[IMGCAP(1)]Whether you’re a publicly held movie studio conglomerate producing and distributing substantial numbers of films annually commanding significant shares of box office revenues worldwide or an independent filmmaker, movie production tax incentives should certainly be considered and incorporated into the tax planning process to properly tax effect the cost of filmmaking.
Synopsis of Movie Production Tax Incentives
Movie Production Tax Incentives, or MPIs, are tax benefits that are available at the U.S. federal level, at most U.S. multi-state levels, and on a global level through nearly 100 participating countries worldwide and should certainly be incorporated into the tax-planning process for filmmakers in order to properly tax effect their costs of filmmaking production.
The three primary phases of qualified filmmaking production include the “Qualified Pre-Production Phase,” the “Qualified Production Phase” and the “Qualified Post-Production Phase.” It is fairly common practice in the movie industry to shoot the aforementioned phases of qualified production in several locations (e.g., Qualified Production Phase in Los Angeles, and the Qualified Post-Production Phase in Vancouver, Canada). Consequently it is critical to know about the available incentives, as applicable, not only state by state but also country by country worldwide.
While the applicable Qualifying Production Activities (hereinafter QPAs) vary significantly from state to state and country to country, many common QPAs include, but are certainly not limited to, feature films, episodic television series, relocated television series, television pilots, television movies, and miniseries. In contrast, as a caveat, many states and countries alike generally consider the subsequent productions to be non-qualified production activities and consequently not eligible for MPIs. These can include documentaries, news programs, interview and talk programs, instructional videos, sports events, daytime soap operas, reality programs, commercials and music videos.
Additionally, while the applicable Qualifying Production Expenditures, or QPEs, also vary significantly from state to state and country to country, many common QPEs include, but are not limited to, salaries, facilities, props, travel, wardrobe and set construction. It is always critical to establish clear nexus between QPAs and corresponding QPEs.
It should be further noted that the structure, type and size of the incentives vary significantly from state to state and country to country as well. Many MPIs may include tax credits, tax rebates and / or exemptions (e.g., sales and use tax exemptions on movie production equipment, sales and use tax exemptions on lodging, etc.) while other incentive packages may include cash grants, fee-free locations, and other diverse and advantageous incentives.
There are approximately 40 states that currently offer MPIs with most being either transferable (e.g., transferable credits allow production companies that generate tax credits greater than their tax liability to sell those credits to other taxpayers, who then use them to reduce or eliminate their own tax liability) or refundable (e.g., refundable credits are such that the state will pay the production company the balance in excess of the qualified expenses) and nearly 100 countries that offer MPIs worldwide with varying structures and highly diverse programs.
It is critical to design and implement a sustainable methodology that will incorporate all applicable MPIs to properly tax effect the cost of filmmaking regardless of the size and structure of the movie studio or production conglomerate whether your client is one of the “Big Six Majors”— Paramount Motion Pictures Group (Viacom), Warner Bros. Entertainment (Time Warner), The Walt Disney Studios (The Walt Disney Company), NBC Universal (Comcast), Columbia TriStar Motion Pictures Group (Sony), and Fox Filmed Entertainment (21st Century Fox)—or a leading independent producer/distributor commonly referred to as the "Mini-Majors"—Lionsgate Films; The Weinstein Company, Open Road Films, CBS Films, DreamWorks Studios, and MGM Pictures—or a smaller production or distribution company known as independents, or “indies.”
As a direct result of these advantageous MPIs, filmmakers that are properly guided by a trusted tax adviser are able to jubilantly end their productions rejoicing “Lights, camera, action and tax cut!”
Peter J. Scalise serves as the Federal Tax Credits & Incentives Practice Leader for Prager Metis CPAs, LLC, a member of The Prager Metis International Group. Peter is a BIG Four Alumni Tax Practice Leader and has over 20 years of progressive CPA Firm experience developing, managing and leading multimillion dollar tax advisory practices on a regional, national, and global level. Peter serves on both the board of directors and board of editors for The American Society of Tax Professionals (ASTP) and is the founding president and chairman of The Northeastern Region Tax Roundtable, an operating division of ASTP.
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