Legislative
Support For Film Production
Many
industry observers have proposed that the United
States or individual states offer comparable tax
incentives to encourage film production in the
United States. Several state film commissions
have also been pressing for the creation of a
US Film Commission to marshal resources for, and
attention toward, the film industry at the national
level. The United States is the only major country
that does not have a federal-level government
organization tasked with addressing the business
of the film industry. The commission could coordinate
with state film commissions on how to attract
film production through streamlining bureaucratic
processes, simplifying access to government-owned
property for filming, and standardizing licensing
and permitting procedures. Finally, the commission
could publish periodic economic analyses of the
industry. However, substantial action in this
direction has still not been taken.
As previously mentioned, the principal destinations
of US runaway production are Canada, the United
Kingdom, Ireland, and Australia. These countries
have four main traits in common, they are all
English speaking, they all have a skilled workforce,
they each offer a variety of incentive programs
to the film industry, and they all have rapidly
growing film markets. Of these countries, Canada
is by far the largest host to US film production.
The estimated value of US production in Canada
was of the order of $3bn in 2000, although the
extent of damage that the US film industry has
suffered as a result of productions fleeing to
its near neighbour has been disputed by the Canadian
authorities.
The
problems continued during 2002 and 2003. With
production costs for the average Hollywood movie
rising by 14% annually, many states witnessed
a decline in the number of big budget movies shot
within their boundaries. The $125 million Matrix
Reloaded was partly shot in Australia, whilst
the $90 million Lara Croft Tomb Raider: The Cradle
of Life was shot in Hong Kong and England.
New
York City saw the amount spent by the movie industry
fall from $839 million in 1999 to $678 million
in 2001. A similar picture was painted in Texas,
where expenditure fell to $140 million in 2002,
compared to $295 million two years earlier. Similarly
North Carolina (ranked 3rd in the US among movie-making
states) saw a decline in the number of film projects
from 81 to 44 between 2000 and 2001.
With
Congress seemingly unwilling to take action, some
states decided to battle the tide by offering
incentives of their own. Oklahoma passed a 'Compete
with Canada' act in 2001, offering a 15% cash
incentive for film productions within the state,
whilst North Carolina was providing a 15% tax
rebate capped at USD7.5m, extending it to 25%
of total cost in July, 2010. Minnesota, Texas,
New Mexico and Louisiana have also passed rebate
laws. New York and Illinois meanwhile proposed
25 per cent employee tax credit schemes.
Congressional legislation was in fact introduced
in 2003 by Californian Representatives David Dreier
(R-San Dimas) and Howard Berman (D-North Hollywood),
attempting to emulate similar tax-based schemes
that operate with much success in Canada and elsewhere
in the world. Under the proposals, originally
put to Congress in 2001, wage tax credits would
be offered for productions with a budget of less
than $10 million, and would apply to the first
$25,000 of an employee's wages. The legislation
would also extend to suppliers and other firms
hired in by producers such as caterers. But the
bill failed.
In
a report published in October 2004 and entitled
'INTERNATIONAL FILM AND TELEVISION PRODUCTION
IN CANADA- Setting the record straight about U.S.
“runaway” production' Toronto-based Neil Craig
Associates suggested that the actual losses were
"only a fraction" of those laid claim
to in the 1998 Monitor Report on the subject.
The American Jobs Creation Act of 2004 included,
amongst a myriad of other business tax breaks,
a measure to benefit small movie production, basically
allowing full write-off of production costs up
to US$15m, at a presumed cost of US$336m. The
limit rises to $20m for production in low-income
communities in Alabama, Arkansas, Illinois, Kentucky,
Louisiana, Mississippi, Missouri or Tennessee.
The
reaction of government to industry pressure took
two forms: firstly the creation of loan programs,
and secondly the formation of tax incentive programs
at state level. But, perhaps in desperation at
the relative lack of action from government, US
film producers have been exploring other ways
of achieving tax-efficient film production, particularly
via offshore.
In
January 2004, for instance, major players in the
world of Hollywood movie financing gathered in
Bermuda to explore how the jurisdiction can become
a major conduit for film financing. An organiser
explained: "There are definite advantages for
filmmakers to use offshore financial centres for
rerouting, license fees, managing film production
and a whole host of other reasons and that is
what this symposium is about and that is what
attendees are going to learn."
The
IRS, within obvious limits, is also doing its
bit, issuing June 2004 guidance affecting the
tax treatment of costs incurred by film producers
in the acquiring of scripts, screenplays and other
creative properties. The move by the government
came after a request was submitted on behalf of
the Motion Picture Association of America using
the Industry Issue Resolution program, and has
resulted in two new guidance procedures.
Revenue Procedure 2004-36 provides a safe harbor
that permits taxpayers to amortize creative property
costs over a 15-year period for properties that
are not scheduled for production within three
years of acquisition.
Revenue Ruling 2004-58 informs taxpayers that
unless they had formally established an intention
to abandon the creative property they cannot claim
a loss deduction for the capitalized costs of
acquiring and developing the property.
Also, should the property become worthless, the
taxpayer can only take the related deduction if
there is a closed and completed transaction fixed
by an identifiable event establishing the worthlessness
of the property.
Revenue
Bulletin 2007-12, meanwhile, contained temporary
regulations relating to deductions for the cost
of producing film and television productions under
section 181. These temporary regulations reflected
changes to the law made by the American Jobs Creation
Act of 2004 and the Gulf Opportunity Zone Act
of 2005, and affected taxpayers that produce films
and television productions within the United States.
The full text of the Bulletin can be found here.
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