Film Tax Credit Program

The Most Common Production Incentive

A film tax credit is the most prevalent and influential type of state film incentive in the United States. It is a powerful financial tool used by states to attract film and television productions, thereby stimulating local economies. The program works by allowing a production company to receive a credit that can be used to offset the taxes it owes to the state where the filming took place.

How It Works: A Deeper Dive

The mechanics of a tax credit are crucial to understanding its value:

1. Qualified Expenditures: The credit is not based on the film’s entire budget. It is calculated as a percentage (e.g., 25-30%) of the money the production spends within that specific state. These are known as ‘qualified expenditures’ and typically include wages for local crew and actors, rental of local equipment, hotel stays, catering, and other in-state services.
2. Claiming the Credit: After filming is complete and the production’s spending is audited, the state issues a tax credit certificate. The production company can then use this certificate to reduce its own state tax bill on a dollar-for-dollar basis.

The Importance of Transferability

The most critical feature of many states’ tax credit programs is transferability or refundability. Most production companies are temporary entities (LLCs) set up for a single film and will not have a large enough state tax liability to use the full credit themselves.

• A transferable credit allows the production company to sell their tax credit certificate to another in-state company that does have a large tax bill (like a major corporation or utility). The credit is typically sold at a discount (e.g., for 90 cents on the dollar), providing the production with an immediate cash infusion.
• A refundable credit is even simpler: the state sends the production a cash refund for the value of the credit.

This mechanism of monetizing the credit is how the program functions as a de facto cash rebate for most productions. States like Georgia, New York, Louisiana, and New Mexico have used these powerful programs to become major national hubs for film and television production.