The Oscars are history, but the draw of celebrities, couture and all the glamour tied to Hollywood moviemaking goes on. The attention on films has many state policymakers thinking about how to get in on the action.
For states looking to spur economic development, the prospect of growing a larger film industry presence is highly appealing. The big screen can cast a city or state in a whole new light, attract tourism and create jobs. States have long offered tax incentives to entice new film or television productions, but support for these programs has spiked in the wake of the COVID recession, which sent the film industry reeling as theaters closed and productions were postponed.
At least 18 states have enacted measures to implement or expand film tax incentives since 2021.
Film tax incentives typically come in the form of tax credits equal to a percentage of a film or television production’s qualified in-state spending and/or exemptions from sales tax on qualified transactions. The credits are often refundable—eligible for refund without any tax liability, or transferable—if the value of a company’s credits is higher than its tax liability. A company can sell the excess credits to another taxpayer who owes the state taxes. States also offer cash rebates as another type of incentive.
With the economy well on the rebound after the pandemic, at least 18 states have enacted measures to implement or expand film tax incentives since 2021:
- Arizona adopted a new tax credit for film and streaming TV production.
- Indiana passed a bill to create the state’s first film tax credit program.
- Illinois expanded its existing credit program by increasing the cap on qualified resident and nonresident wages to $500,000, up from $100,000 for resident wages only.
- Missouri adopted a new tax credit for motion media production projects.
- Washington state increased the amount of film tax credits that could be awarded annually from $3.5 million to $15 million.
- West Virginia reinstated an incentive program with no cap on the amount of credits that can be awarded annually.
- New Jersey increased the annual limitation on digital media content production tax credits to $30 million from $10 million and increased the percentage of qualified expenses that can be claimed.
- In Georgia, a 2022 bill to limit tax film credits at $900 million annually was introduced but failed to pass. Legislators cited concerns of losing film industry business over changes to the current incentive programs.
Louisiana was the first state to adopt a tax incentive program for film and television production in 1992, and the strategy spread nationwide through the early 2000s. Today, 37 states, Washington, D.C., Puerto Rico and the Virgin Islands offer incentives for film production; but at the peak in 2010, 45 states, the district and Puerto Rico offered them.
After the Great Recession, many states began paring back these incentives to save money. That trend continued well into the recovery, along with a rise in state efforts to improve the evaluation and oversight of tax incentive programs. States performing evaluations of their film tax incentives commonly found that, despite the positive anecdotal evidence that accompanies big film projects, the programs do not provide a substantial return on investment and, if economic development is the goal, other policy avenues might be more productive. Policy analysts from left- and right-leaning think tanks have also questioned whether the programs are the best use of a state’s money.
Despite the questions surrounding their overall efficacy, film tax incentives still garner a lot of interest. Film projects are highly popular with host localities and the public, and there’s no denying that incentives help determine where companies decide to make movies. Furthermore, it is difficult to precisely quantify the extent to which film development benefits state tourism, and it is hard to ignore the success states such as Georgia and Louisiana have had in attracting new film projects with generous tax credit programs.
State Strategies
Given that film tax credits aren’t going away anytime soon, some ideas states have considered to ensure the programs limit forgone revenue yet still improve a state’s competitiveness in the industry, include:
- Increasing the threshold for in-state spending/filming.
- Targeting the credit toward workers who reside in the state.
- Capping program costs.
- Capping salaries eligible for the credit.
- Eliminating a credit’s transferability.
- Eliminating a credit’s refundability.
- Tightening the timeline in which a project can apply for credits.
- Increasing diversity requirements for accepted projects.
- Expanding credits to include “multi-films,” which are eligible for tax credits that can be applied through one to four years of production on a single application, meaning the state will give priority to “guaranteed multiple year work” when allocating the film incentive (e.g., Pennsylvania).
- Larger credits may be necessary to attract long-term investment if there is substantial competition.
For a complete list of state tax credit incentives, visit State Film and Television Incentive Programs.