What Is It About Hollywood?

What Is It About Hollywood?

by Cara Griffith, taxanalysts® Legal Editor for State Tax Notes

The fiscal cliff debate is finally past us...at least for the moment, and there are very few winners. In fact, nearly every American will see a tax hike. So while there may be a general bemoaning of the "deal," the film industry is among those celebrating.

Despite a red letter year at the box office, the fiscal cliff deal included a deduction for those that invest in movie productions or television shows shot in the U.S. Tucked into section 317 of the fiscal cliff legislation was an extension of IRC section 181, which permits investors to deduct the first $15 million of costs or $20 million if the production is shot in a low income area. To qualify for the deduction, 75 percent of labor costs must have been incurred in the U.S.

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Although the deduction provided by section 181 is markedly different than the tax credits provided to states, the film industry is doing well and showed remarkable resilience during the recent financial crisis. PwC reported total worldwide film industry revenue of $87 billion in 2010. That is an 88 percent increase from reported revenue in 1998. And yet, the film industry was rewarded in the fiscal cliff deal.

The likely reason for this is that the film industry has a strong lobby and contributed heavily to the Obama campaign. But I've always wondered if perhaps it is America's fascination with Hollywood and the idea of having a movie in their backyard that prevents them from scowling when politicians give money away to a thriving industry, while those same Americans may struggle to make end's meet.

View Cara Griffth's opinion in its entirety on the taxanalysts® Blog.

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