Film Tax Credit Used Up In Three Weeks

 

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Mark Ballard of The Advocate reports that the lucrative tax credit that led boosters to dub Louisiana’s film and television industry “Hollywood South” is already tapped out for the fiscal year that began a little less than four weeks ago.

Even though this year’s tax break is completely claimed with more than 11 months to go, state officials and movie people say that’s good news for an industry whose confidence in Louisiana was shaken – productions virtually stopped – by efforts in 2015 to rein in the generous incentive program (Advocate).

One revamp limited the amount of credits the state would honor in a given year. Another suspended an option to sell the credits directly back to the state at a discount, meaning that those with credits had to either apply them against their own taxes or sell them to a third-party broker (Advocate).

The credits are transferable and typically trade at around 85 cents on the dollar (Advocate).

The cap continues through 2018, but the state on July 1 began to buy back the credits, leading to a sudden spike in demand (Advocate).

By the end of October – if not sooner, depending on how quickly the paperwork can processed – the state will pay out about $239 million to holders of certified film tax credits, said Don Pierson, secretary of the state Department of Economic Development, which oversees the program (Advocate).

That should take care of the lion’s share of the film tax credits that have yet to be redeemed, leaving only about $100 million in the pipeline, Pierson said. “We feel this is a great position to be in,” he added (Advocate).

The numbers are not finalized yet, but Louisiana Department of Revenue Secretary Kimberly Robinson said work is underway to finish the verifications and paperwork to get the payments out. “It’s adding some stability to the marketplace,” she said (Advocate).

Patrick Mulhearn, executive director of Celtic Studios in Baton Rouge, said the changes to the program made last year led some film producers to worry that Louisiana would pull out the rug from under them, and many stayed away (Advocate).

“There was an unfounded fear in the industry that the state wouldn’t honor its obligations. Obviously the state is doing that,” Mulhearn said (Advocate).

“There’s light at the end of the tunnel,” he added. “Anyone who puts in an application now should feel confident that Louisiana will honor the terms of the pre-certification letter they receive with minimal to no delay on credit redemption” (Advocate).

Over the past decade, more than 400 motion pictures were produced in Louisiana, and in one recent year the Pelican State hosted more feature film productions than anyplace in the country, including California (Advocate).

Five television shows were working Thursday in Louisiana. Georgia, by comparison, which built a program very similar to Louisiana’s and has become an even bigger hub for the industry, has 28 scripted television programs and 14 feature films in production, Mulhearn said (Advocate).

Cory Parker, business agent for the International Alliance of Theatrical Stage Employees, AFL-CIO Local 478 in New Orleans, said the impact of last year’s slowdown was most acute on smaller productions. Big film studios can wait a couple years to get their money, he said, whereas smaller operations can’t (Advocate).

The dramatic drop started shortly after the 2015 changes lawmakers made to the program, in which taxpayers cover 30 percent of production costs incurred while filming in Louisiana. The subsidies come in the form of a check when the state buys back the credits, or in foregone tax revenue when the credits are applied against taxes owed (Advocate).

Facing ever-larger deficits year after year and mounting criticism that state spending was tilted toward millionaire actors over struggling students, the outgoing Legislature and Jindal administration decided to continue issuing the refundable credits, but limited the amount that could be redeemed each year, from 2015 to 2018, to $180 million. That was down from $246 million spent in 2013 and $222 million in 2014 (Advocate).

The aim of the cap was to help bridge a revenue gap in the state budget. Lawmakers also suspended for a year an option that allowed holders to sell the credits back to the state at 85 cents on the dollar (Advocate).

Producers can sell the credits to others. But the market for those certificates is soft, hovering around the 85 cents the state will pay. For a production company with little tax liability in Louisiana, selling the credits back to the state is easier, and the rush to cash them in beginning July 1 suggests it’s a much more popular option (Advocate).

Robert Vosbein, president of the Louisiana Film and Entertainment Association, said the “back-end cap” created a glut of tax credits that couldn’t be cashed in. That made Hollywood jittery, with producers fearing they might have wait a long time before collecting their credit (Advocate).

“There has been uncertainty in the marketplace because of the confusion caused by this legislation,” Vosbein said. “Now that we’re past this new fiscal year, that glut has been largely absorbed” (Advocate).

Since the state had suspended the buyback provision, a lot of the holders of the credit didn’t redeem them in the fiscal year 2016, and the cap was not reached (Advocate).

But come July 1, the start of a new fiscal year and the end of the buyback moratorium, about $258 million worth of credits was presented to the state for payment (Advocate).

“It suggests film producers really valued the ability to cash these tax credits with the state,” said Jan Moller, director of the Louisiana Budget Project and a critic of using taxpayer money to prop up the film industry. “This tells us that the demise of Louisiana’s film industry has been greatly exaggerated” (Advocate).

The law allowed Edwards administration to add the roughly $59 million left over from last year’s cap to the $180 million of this year. That equals about $239 million the state will pay in the next few months (Advocate).

That’s not the entire amount owed, about $258 million, which means the state will come up $19 million shy of having enough to fully pay each redemption (Advocate).

DED Secretary Pierson said the state is paying each holder 93 percent of what’s owed. The remaining $19 million will be paid on July 1, 2017, he said, thereby making next year’s cap $161 million (Advocate).

“We will pay every single one of them,” Pierson said. “This news has been well received in California, I can tell you personally” (Advocate).

See the article here.

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