Hollywood's Money-Saving Weapons

6:00 AM PST 06/12/2012 by Paul Bond
Illustration: Brunoillo

Which states are cheapest to make movies? Payroll companies often know secrets to successful shoots.

Thanks to aggressive tax initiatives, Louisiana has in the past decade become one of the most cost-effective places to shoot movies such as Quentin Tarantino's Django Unchained and the upcoming Percy Jackson: Sea of Monsters. But good luck understanding the rules: The state's production incentives are explained in two documents consisting of 20 pages of complicated legalese.

And Louisiana is one of 40 states -- up from six a decade ago -- that offer production tax incentives, each with a different set of confusing and often-changing instructions. Recently, for example, Florida added another $42 million to its program and extended it through June 2016, while Kentucky said it no longer will cap the amount of money available annually for rebate. Tennessee is in the process of writing entirely new guidelines for its program to remain competitive.

No wonder the industry's payroll-services firms are heading to the annual AFCI Locations Show (see page 96) touting increased efforts to help studios navigate the rules. Best known as the companies that cut paychecks for production crews, payroll firms are playing an increasing role in figuring out where to shoot in the first place -- so much so that Entertainment Partners, the industry leader, has 14 employees in seven states dedicated to its incentives team, up from two staffers six years ago.

Similar evidence of the increasing importance of tax incentives is everywhere. Cast & Crew Entertainment Services, for instance, publishes TIP (The Incentives Program), a flip guide that dedicates a page to each state, even those that don't (yet) have a program. Some hotbed cities, such as San Francisco and Los Angeles suburb Santa Clarita, also get their own pages. A similar publication from Entertainment Partners, known simply as The Guide, is 216 pages.

Cast & Crew also has a multi-state comparison tool on its website, as does Entertainment Partners, allowing users to look at multiple jurisdictions side by side to figure out where they might save the most money.

Those firms and others not only supply information about the ever-changing tax-incentive landscape (Entertainment Partners advises 2,000 productions a year on the topic) but also often file paperwork and do everything else necessary to obtain the rebates, grants or refunds owed to producers. A production can save as much as 35 percent by shooting in a state offering incentives, though more often it's in the 20 percent to 25 percent range.

Fox's June action thriller Abraham Lincoln: Vampire Hunter, for example, spent $62 million in Louisiana but will get $19 million back, a savings of 31 percent. Once all the accounting is done, the production might get a bit more, depending on how many locals were hired.

As a further incentive, when a production is owed a tax credit that it can't use (because, for example, it didn't turn a profit in the state where it shot, so it had no income tax bill), Entertainment Partners will sell the credit to a company or a high-net-worth individual. The going rate for a tax credit -- in the 14 states that allow them to be sold -- is from 80 cents to 90 cents on the dollar.

And this year, Entertainment Partners began loaning money to productions against the tax credits they will receive. It's a business CEO Mark Goldstein calls "really huge for us." In February, he hired to run its new financing division John Hadity, a former Miramax film executive under Harvey Weinstein and chairman of the Producers Guild of America East. Goldstein expects that loaning money against tax credits will be a growth business because of the large number of independent studios that are constantly seeking creative ways to finance productions.

Figuring out tax incentives is a "full-time job" and "very time consuming," says Eric Capogrosso, CEO of CAPS Payroll, one of the few payroll-services companies to specialize in TV commercials. CAPS created a business division for handling tax incentives three years ago.

"I have seen rebates of up to $1 million on a commercial, and often enough that's money that might have been left on the table," he says. Like Entertainment Partners, Capogrosso says CAPS plans to start a tax-credit resell business this year.

As tax incentives have become a big part of financing productions, competition has heated up among states, though some still put caps on how much they'll dole out. New York caps it at $420 million annually, for example, while Kansas will spend just $2 million a year on tax incentives.

"Bringing production to a state is very exciting," says Eric Belcher, CEO of Cast & Crew, "but when they see those big checks going back to Hollywood, people start asking questions, so states try to hit that sweet spot where no one complains."

In California, a lottery took place June 1 to decide how to allocate this fiscal year's $100 million in tax credits. Of 322 applicants, just 28 were awarded credits, including $7.1 million for the ABC Family drama Bunheads and $10.4 million for MTV's Teen Wolf, which will move from Georgia to California.

The California Film Commission says it received 83 percent more applications this year than last and that the 28 approved projects will spend $683 million in the state while employing 2,900 castmembers and 2,800 crew members.

While California and New York are production hubs already, several payroll-services executives say that the states taking the most business away from them because of their generous tax-incentive programs are Pennsylvania, Florida, New Mexico, North Carolina, Georgia and especially Louisiana (and Capogrosso would add Connecticut, Michigan and Illinois to the list).

Says Joe Bessacini, vp film and TV production incentives at Cast & Crew, "What was running away to Canada a few years ago is now running to those states."

Louisiana has beefed up its program so significantly that it hosts about 92 productions a year, up from 22 five years ago. Twelve Years a Slave, starring Brad Pitt and Michael Fassbender, will shoot for seven weeks in and around New Orleans beginning June 25, and White House Taken with Gerard Butler begins a 50-day shoot in Bossier City and Shreveport starting July 2.

In 2010, Louisiana returned $89.1 million to film and TV productions that spent $674 million there, generating $1.1 billion in economic output. Sony's Battle: Los Angeles, for example, spent $46.5 million of its $68.8 million production budget in Louisiana, including $12 million in labor payments.

Whereas "California is hostile to business," says PES Payroll CEO Stuart Grant, Louisiana has been aggressively courting Hollywood -- and doing so for the long term.

"They have incentivized the building of their infrastructure by giving tax credits to those who will build it, so now they have studios and companies that are providing equipment," says Grant. "People are moving to Louisiana because there's so much production that it's creating jobs."

Louisiana also will publicize some of the tax-credit sales. "So you can see what they're worth," notes Grant. "They're really creating a market for them."

Adds Chris Stelly, executive director at Louisiana Entertainment: "Competition is healthy. We certainly know what other states have done with their incentives, and we know some are copying us. We're just focused on the task at hand: making sure production remains a permanent mainstay of Louisiana's economy."

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TAX INCENTIVES BY THE NUMBERS

  • 40: States that offer some type of film/television production incentive, up from six in 2002
  • 14: States that allow producers to "sell" unused tax credits, further incentivizing production
  • 5-35: Percentage of a production budget that can be saved with incentives. Most producers aim for 20-25 percent back
  • $100 million: California's cap on annual credits, limiting to 28 the productions that benefit this year (of 322 that applied)

 

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