GOING BIONIC: DISTRIBUTING INDEPENDENT FILMS INTERNATIONALLY – PANIC IN DETROIT!

Oh, what a difference six and a half months make. Back on August 24, 2010, I crowned Michigan for having America’s best film tax credit, in my article “Tax Credits Rock.”

But today is March 15, 2011, and everything has changed. Thanks to new Michigan Governor Rick Snyder, film tax credits in Michigan look as if they’re headed the way of the dinosaurs – or at least of leg warmers (not extinct, but very much out of style).

Before I dive into the recent shift, let’s take a look at what I stated back in August:

The Best Film Tax Credits Available

  1. Michigan – Hail, hail Motown, the Motor City, and every other filmmaker-loving part of the Wolverine state, because they have the most aggressive program. Michigan film tax credits are 40%, which can swell to 42% if the production shoots in a designated “core community.”  Furthermore, all above-the-line personnel qualify for the 40%-42% tax credit as “direct production expenditures.” This is very important, because the above-the-line personnel cost is usually quite a hefty chunk of an independent film’s budget (especially the actors). Thus, allowing these costs to be included allows for the film production to receive a much greater cash rebate. As for the below-the-line costs, Michigan offers the full 40%-42% tax credit for costs deemed “direct production expenditures,” and 30% tax for costs deemed “qualified production expenditures.”

Furthermore, the way to ensure your production qualifies for the 40%-42% tax credit is to be a resident of Michigan for at least 60 days before your application is approved. Proof of residency can be achieved by having a Michigan driver’s license or a Michigan voter’s registration card. If you’re not willing to become a Michigan resident to save several hundred thousand dollars to several million dollars, then you can either wrangle a Michigan based producing partner to file the application, or settle for the 30% tax credit given to non-residents of Michigan. For more information about the Michigan Film tax credit, please visit: http://www.michiganfilmoffice.org/For-Producers/Incentives/Default.aspx

Wow. Even as I read over what I wrote in August, it seems too good to be true. Too bad it is… Here is some key information:

Annual Program Cap of $25,000,000
Michigan Gov. Rick Snyder hasn’t completely killed the Michigan Film Tax credit program, (yet), but starting in 2012, he’s putting a $25,000,000 cap on the total film tax credits offered per year. That’s a hell of a lot less than the $60,000,000 awarded last year. Although these changes aren’t supposed to take effect until January 1, 2012, rumor has it that Gov. Snyder has already instructed the Michigan Film Office not to approve a penny more than $25,000,000 in 2011. Thus, it just became a lot harder to get a film tax credit approved in Michigan. Furthermore, even if you’re able to snag a piece of the pie, you’ll wind up with no more than a crumb, because what used to be a “whole pie” is now one slice – and a small one at that!

The Michigan Film Tax Credit Could Disappear
Due to a curiously convenient loophole in the Michigan legislature, which states that any program without a specific amount of money guaranteed to it at its inception, can be terminated. Thus, Michigan Gov. Rick Snyder could be within his executive power to cancel the Michigan film tax credit all together.

Film Tax Credit Economic Impact In Dispute
Since the Michigan Film Tax Credit program started in April 2008, $304,000,000 in tax credits has been approved – spread over 202 productions – and $96,000,000 has been paid out. That isn’t in dispute, but everything else around these tax credits is.

For example, a recent Ernst & Young report states that from 2009-2010, 6,491 full-time film industry jobs created $812,000,000 in economic output for Michigan. Production companies spent $532,000,000 in Michigan from 2009-2010, with $310,500,000 of that amount directly impacting Michigan’s economy. The most significant statement in the report was delivered through the smallest numbers: every $1 spent on the Michigan Film Tax Credits earned $6.

However, opponents of the film tax credits paint a much more grim picture. They claim that every film job created in Michigan actually costs the state $193,000, and that only $.10, (yes, ten cents) is generated for every dollar spent on the program.

Ten cents earned per dollar spent is a far cry from the $6 earned per dollar spent that the supporters of the film tax credits claim. Thus, both sides are digging in and preparing for a lengthy political battle.

One thing I’m sure of is that numbers can be manipulated. It all depends on what factors or conditions are ignored during the calculations. Thus, both sides of the Michigan Film Tax Credit battle will go to their deathbed claiming their numbers are true, because those numbers reflect what each side wants them to reflect. In short, it’s a big mess.

Several Productions Have Already Bolted
Due to the recent film tax credit changes, at least ten productions have already pulled out of Michigan. The most significant defector is The Avengers, A $150,000,000 + budgeted tent pole studio film. While the knee-jerk reaction out of Michigan may open a few opportunities for film productions wanting to shoot there, remember that the program is already on life support and is in fear of dying.

Chain Reactions By Other States Could Hurt
While it’s entirely possible that other states looking to wrangle the films originally headed to Michigan, could increase their own state’s film tax credits in order to leer filmmakers their way, it’s more probable that other states will follow Michigan’s lead and start reducing or canceling their own tax credits.

The problem is, since all states are currently broke (or close to it), and every family has been more than pinched financially, the last thing any hard-working, partially unemployed family wants to hear about is some young, care-free Los Angeles or New York based filmmaker popping into their state for a few months to make a movie, and getting a multi-million dollar tax credit for doing so. Lawmakers see it as just bad business, especially since their constituents complain endlessly about their tax dollars going into the pockets of out-of-state filmmakers.

Thus, even though film tax credits are great long-term programs that can create tens of thousands of jobs and infuse hundreds of millions of dollars into even the most dismal economies (i.e. Michigan), our current political climate may not allow for these much-needed programs to flourish.

For now, if you’re a filmmaker whose looking to utilize a state-based film tax credit, I suggest you contact each state film office and ask them about the strength of their current program. Then I’d snap into action and get your film shot before all of the film tax credits become a distant memory. Let’s all hope like hell that day never comes!

I wish each and every one of you a happy and safe St. Patrick’s Day, I thank you for lending me your eyes, and I hope to borrow them again next week!




Posted on March 15, 2011 in Features, Going Bionic by
Buffer


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3 Comments on "GOING BIONIC: DISTRIBUTING INDEPENDENT FILMS INTERNATIONALLY – PANIC IN DETROIT!"

  1. adrian on Tue, 15th Mar 2011 12:55 pm 

    Actually, the numbers from the two reports are not in conflict. The Ernst & Young report found the economic impact for the private economy was almost $6 for each dollar of public spending on the program. The state does not make that amount, the economy does. Much of that benefit also left the state because it paid for above-the-line costs and out of state film crews. All of the economic activity returned around .10-.25 per dollar spent to the state offsetting a fraction of the total cost.

    The E&Y report also said the state recouped 30% of each dollar spent. In other words losses were 70%. The reports are not in too much conflict. Its the way they are reported, like here, that creates the confusion.


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  2. Hammad Zaidi on Wed, 16th Mar 2011 1:56 am 

    Adrian,

    Thank you for the clarification.


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  3. Bryan on Thu, 17th Mar 2011 12:46 pm 

    Wait a second.

    If a state grants a tax credit, how much did it actually spend? Answer: nothing. The tax credit is “spent” only by not collecting the *potential* tax revenue.

    But if the film hadn’t come to Michigan at all, there would have been *no* tax revenue. So collecting *only* 58% of the tax revenue is a lot more than collecting *no* tax revenue, isn’t it?

    So, if I owe a tax of $1,000 but get a credit of $420, how much does the state get? $580. But if I don’t owe a tax at all, how much does the state get? Nothing.

    The choice would be that the state gets something vs. the state gets nothing. Which is better for the state?


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