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2021 Film Tax Incentives: The Driving Forces of a Hot Market

Original publish date: March 17, 2021

Production is going strong as we move toward closing the books on the first quarter, with vaccines rolling out quickly and safety guidelines well in place on film sets across the country. And with that, interest in film tax incentives in various U.S. states is bigger than ever.

So it’s a good time to take the pulse of production incentive states in terms of their programs, see where they’re headed and what the film incentive trends are for 2021.

The usual suspects are standing tall, though a number of changes to their incentive programs may shift the landscape a bit.

Changes to Popular Film Tax Incentive Programs

New Mexico’s film incentive program had a whole host of impactful changes in 2019, but just recently made a key update to their talent withholding requirements. The increase in nonresident talent withholding from 4.9% to 5.9% is significant, and though it’s a tax on the talent and not the production company, producers need to make sure their production payroll service is withholding it properly so they don’t end up having to make up the difference – or worse, miss out on major incentive dollars if the state disqualifies that payroll as a result.  

New Mexico remains popular in the incentives market with their fully refundable credit, and we expect to see a major buildup in the local crew base there, with Netflix and NBC Universal planting roots in the state for at least the next decade.

Georgia, one of the stalwarts of Hollywood South, announced a welcome decrease in their mandatory loanout withholding to 5.75%. But that’s not the only change Georgia’s incentive program saw in 2021.

They also changed their audit requirement and guidelines for those seeking the Georgia film tax credit. Most notably, making the once-optional audit mandatory – a change which had been sought by many in the state, and puts all Georgia incentive seekers on the same level playing field.

The Georgia peach credit got a little fuzzier for financing

The 10% Georgia Entertainment Promotion got an overhaul as well… in layman’s terms, this is the logo or “peach” credit. Going forward, in order to capitalize on this generous piece of the tax incentive, a production must have more than just a distribution plan, but actually show proof of the distribution.

Besides making it a bit tougher to qualify for this part of the incentive, this hits indies in the cash flows. It means that now your tax credit will more than likely come to you piecemeal, with the initial 20% after wrap and the remaining 10% being delayed until after distribution. Producers must seriously consider this in their budgets, especially for financing a film against the tax credit – because the longer it takes your financiers to get a return on the incentive, the more interest you’ll pay them.

Need free advice on financing your film? Book time with us.

Also keep in mind that this could spread your Georgia tax credit over two tax years, meaning you might be dealing with two different buyers and two different discounts on the credit.

Georgia production has stayed consistently busy throughout the pandemic, although it was not all about the tentpoles: independent films found they could schedule more nimbly and shoot with smaller crews. The smaller production budgets have actually helped bring up the value of the Georgia transferable tax credit, as the supply of them has dwindled a bit.

Indies Maximize on Incentives During Pandemic

This speaks to an overall industry trend, where independent productions have been at the forefront of the film business during the pandemic, with smaller crews under self-imposed COVID guidelines, and more ability to start and stop quickly in the case of a positive test. Creating a “bubble” set has become a popular way to ensure project completion in a safe, self-contained way.

And while the added expenses due to COVID can be hard to weather, the silver lining is that most states will consider your PPE a qualified expenditure for their production incentives, and even your COVID insurance can qualify if purchased through a local broker. Budget accordingly.

Cash Rebates Are All the Rage for Film and TV Productions

Trends are pointing producers to Oklahoma, Utah, Texas and other states that offer cash rebates/grants as filming incentives. Oklahoma and Utah had low COVID rates early on in the pandemic, which also pushed film and TV production interest there.

While nothing beats cash in hand when it comes to incentives – since you don’t have to wait for a tax credit, or broker it to an in-state buyer – most rebate/grant states do not have a the biggest pot of money to draw from.

Washington is a Rebate state that had been overlooked in the past due to its strict local hire and local key position requirement. But as of January, that part of their program has been removed – with the Pacific Northwest already a popular production destination, we can expect this welcome update to put Washington’s rebate incentive on producers’ radar once again.

It can be hard to budget for a grant or rebate if the funds are limited and you don’t know how much will be left by the time you’re ready to shoot. But when a state finds that there’s more production interest than they have grant money for, that news makes its way back to the legislature and change may not be far behind.

Film Incentive Legislation in the Works

Legislative sessions are active for a number of states right now, and many of them are considering increased film tax incentive budgets, higher percentage on production returns and longer program extensions. New Jersey signed into their budget $2.5 billion (with a B!) for their transferable production credit over the next 13 years. That extends the sunset of their program way out to 2034. This commitment to an existing program makes other states sit up and take notice, as it shows something must be working.

States like Florida, Michigan and West Virginia all have bills in the works to bring back their lapsed film incentive programs and try to boost production. Meanwhile as mentioned, Oklahoma is at the table to see what they can do to elevate their popularity even more, hoping to bump up a mere $8 million in funding into something competitive.

As always, many jurisdictions want to improve on what they have: notably Maine and Ohio have irons in the fire, with others not far behind.

One trend we love to see and expect to continue is states catering more to indies with their film incentive programs. New diversity bonuses and requirements, much like we see in New Jersey and now in California’s production incentive, are on a fast track. With crew and cast less eager to travel for work, making it worth their while is key. We even see productions gravitating to the resident states of high-net actors and producers who want to keep it close to home for a while.

Can’t argue with that.

Need help with film tax incentives? Reach out here.

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