Something's missing for H'wood in tax-reform bill

Provision on exports not included

A provision that would allow the movie studios to count each exported movie, DVD and videotape as a separate line of business apparently was left out of the massive tax-reform bill the chairman of the House Ways and Means Committee introduced Thursday.

The studios have sought the separate line-of-business provision since 2004, when Congress last revisited the tax issue. That year the tax code was changed by then-Ways and Means chairman Rep. Bill Archer, R-Calif., forcing Hollywood to count all foreign sales as the same business. Estimates at the time placed the hit at $1 billion-$5 billion a decade.

According to a summary of the legislation provided by Ways and Means and industry insiders, the line-of-business provision was left off the $1 trillion bill by committee chairman Rep. Charlie Rangel, D-N.Y. Rangel has told industry leaders that he is willing to try to work something out on the issue.

While the line-of-business provision isn't in the bill, lawmakers and industry executives harbor no illusions that his broad rewrite of the tax code is going anywhere until after the 2008 elections.

"We don't have anything in at this time," said one industry executive. "But no one believes this bill is going anywhere, including the guy who introduced it."

While Hollywood still wants to get the provision changed, industry sources contend that there will be other legislative vehicles to which they can get the provision attached.

"A lot of things have to be done," said the executive, an expert on tax issues. "In the end we'll end up being OK."

While the studios have pushed for a change and there are questions about passage of Rangel's bill, Hollywood executives might decide that they are better off with it than a narrow tax measure.

One provision of the bill also reduces the top corporate marginal tax rate from 35% to 30.5%, at a cost of $364 billion over 10 years. That might be worth more to the studios than the line-of-business provision.

"What we have to do is look over the bill as a whole and see how it effects us," the executive said. "We might be better off with the lower corporate tax rate than one single provision."

The driving force behind the tax change is a desire to fix the alternative minimum tax. The AMT was created in 1969 to ensure that a very small number of wealthy people couldn't use tax breaks or deductions to eliminate their entire tax liability. But the tax was not indexed to inflation, and every year more people are exposed to it. Nearly 4 million taxpayers were subject to the AMT in 2006, and the number is expected to multiply this year.