|(from 2012, subject to change)|
Making a film is a constant battle against the odds; odds that you will finish the script, that you will get the money to shoot it; that you will actually shoot it; that you will have the money to cut it; that you will finish cutting it; that you will have the money to put it in festivals; that you will actually get it in festivals; that you will have the money to market it and get a producer's rep to sell it or four-wall it yourself; and, that you will make any money on it or just break-even. Maybe it's not all about the money but it's a damned good chunk of it. That's why getting to recoupment stage is rarefied air for filmmakers and must feel like raising the flag at Iwo Jima.
Big budget films are expected to eventually make money but even a low-budget film can be made to recoup or break-even with creative financing. Creative financing involves harnessing all the ways to raise funds for a film no matter what the budget using self-financing, investor vehicles, securities, gifts, grants and subsidies (studio financing could also be part of it but it isn't a reality for the majority of filmmakers, so I left it out for now). When people hear subsidies or tax incentives or credits or rebates, they immediately assume that they are only relevant for films with six figure budgets or higher. And they are mostly true. But there are more than a few states that offer subsidies and incentives for budgets or spends of $65,000, $50,000 and even less than $25,000.
So the hypothetical question is, what production tax incentives* would I seek for a budget of $25,000 or less? There are at least 5 U.S. states I would consider moving my production to to take advantage of the incentives. This is assuming the states meet the condition necessary to bring your film to life; it's the right location as envisioned in the script, there is an available cast and crew to go and work there, it's close to your home state (if it's not already your home state) and equipment is easily available or transportable.
There are also some caveats when you seek incentives and subsidies. First of all, tax incentives or government subsidies are just another source of financing. They reduce the net expenditure of a film by 10% to 15%. Thus, they can only be one slice of the financing pie not the pie itself. Second of all, because every state offers different incentives with different criteria the state that offers the incentives you seek might be too far away to be worth your time to move your production there. Or they do not offer the proper location you seek, for ex. New Mexico may offer the best incentives for your production but your story takes place in the Arctic. In that situation, changing the script's location is a possibility but that judgment call shouldn't be made simply for the incentive. Thirdly, tax incentives are subject to constant legislative changes. The state that today had the incentive you like could have repealed it by the time you actually need it tomorrow. Fortunately, the 5 states are sprinkled across the map and cover the northwestern, southwestern and eastern areas thus affording proximity to many filmmakers.
So with a budget of $25,000 or less, I would seriously consider shooting and editing in the following states:
- There is no minimum spend so I can have a budget under $25,000.
- At that budget, I can shoot a feature film, television series, or television show pilot/episode of 15 minutes or more for a national audience.
- New Jersey's production incentives include a 20% transferable tax credit instituted in 2006. This tax credit is available to producers who spend 60% of their budgets in New Jersey, exclusive of post-production costs.
- The credit is both saleable and transferable and may be carried over to subsequent tax years.
- The production company must produce a finished print of the project before submitting their final figures for approval.
- There is no minimum spend so I can have a budget under $25,000.
- At that budget, I would only be eligible for a 9% refundable tax credit on the total qualified expenditures in Montana for any films, television episodes, pilots, series, documentaries and commercials (except advertising for tobacco products) that I shoot.
- Note that per diem paid to employees while in-state does qualify for the 9% expenditure credit, as does travel purchased through a Montana travel agent. FICA, FUI and SUI, however, do not qualify.
- Also, workers compensation, health insurance and payroll processing fees qualify if paid to an in-state vendor.
- Now if I happen to raise enough to pay up to $50,000 in wages to Montana residents then under the Big Sky on the Big Screen Act, my film and TV productions would be eligible for a 14% refundable tax credit on those wages.
- Overall, Montana also offers free services to filmmakers: script break-down, location scouting, office furniture and fax machines, as well as traffic control signage. And Montana does not have a sales tax.
- Finally, the 7% accommodations and lodging taxes are refunded for stays of more than 30 consecutive days.
- There is no minimum budget or spend requirement so I can have a budget under $25,000.
- At that budget, the 30% refundable film tax credit applies to resident cast and crew, and in-state rentals, purchases and services that are subject to state taxation in New Mexico.
- Payments for non-resident performing artists (actors and on-camera stunt performers), providing services in NM, will qualify if paid via a “super loan-out” company which pays gross receipts tax (“GRT”) in New Mexico on the payments (wages) and the performing artist receiving payments pays New Mexico income tax.
- The state withholding tax (PIT) payment of 4.9% must be withheld by or caused to be withheld by the production company (e.g. via the payroll company) for all qualifying non-resident talent.
- New Mexico offers a 25% tax rebate on all direct production expenditures, including New Mexico crews, that are subject to taxation by the state. The rebate applies to feature films, independent films, television, regional and national commercials, documentaries, video games and post-production. Non-resident actors and stunt performers will also qualify under a separate tax structure.
- Post-production services rendered in New Mexico also qualify for the 25% Refundable Tax Credit even if the project is shot elsewhere ("Stand-Alone Post").
- New Mexico does not require the submission of a distribution plan from the production company to take advantage of the refundable credit.
- There is no application fee and no pre-qualification. To begin the process, you only need to submit a registration form and tax agreement prior to principal photography.
- New Mexico’s direct qualifying expenditures include, but are not limited to, resident payroll (fringes included), non-resident per diem, rentals/expendables from vendors with local physical presence as well as property rental and location fees.
- With a budget or spend of $25,000 or less, I could only qualify for a 20% rebate. Minnesota offers a 20% rebate for qualifying expenditures under $1,000,000 and a 25% rebate for expenditures over $1,000,000.
- Note that I get a 60% rebate if the production is outside the metropolitan area. So filmmakers with scripts set in farms and/or the countryside... you're in luck.
- Only residents count towards the rebate, in addition to local services. Lodging tax is exempted after 30 days. Commercials are exempt from sales tax.
- Note that Snowbate, Minnesota's Film Jobs Production Program, provides a reimbursement of 15%-20% of Minnesota production expenditures to films, television and internet programs and other content. Snowbate funds are limited (subject to an appropriation of approximately $1 million annually) and are approved biennially.
- The minimum expenditure requirement is $25,000 so I need to have a budget of $25,000 or more that I'm actually spending in West Virginia to qualify. West Virginia's incentives to production include The West Virginia Film Industry Investment Act that currently provides for transferable tax credits of up to 31% of qualified in-state spend for production on eligible feature length theatrical or direct-to-video motion pictures, made-for-TV motion pictures, TV pilots, series, and miniseries and more.
- The current incentive is a transferable income tax credit with limitations. The incentive is actually a 27% tax credit on all direct production expenditures (for pre-production, production and post-production), including all labor and talent that is subject to taxation by the state of West Virginia.
- By hiring 10 or more residents (talent and/or crew), it is possible to increase the total allowable credit by an additional 4%, bringing the maximum credit to 31%, but there is a $5 million annual credit cap.
- Payments to a personal service corporation (“PSC”) for out-of-state talent can qualify so long as the individual/talent is subject to West Virginia income tax on the payment and fees earned.
- West Virginia also offers an exemption from state sales tax for all productions including but not limited to films, television programs, commercials and, music videos. Purchases and rentals of tangible personal property, in addition to the purchase of services, directly used in a qualified production are exempt from the 6% consumer sales and service tax.
- Lodging stays in excess of thirty consecutive days are exempt from both the state sales/service tax (6%) and the local hotel/motel tax (varies by region). The exemption begins on the 31st day and is not applicable towards the first 30 days.
Although incentives and subsidies only reduce your net expenditures by about 10% to 15%, they are still helpful to your overall financing and production goals. Plus, production incentives can provide short-term jobs to state residents, help the local economy, bring revenue to the state and prevent productions from leaving the US. However, they are still a controversial subject and many critique incentives and subsidies as being unconstitutional and wasteful especially when states are cutting social service programs out of their budget. This is why each state's incentives and subsidies programs are constantly in flux. Nevertheless, independent and low-budget filmmakers should still aim to use them while they are still available.
Sources: MPAA, Ease Entertainment Services, Entertainment Partners
*Let me point out that I wouldn't make a movie simply for the production incentive, tax subsidy or tax credit no matter how generous it is. I want to make films to express a vision and to tell stories, that is first and foremost.