Tax Law

Do Film Subsidies/Tax Credits Create Jobs and Generate State Revenues?

The California Film Commission recently adopted permanent regulations to govern the new California Film and Television Tax Credit Program. Under the Program, qualified taxpayers may be allowed a significant credit (20% to 25%) against income or sales/use tax for qualified film or television production expenditures for tax years beginning on or after January 1, 2011. The credits are allotted via Credit Certificates. While the California Film Commission will not begin issuing Credit Certificates until January 1, 2011, they did begin accepting applications under the program on July 1, 2009 and began allocating the credits upon that date. Credits are non-refundable and are not transferrable unless they are issued to an “independent film,” as defined under the Program regulations. Program and eligibility details are available on the Film Commission’s website at: http://film.ca.gov/Incentives/

With the state in one of the worst financial crises in decades, and state workers on furlough, one has to wonder whether the film and television credit is truly an attempt to generate employment and keep business in state or is this potentially substantially credit the result of some heavy handedness by high profile film industry executives and unions?

Other states have used subsidies to attract film production although studies of the efficacy of these programs show mixed results. The results are often hard to measure since many of the jobs involved are temporary, and income produced at a local level may be hard to track. A 2005 study by the chief economist in Louisiana’s legislative office said that the state’s incentives (some of the country’s highest) created only a relatively small number of jobs, and did not create the tax revenue required to offset their costs. Yet a study by Ernst & Young found tax credits similar to the one adopted in California did create jobs and returned at least somewhat more money to the state and local governments than was spared with the credit.

On a more individual level, this particular credit may in fact produce the results California is looking for. New York, Louisiana and Michigan have offered larger similar tax credits (35% to 42%). However, New York recently announced it had run out of money to fund their tax credit. The timing of California’s new incentive program could be just enough to lure some business back to California.