What Are Production Incentives?

By Amit Jagwani  | 

For as long as there have been movies and movie producers, film projects have looked for creative ways to save money, and creative places to film outside of expensive production centers like New York and LA. And savvy movie fans may have noticed that, for these reasons, those secondary cities are often “playing” other locations in films, with Toronto commonly standing in for New York, and Vancouver providing a suitable backdrop to pretend to be nearly anywhere. The reason we have the specific secondary markets we do is quite simple: Production incentives. Infrastructure and industry have intentionally built up in these locations over time because jurisdictions like Toronto, Ontario and Wilmington, NC, or the states of Georgia and Louisiana, have all purposefully created financial motivation for productions to pick them. Incentives vary in scope and size, from tax breaks to rebates and grants, and have created robust film centers in interesting places. Productions with the acumen to take advantage of the financial benefits are flocking to these locations.

In the late 1990s, despite stable, long-term television success, Hollywood became worried about “runaway productions,” in which, for various reasons, a production would leave the United States. The trigger was Canada’s offer of the first film tax incentive in 1997, an explicit benefit for shows and movies to come north for production. The result was almost an overnight success: Canada is now considered “Hollywood North,” especially in cities like Toronto and Vancouver, where the list of movies filmed there is extensive.

As Canada began to draw productions away from New York and Los Angeles, Louisiana decided to extend a similar program in 2001 and many other states soon followed. Louisiana was so serious about attracting productions that it set up an incentives program that was initially a loss leader, with hopes that the new business drawn to the state would, in the long run, amount to more than the incentives themselves. In most cases, the easiest way for a jurisdiction to create an incentive is through tax credits.

Tax credits are a relatively easy act to get passed through a legislative process, since no one in a town or jurisdiction is actually “giving” a film their money. Credits themselves have two forms: refundable and tradeable. Refundable credits generate financial benefit only when the film files its taxes, at which point the company receives a refund or lower tax debt. However, because films typically don’t generate income during the shooting phase, and only remain in a state for a short period of time, there’s often more credit than they can spend.  If a jurisdiction sets up tradable tax credits, such productions have the option to sell excess incentives to citizens or businesses in the nearby community, a system a bit like carbon capture credits and other government-created environmental incentives. Business and citizens can buy the tradable credits, sometimes at a discount, to offset their taxes. Competition between states is so fierce that often producers have more credits than they can easily sell.

Another type of incentive is the rebate. These are not paid through the tax system and don’t need a tax return to become monetized. Grants are similar to rebates, but even more accommodating, often giving money upfront to a production.

You can see how complicated production incentives can get. Cities and states often change the rules year to year, as they compete for production dollars. Extreme Reach’s incentives experts can analyze production details to help clients select a location that provides the best return on spend while still allowing a film’s vision to shine. This newly launched Production Incentives Map and Comparison Tool includes information for regions across the U.S. and Canada. Providing education and informational resources to clients throughout production, often a necessity for taking advantage of credits, is another way ER helps clients navigate tax codes to avoid common mistakes. Sometimes, a burgeoning location offers huge incentives, but doesn’t have the infrastructure to accommodate a larger shoot, and it would actually be cheaper to go with a more established location. Other times above-the-line and below-the-line costs vary depending on where your writers (above the line) and crew (below) are operating.

Production is part art, part science. There are a many different ways to ensure the health of a film’s bottom line, and incentives are one important tool. Extreme Reach Payroll Solutions helps small independent shoots and big-budget productions make the right choices. Coordinating incentive plans alongside Production Accounting, Payroll, Labor Relations, and Health Services and relying on experts in each discipline, is critical to the success of every production.

Amit Jagwani
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