Making the Most of Production Tax Incentives

In its 2009 Annual Report, the Michigan Film Office estimates that $223.6 million was spent in the state on productions in 2009.  Michigan’s production tax incentive program—perhaps the most aggressive soft money program in the world, offering up to 42% of production expenditures back in the form of refundable tax credits—has certainly enticed producers to visit the Great Lakes State with talent, crew and money in tow.  Louisiana, New Mexico, Georgia, Connecticut and many other states offer attractive incentives that influence where studios send projects and, for some independent productions, incentive money can be the deciding factor of whether the project ever gets off the ground.

Tax incentive programs are nothing new, but the jurisdictions that offer them rarely leave the programs unchanged, so the incentive landscape constantly changes.  There are several solid industry resources for keeping track of the ebb and flow of the programs (the folks at The Incentives Office offer a good guide and fairly regular seminars, and Cast & Crew Payroll’s interactive incentive map is helpful), but as an attorney working on productions in Michigan and Illinois, I would like to offer a short list of things to keep in mind when taking your show on the road.  Some of these tips are obvious, but I think a gentle reminder now and then never hurts, and they can help you make the most of production tax incentives:

1.         Talk to your friends.  When making a determination of where to take a production, talk to people that have been there before.  This likely fits in the obvious category—the small town feel of Hollywood never ceases to amaze me, and word travels fast—but there is no education like experience.  When professionals that trust one another share information openly and honestly, better decision-making is inevitable.

2.         Use local professionals.  This one might expose my bias a bit, but you should talk with attorneys and accountants with production experience in the jurisdiction you are considering for your next project.  Your friends might even have some names to share, and so might your own accountant or attorney.  Local professionals not only have the best knowledge of their incentive programs, but they are also likely to have the relationships that are key to navigating the bureaucratic mazes that often exist in incentive jurisdictions. 

3.         Take an honest look at local crew.  Most jurisdictions reward spending money on local below-the-line crew, and it is easier to take advantage of that in some places then it is in others.  While key production positions are not likely to go to locals in most cases, it is worth it to review resumes and interview locals about filing out your crew.  Consider the cost difference between housing the entire crew and having a significant number of people on the payroll commuting to the set from home, add what the incentive yields, and go from there.  Your friends and the local professionals might be able to help you with this one, too.

4.         Remember the intent of incentive programs.  The justification for adopting production tax incentives is always local economic development.  When producers are attracted to a particular jurisdiction by these programs, they should keep that basic fact in mind.  The local film offices and taxing authorities that administer incentive programs are under constant pressure to prove the effectiveness of their incentives.  Demonstrating a sensitivity to the cause can be very helpful in getting what you need from the powers that be.

5.         Be ambassadors for your industry.  This one might also qualify as obvious, but I think it is important.  The survival of production tax incentive programs is ultimately subject to the way the political winds blow in the jurisdictions that offer them.  The impression that large amounts of money are being shipped to Hollywood for little return to the local bottom line is a hard one to counter, but it is even harder to counter when local businesses and citizens have a bad experience with a production.  Pay your bills on time (without getting gouged, which is another story altogether), and smile at the people who live and work where you’re shooting—you’ll be surprised at the returns.