The highest-grossing movie of all time is Titanic, which has amassed nearly $2 billion in revenue in just 12 years. The five Harry Potter films, all released within the last 10 years, have grossed nearly $5 billion in revenue. It’s clear that even in an age where there are other distractions – TV, cable, internet – Americans are still going to the movies and movies still make a whole lot of money. But for who?

You and I know the answer to that: producers, big movie companies and stars like Cameron Diaz and Angelina Jolie who, for some bizarre reason, command millions and millions of dollars per picture.

Many states are hoping to grab a piece of the movie pie, even as their budgets are crumbling. Lawmakers seem focused on handing out tax breaks to woo production of movies and television to their respective state even in the midst of data that suggests that those tax breaks don’t actually benefit the state.

Two of the biggest entertainment centers in the world, New York and California, have pumped literally billions of dollars into the entertainment industry: both states are facing massive deficits this year. And despite throwing tax breaks at Hollywood, states are finding those companies to be fickle: the companies really just chase the money.

Take California for example. The state has spent loads of money to keep the movie industry inside its borders, despite a $24 billion budget deficit this year. The governor of the state even promised an appearance in the Terminator sequel if production remained in California. Nonetheless, the majority of the film was shot in New Mexico. Why? It was cheaper for Warner Brothers.

And California is not alone: states have handed out $1.8 billion in tax breaks and incentives to the entertainment industry over the past two years in an effort to woo business. Forty-one states currently offer some degree of tax break/incentive plan to attract or keep the TV and movie business.

Among them is North Carolina, currently facing a huge budget deficit. The state is introducing new taxes for its citizens all while pushing through new tax breaks targeted at the film and television industry. Will it work? Perhaps. North Carolina has been actively soliciting business from the entertainment industry for years – even since I was a kid. When I was in high school, my school band was chosen to portray a high school band in the movie, Hiding Out. We weren’t naive, we understood that we weren’t the best band out there, we were perhaps the cheapest. But we didn’t care: hailing from a poor county, we were able to use the “donation” from the film company to buy “new to us” uniforms for our band. The film went on to gross $7 million.

Since then, the city has played host to a number of television and movie projects including Dawson’s Creek and Matlock. But questions remain. Would those projects have chosen our town with or without tax breaks? Perhaps. Wilmington is a fairly low-cost town with lots of affordable labor and beautiful scenery. That counts for something.

The North Carolina legislature thinks differently. Despite a giant hole in the budget, tax credits for film projects are still very much on the table with the state voting just this week to expand existing breaks. The reported impetus for the urgency? A Miley Cyrus project expected to film in North Carolina moved further south after Georgia offered the production company a better deal – double the tax credits.

As the states duke it out to position themselves as the most attractive place to film, they find themselves as odds with taxpayers who have been charged with filling the budget gap in the interim. Proponents of the credits argue that the tax breaks will eventually pay for themselves because of the “extra” revenue generated when actors, extras, and crew move in, visit their shops and eat at their restaurants (I will say that our albeit brief, weeklong experience was that those folks eat on a closed set, rarely venturing out into town).

Similarly, states argue that production can create new – albeit temporary – jobs for city workers. That’s not always the case: many production companies import a majority of their own sets, caterers, and crew. It is to be expected, quite frankly, since lighting crews, stunt people, and other production positions require a level of training and expertise not always easily found.

So are the tax breaks paying off? Some states say yes. A recent report by Ernst and Young found that the local and state governments in and around New York City nearly doubled their investment in the entertainment industry, pulling in $1.90 for every $1.00 of tax credits. And New Mexico, which wooed The Terminator 2 away from California and just wrapped Jackie Chan’s The Spy Next Door, offers a slew of tax incentives: Ernst and Young claims that New Mexico brought in $1.50 for each dollar of tax credits they offered. Louisiana, buoyed by the success of The Curious Case of Benjamin Button, has such faith in the potential return on their investments that they recently introduced legislation to implement a more aggressive tax credit for movie and video productions.

Also pushing new aggressive new plans? Ohio, Massachusetts, Georgia, and Texas. The legislators in these states are taking a gamble that their investments will work out.

Not all states are so confident. Connecticut has reported a loss on each dollar of investment in the industry. A recent bipartisan committee in the Michigan senate showed that the state was stung by huge losses as a result of its tax credit initiative: in particular, the refundable nature of their tax credit resulted in the state actually paying companies who reported a loss. And Wisconsin is actually looking for a way out of the tax credit incentives that they had promised before as the state grapples with finding a way to pay its bills.

Pennsylvania is also reassessing its stance on film credits as it finds itself in a budget crisis. Successful projects recently filmed in the state include Baby Momma and Marley and Me. Proponents of expanding the credit point to those films as indicative of a pattern of growth in the area. However, opponents are quick to point to figures that show a net growth of less than $5 million after taking into consideration all related industries. Those same opponents argue that level of growth could have been generated through investing in long-term industry projects in the state – or by cutting tax for all businesses.

I’m not sure whether tax credits are a good solution long term for most states. I tend to believe that the amount of money being pumped out to an industry that grosses billions and billions of dollars each year could be better spent elsewhere – or put back in the pockets of taxpayers. But then, I also get the “ambient” benefit of having a movie industry in your state… I’ll admit to bar-hopping in Philly, looking for Brad Pitt when he was filming Twelve Monkeys because I had heard that he and Bruce Willis were hanging out downtown. And yes, my husband and I do watch Cold Case so that we can play “name that street.” There is a certain cachet associated with film and television projects that’s hard to value… But the real question is: is it worth it?

Print Friendly, PDF & Email

Kelly Erb is a tax attorney, tax writer and podcaster.

Write A Comment

This site uses Akismet to reduce spam. Learn how your comment data is processed.