Many states trimming their film tax credits

Mass. officials see gains by sticking at 25 percent

Massachusetts is aggressively courting Hollywood productions with its film tax credit, but the movie-making tax incentives have lost some of their luster in other states, according to a new study by a tax research group.

Twelve states have recently scaled back, or scrapped altogether their programs to lure movies and television series with tax breaks and other benefits, according to the Tax Foundation, a Washington, DC-based tax group that opposes film tax credits. In five  other states, the film tax credits are coming under fire.

The Tax Foundation’s website says that 2010 was likely a “peak year” for film tax credits, with 40 states issuing nearly $1.4 billion in tax credits to entice movie producers to choose them as the setting for their films. The number will fall to 35 next year, the Tax Foundation says, projecting that the overall dollar value of tax credits offered to filmmakers will decline in 2011 for the first time since 2004.

“While film incentive programs were once universally applauded as great economic development tools and tourism boosters,” the Tax Foundation website says, “their merits are now being rigorously debated.” State governments would rather “use the money for other priorities or leave it with taxpayers,” the website says. Not surprising, given the waves of anti-tax, anti-spending sentiment, and that many states that are re-evaluating their film tax credits face budget crises.

Kansas, Arizona, New Jersey and Washington ended or suspended their film credits for 2011. Idaho, Maine, and Arkansas simply didn’t appropriate any money for the program, and Wisconsin allocated only $500,000 after determining that the state would lose money on even the most extravagant production. Incentives in many other states are facing challenges from governors and tax commissions.

A few states are defending or increasing their incentives—Nevada, one of few states without any film tax incentive, is hearing calls to create such a program—but more often the trend for these tax breaks to end up on the state legislature’s cutting room floor.

Massachusetts launched its film tax credit in 2006, joining 23 other states that had them. The state’s film tax credit offers movie, TV, and commercial productions a credit equal to 25 percent of whatever they spend in Massachusetts. The tax credit can be easily converted into cash by selling it back to the state at 90 percent of its value or by selling it to a third party.

Betsy Wall, executive director of the state’s Office of Travel and Tourism (which contains the Massachusetts Film Office), said in a phone interview that the decrease in other states’ incentives might mean more movies for Massachusetts.

“We’re well aware of the fact that we’re in a competitive situation,” she said,.

Massachusetts’ film tax credit has received its share of both praise and criticism. A Department of Revenue study earlier this year found that the credit generated only 13 cents in new tax revenue for every dollar shelled out, and that more than half the jobs and nearly 80 percent of the wages went out-of-state.

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But a previous study by the University of Massachusetts Boston described impressive growth in the Massachusetts film and television industry (though the study did not examine the effects of the credit specifically) and cited the Commonwealth’s historical and scenic locations, thriving tech sector, and large college student population as strategic advantages for future growth. Gov. Deval Patrick several years ago tried to cap the tax credit program, but he subsequently changed his mind and sought to maintain it.

Intense competition among states to win movie locations is one major reason the Tax Foundation gives for film tax credits’ ineffectiveness. The bidding war “transfers a large portion of potential gains to the movie industry, not to local businesses or state coffers,” the study says. If states with less natural advantages at film production get out of the game, those left may have a better chance to reap the local economic growth and new tax revenues that the film credit promised, the foundation says.

Massachusetts currently has three major Hollywood productions filming in the state, Wall said. “And to give you some context—that’s a really big number for a small state. That’s a big number for any state.” The three productions are Ted, a Mark Wahlberg film; I Hate You, Dad with Adam Sandler, and Here Comes the Boom with Kevin James.