Legislative
Support For Film Production
Many
industry observers have proposed that the United
States or individual states offer comparable tax
incentives to encourage 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 county 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.
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
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 is being 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 has recently
passed a 'Compete with Canada' act that will offer
15% cash incentive for film productions within
the state, whilst North Carolina is providing
a 1% sales tax cap. 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.
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, meanwhile, 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.
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