Most film tax credit spending goes to nonresidents

The Massachusetts film tax credit induced movie and TV producers to spend $676 million here over the last three years, but more than half of the money went to people who live outside the state, according to a long-delayed Revenue Department report.

The report said the tax credit attracted productions that paid a total of $429 million in wages to 1,876 people. Massachusetts residents held roughly 40 percent of the jobs but received only 18 percent of the wages. Nonresidents pocketed the bulk of the money, with 37 actors, directors, and producers receiving $177 million, or 41 percent of the total.

The Patrick administration had been sitting on the report for more than a month. It was released just before the July 4 holiday during the same week that the Patrick administration flip-flopped on an effort to reduce the state's film tax credit exposure. The budget signed by the governor on Monday included a provision capping at $2 million the amount of a star's salary that would be eligible for the 25 percent film tax credit. That provision was repealed after lawmakers, as well as producers of a big budget Tom Cruise movie coming to Massachusetts in the fall, complained about the change and how it was rushed through the Legislature with no debate. For details, go here.

CommonWealth reported yesterday that the Patrick administration is split on the film tax credit. Greg Bialecki, the state's secretary of housing and economic development, says he is hopeful that the tax credit will help Massachusetts grow a domestic film industry. Leslie Kirwan, the governor's secretary of administation and finance, is reportedly worried about the rising cost of the tax credit and its anemic job production for Massachusetts residents.

The Revenue Department report issued today reflects the split inside the administration; it is written in a just-the-facts manner with lots of facts and figures but little interpretation.

According to the report, the film tax credit boosted state gross domestic product by $511 million and boosted overall employment (film and other business sectors that cater to the film industry) by 3,177 jobs over the three-year period at relatively little cost to the state because most of the tax credits the state has issued have not been redeemed yet.

The Revenue Department said $167 million in tax credits were issued over the three-year period but only $22 million have been used so far. The film tax credit is unusual in that it doesn't just reduce the amount of taxes a taxpayer owes. The film tax credit is refundable, meaning someone with no Massachusetts tax liability can convert it into cash by selling it back to the state or to a third party like a bank or insurance company. The bank of insurance company can then use the tax credit to reduce its tax exposure.

 The cost to the state from the film tax credit is expected to rise significantly in coming years — roughly $125 million in tax credits are expected to be redeemed in the fiscal year that just ended and  $112 million in the current fiscal year.

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Bruce Mohl

Editor, CommonWealth

About Bruce Mohl

Bruce Mohl is the editor of CommonWealth magazine. Bruce came to CommonWealth from the Boston Globe, where he spent nearly 30 years in a wide variety of positions covering business and politics. He covered the Massachusetts State House and served as the Globe’s State House bureau chief in the late 1980s. He also reported for the Globe’s Spotlight Team, winning a Loeb award in 1992 for coverage of conflicts of interest in the state’s pension system. He served as the Globe’s political editor in 1994 and went on to cover consumer issues for the newspaper. At CommonWealth, Bruce helped launch the magazine’s website and has written about a wide range of issues with a special focus on politics, tax policy, energy, and gambling. Bruce is a graduate of Ohio Wesleyan University and the Fletcher School of Law and Diplomacy at Tufts University. He lives in Dorchester.

About Bruce Mohl

Bruce Mohl is the editor of CommonWealth magazine. Bruce came to CommonWealth from the Boston Globe, where he spent nearly 30 years in a wide variety of positions covering business and politics. He covered the Massachusetts State House and served as the Globe’s State House bureau chief in the late 1980s. He also reported for the Globe’s Spotlight Team, winning a Loeb award in 1992 for coverage of conflicts of interest in the state’s pension system. He served as the Globe’s political editor in 1994 and went on to cover consumer issues for the newspaper. At CommonWealth, Bruce helped launch the magazine’s website and has written about a wide range of issues with a special focus on politics, tax policy, energy, and gambling. Bruce is a graduate of Ohio Wesleyan University and the Fletcher School of Law and Diplomacy at Tufts University. He lives in Dorchester.

Overall, the report said, the state is taking in roughly 14 to 16 cents in tax revenue (primarlily income tax revenue because movie productions are exempted from the state sales tax) for every $1 in tax credits that are issued. The Revenue Department cited studies on the film tax credits of other states that indicated returns were 7 cents for every dollar in tax credits issued in Connecticut, 13 cents in Louisiana, 28 cents in Rhode Island, 94 cents in New Mexico, and $1.10 in New York. The Revenue Department said the much higher returns reported for New Mexico and New York should be ignored because they were the result of questionable study methodologies.

Of the $676 million spent by TV and movie producers here over the last three years, the Revenue Department report said roughly $45 million would have been spent anyway without the tax credit. In essence, the state paid more than $11 million in tax credits to companies like WGBH-TV (Channel 2)  that would have spent money to produce TV shows here anyway.

Proponents of the state's film tax credit have suggested it would boost tourism in Massachusetts, but the Revenue Department study said tourism benefits would be difficult to calculate. The report said 10 feature films were shot in Massachusetts from 2006 through 2008 but only four — "The Game Plan," "Gone Baby Gone," "My Best Friend's Girl," and "21" — were actually set in the state. Of the remaining six films, two were set in New York ("The Women" and "Bride Wars"), one was set in New Jersey ("Paul Blart: Mall Cop"), one was set in Newport, R.I. ("Ghosts of Girlfriends Past"), one was set in Paris ("Pink Panther II") and one was set in New York and Alaska ("The Proposal").