included in the sales tax exemption.
Nothing is worthless to a film company until all the DVD’s are sold. They have made a product that is not guaranteed to sell. Guillermo Del Toro just made a move “Crimson Peak” with a $55 million budget that, in it’s third week in release, has yet to recoup $25 million. Moviemaking is an inherently risky business so incentives are impactful to the industry in a way it might not be to other industries
hesterprynne says
that film companies have to follow to be eligible for the credit.
But it’s nevertheless true that the film tax credit is uncapped, in the sense that any film meeting those requirements gets the credit — unlike the Low Income Housing Tax Credit for which a set amount is available each year. Governor Patrick proposed capping the film tax credit at $40 million per year but that was a no go in the Legislature.
It’s also true that the transferability of the film tax credit shows (to the tune of $335 million) that, as Professor Enrich commented to the Herald, that this is “a program whose purpose is to give state cash to film companies, rather than to reduce their taxes,”
centralmassdad says
doesnt invite DeLeo to A-list parties
petr says
… as though, the numbers are apposite. $40 million per year is not $335 million per 7 years (that would be about $47 mil per…) You see the number $335 million is cumulative, from the inception of the tax credit in 2005 to 2012, the last full year for records. And the numbers, by the end of this full year, will be higher, perhaps even double, cumulatively, the $335 million.
No doubt $335 million is a large number. But if that, to a first approximation, represents 25% of productions expenses then that means, over the past 7 years, a greater than 1 BILLION dollars expenditures on film production in the CommonWealth alone. There is no doubt that the Film Tax credit has amply fulfilled its intended purpose: to bring filmmakers to the CommonWealth to make movies and to spend money doing so. Now, it’s certain that films will still get made in the CommonWealth absent the film tax credits, but to that degree? Greater than One Billion Dollars over 7 years? Highly doubtful. Even so much as half of that? Hardly plausible…
The choice, you see, is between collecting 75% of taxes on a billion dollars of spending or 100% of taxes on no more than 200 or 300 million on spending. I’ll leave you to do the math on that one on your own.
Nor is this all that extra-ordinary. Your friendly neighborhood grocer, whenever he/she offers you a two-for-one on pickles or scallions, or whatever, is slashing his/her up-front pricing by %50. That’s pretty crazy, if you apply the same logic to your grocer as you do to your government… and you’re government isn’t even slashing up front prices be even that much… it’s rewarding spending with a tax credit, which is, in effect, an invitation to come back and spend more or sell it to somebody else in the CommonWealth. Another example is Amazon who loses more than 25% on listed prices when they try to entice me to use Amazon Prime or to apply for a credit card. They don’t do this because they enjoy losing money. They do this because they know they’ll make it up in the long run. Your government is different only in scale, but that’s what government is for, is it not?
The purpose of the Low Income Housing Tax Credit is to alleviate suffering not to generate spending. Indeed, it would be a parlous state of affairs if the Low Income Housing Tax Credit were to generate so much as a dime in revenue… But that’s not why we do it. We do it to alleviate suffering and we cap it because we like to suppose the capacity of the economy of the CommonWealth to support or encourage suffering is finite: hopefully, there is only so much poverty to go around and no more. Maybe that’s not a good supposition, but there it is.
The purpose of the film tax credit is to get rich people, who would otherwise spend Washingtons to instead spend Benjamins and more. As such, it has been, in point of fact, wildly successful. By your own quoted numbers, between 2005 and 2012 film companies spent in excess of one billion dollars on productions in the CommonWealth whereas in the absence of the film tax credits they would not have spent nearly so much as a small fraction of that. Do the math.
SomervilleTom says
I think petr is exactly correct about the intent and result of the Film Tax Credit, and I think hesterprynne is exactly correct in criticizing same.
I think the following sentence from petr’s conclusion summarizes things rather well: “The purpose of the film tax credit is to get rich people, who would otherwise spend Washingtons to instead spend Benjamins and more”.
My reaction is that if the state has in excess of forty million dollars a year to spend on ANYTHING along these lines (which it patently does not), then I would rather see that money spent towards getting a thousand regular people to spend Washingtons than ten rich people to spend Benjamins.
Our consumer economy functions best when hundreds of millions of middle-class people spend Washingtons on each other. It dies of strangulation when, instead, it becomes dominated by the wealthiest tenth of a percent exchanging boatloads of Benjamins with each other.