In the last decade, state governments have enacted numerous movie production incentives (MPIs), including tax credits for film production.
Across the United States, state governments, local municipalities and film offices offer a variety of tax credits and tax incentive programs to bring entertainment productions to film in their states. Incentives vary a whole lot and are always changing: political climates, economic factors and even staffing at the state level can all affect your production.
Tax incentives allow film productions to save money on taxes, get discounts on local goods, and even receive cashback from the state, making a considerable difference to the overall budget of the project project.
Understanding all these different incentives and how to maximize the benefit from each is crucial in effectively producing a large-scale production.
The amount of the tax credit / incentive varies according to how much money was spent on qualified production activities, as well as how many jobs were created by those expenditures.
Tax Credits: Film tax credits are incentives that are given to filmmakers in the form of a refundable tax credit. These credits are given by state and local governments, as well as other regional entities such as counties or zones. The goal is to promote economic development through film production and filmmaking in general.
Main types of Tax Credits to understand...
Refundable: A refundable credit will be given as cash if the taxpayer’s total tax due is less than or equal to their total earned credit amount for the year; otherwise, they will not get anything back.
Nonrefundable: Non-refundable credits cannot reduce your federal taxes below zero so you may need additional sources of taxable income in order to utilize these deductions fully. Transferable Refundable Tax Credit: The production company can transfer their tax credits to a local company to reduce or eliminate their tax liability, allowing them to become a value-based "asset" for the production.
Grants: The state issues a tax-free payment to production companies for filming.
Film Tax Rebates: Film tax rebates are paid to production companies by the state, usually as a percentage of the company's qualified expenses. They are similar to grants, but they are taxable.
Tax Reliefs: Tax reliefs are designed to make it easier for the industry to create and produce films in Britain. The film tax relief is a government incentive offered by HMRC in the UK (Her Majesty’s Revenue and Customs) which has been available since around 2007. It offers up to 25% off on qualifying expenditure incurred in Britain as long as certain criteria are met.