MADE IN AMERICA: Incentive to stay

With almost all 50 states offering tax incentives, filmmakers are staying stateside.

Producer Clint Allan had a choice when putting together his new TV series: film it in North Carolina -- or don't film it at all.

"Whittaker Bay" is a teen drama in the vein of "Dawson's Creek." And as was the case with "Dawson's," the incentives offered by the state of North Carolina to film there gave Allan the chance to create a low-budget TV series with high-quality results.

The first eight episodes of the series, which is currently out to buyers, have been shot in Wilmington. And Allan has found that the renowned Southern hospitality extends to the burgeoning entertainment industry in the area. "The community is so, so excited about a new show," he says. "They're willing to bend over backwards everywhere we go, from crew to craft services. And it's a beautiful place, with mountains, the Piedmont and the coast, and we can shoot almost all year round."

The "Whittaker Bay" production received a reduced 1% "privilege" tax rate and a 15% tax credit on goods and services expenditures while filming in North Carolina. Heading out of Southern California wasn't a hardship at all, Allan says, because of the depth of the materials available in the Tar Heel State. "We have everything we need to film here, from crew to equipment rentals," he says, and all those incentive savings on the bottom line helped Allan figure out the make-or-break decision of where to bet his bottom dollar. "Monetarily, there's no way we could film in L.A."



With the vast majority of states offering these kinds of incentives to the film industry, there is cautious optimism that the lure of cheap, foreign locales like Canada and Eastern Europe won't be as strong to filmmakers. According to the fall 2007 report by entertainment payroll analyst Axium International, all but five states offer some type of film production incentive in the hopes that productions will set up shop. This is a tremendous increase since 2004, when just nine states and Puerto Rico were offering these kinds of incentives.

When looking at the specifics of the incentives offered by each state, it's useful to get a primer on the broad definitions of what sort of lures are offered. According to the Axium report, production companies need to be familiar with several key bits of terminology when researching enticements.

A "certified credit" is an investment tool, one that has been approved by the state for sale to investors. A "loan-out company" works as something of a headhunting service in the filming location, providing contacts of qualified actors and crew. A "qualified expense" is one that each individual state allows to be included when a rebate or credit calculation is made. A "refundable credit" is a payment made by the state to the production company, given that the production company doesn't owe any income tax and that a verifiable tax return has already been filed. Finally, there is the "transferable credit," one that may be transferred one or more times and is applied against a taxpayer's state income tax.

It's a lot of jargon, but knowing the ropes can truly help productions, according to Jeff Begun, who wrote the 2007 report for Axium. "Five years ago, it went from no incentives to a lot," he says. "New states are getting into it, amounts that are being given are going up, and regulations are being refined."

And while the types of incentive offered vary wildly, there are certain states that have received acclaim for their structures in place to attract production. In brief, Louisiana has a transferable income tax credit of 25% on purchases made from a vendor within the state, and eligible expenses include set construction and operation, wardrobe, makeup, food and lodging, and music -- if it's performed by Louisiana musicians. Such incentives were a tremendous help in getting the New Orleans film production schedule back on its feet after the ravages of Hurricane Katrina: Tony Scott directed Denzel Washington in "Deja Vu" in the aftermath of the disaster, and David Fincher's upcoming "The Curious Case of Benjamin Button," with Brad Pitt, also was filmed in the city.



Another state held up as an example of innovative incentives is New Mexico, where the recent Christian Bale-Russell Crowe Western "3:10 to Yuma" was filmed. Two major programs are offered to lure out-of-state filmmakers: a 25% production tax rebate and a film investment loan. As its name implies, the rebate refunds one-quarter of all direct production expenditures, while the film investment loan offers productions up to $15 million per project with participation in lieu of interest payments. This is particularly attractive to low-budget productions, in that the loan amount can constitute 100% of the film's cash financing as long as the project is budgeted for at least $2 million and that amount is covered by collateral.

Others have instituted clever rebates based on marketing the most out of their natural and not-so-natural resources: Knowing the lure of those endless white vistas in 1996's "Fargo" (shot in both Minnesota and North Dakota), Minnesota offers a "Snowbate" that rebates up to 15% of in-state production costs. Florida offers an additional 2% rebate for productions that can be deemed "family-friendly." And, apparently having learned some lessons from the Dust Bowl era, Oklahoma offers a production incentive that includes "expatriate Oklahomans," those who have left the state to reside elsewhere. With a substantial number of video game companies in Austin, Texas offers a grant for 5% of in-state spending up to $250,000 for all games produced there. Wyoming offers a 15% rebate for any story that is set in the state. Begun says that Alaska and Alabama, two states currently without incentives, are starting to explore the opportunities that they offer. And, with the dollar weakening, Begun says the combination of a fantastic exchange rate and the incentives offered by states are even starting to attract foreign productions to the U.S.

All these incentives, however, are something of a double-edged sword. What about those states that aren't as innovative in their offerings as Louisiana and New Mexico, but aren't as skimpy as the states that are offering zero? States like, for instance, California? Currently, California offers state-owned and operated properties for filming for essentially free. In addition, there's no sales tax on production services, and the state lodging tax is waived. And despite Los Angeles being the birthplace of the entertainment industry and all the infrastructure and experience that comes with that, many are saying that it's not enough. Now Los Angeles has to fight for productions not only with overseas locales, but with the incentives offered by other states.

Vance Van Petten, executive director of the Producers Guild of America, says the situation in California is dire. "In a couple of years, Los Angeles will be the filmmaking capital in name only, very much like Detroit is considered, historically, the birthplace of the auto industry." Van Petten says the responsibility for offering tax incentives on par with those proffered by other states -- and to compete with overseas filming hot spots like the Czech Republic, Romania and Lithuania -- falls squarely on the shoulders of the state legislature. "They do have fine craftsman in many of these places, and they can build sets and give it a good look at very, very cheap wages," Van Petten says of overseas competition. "The economies are just so much more attractive."

From his work at the PGA, Van Petten says the California State Assembly has been receptive to introducing more tax incentives for productions in California, but the state Senate has been consistently opposed to such measures. "They're afraid it's corporate welfare," he explained. "But labor-based tax incentives are the best benefits because they really do help the average film worker, the producers and crew that work on these productions. We need all the production workers to really lean on their California senators, tell them to get off their butts and make them think straight."



On a more local level, the outlook is just as grim for Los Angeles County, according to a February 2007 report released by the Los Angeles County Economic Development Corporation. With the potential for labor disputes in 2008, the entire industry faces a period of upheaval -- one that could have a drastic impact on local productions. According to the report, entertainment industry employment in the country was anticipated to rise by 4,500 during the current year, but faces a falloff of almost half that much in 2008 thanks to the potential of strikes. And any uncertainty in the entertainment industry sets off a ripple effect in Los Angeles County's overall economy.

Jack Kyser, chief economist for the LAEDC, agrees with Van Petten on the need for politicians in Sacramento to take some kind of action. "You have this strange mind-set up in Sacramento where incentives would be corporate welfare for the big film companies," he says. "They really don't quite get how the indie production companies or the small studios work." Amid the local labor squalls, Kyser says it's very important for the unions to also make their voices heard at the state level in support of such incentives.

One of the biggest competitors to film production in California, Kyser says, isn't just overseas and states with attractive incentives, but New York, a place not exactly known for being cheap. With its Empire State Film Production Credit, New York offers a 10% tax incentive for film and TV projects created on soundstages in New York state; and for those who venture into Manhattan, there is an additional 5% credit under the Made in NY Incentive Program. "New York offers the second-largest film production center in the U.S.," Kyser says. "Obviously you have to wonder, 'Why are these people offering these incentives?' Money is not just going out the door. You have to say all these states are not fools."

And, besides all the nuts and bolts of financing, members of the production can also feel at ease filming at a place with all the familiarity of the good ol' U.S. of A. but without the same sort of intensity that comes with a production based in Los Angeles. Actor Tim Woodward Jr. is the star of "Whittaker Bay," and has come to feel perfectly at home in Wilmington. "It's just a completely different environment," he says. "The sets are a lot friendlier -- there's a lot more people who are hungry, who are straight out of school. But you also have people that have worked on all these major shows like (the CW's) 'One Tree Hill' and 'Surface.' It's not like New York or L.A., where it's more uptight, competitive and cutthroat. It's a lot of fun all the time."
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