Incentives Watch: Are Film Tax Credits Merely a ‘House of Cards?'

What is the value of entertainment? Ten cents to the dollar, according to a report on Maryland’s production activity credit recently released by the Maryland Department of Legislative Services.

Maryland only generates $0.10 of revenue for every $1 of the credit awarded, 40 percent of which is received at the local government level rather than the state, according to the report. This means that the locality being used for the filming is receiving almost as much revenue as the state government that funds the credit.

The report also states that not all localities have been treated equally, as some areas of the state have benefited a great deal more than others; and that the film industry, unlike other manufacturing or service-based businesses, does not sustain a long term physical presence in the state.

It would also appear that Maryland’s credit is doing a poor job of incentivizing productions that are not specific to the Washington D.C. area. According to the report, the Maryland General Assembly has awarded $60.3 million, out of a total of $62.5 million, of credits to two productions. Both "Veep" and "House of Cards," the two programs which have received nearly 100 percent of the Maryland film credits awarded, are based on politicians living and working in Washington D.C.

The Maryland film production activity credit equals 25 percent, or 27 percent for television series, of the direct costs in Maryland associated with the film’s production. The total aggregate amount of credits available for fiscal year 2014 was $25 million, with a cap of $7.5 million, for both fiscal years 2015 and 2016. The taxpayer must apply both prior to filming, to be named an eligible film production entity, and after filming is completed, to receive the credit.

Generally, given the short-term nature of film production, and the small return on investment, the department has recommended that Maryland allow the credit to sunset on July 1, 2016. In the alternative, the department recommends, among other things, drafting legislation requiring productions to commit to filming in Maryland long term, possibly by adding a recapture provision to the statute, or offsetting some of the costs of the credit to the state by requiring localities to contribute a portion of the credit from their budgets.

Maryland Sen. Edward Kasemeyer, one of the film credit's supporters, said that "'[t]he point of this is to create jobs and economic activity, and that's happening,'" in a Nov. 15 Washington Post article.

The Washington Post article also looks at a study performed by the Regional Economic Studies Institute at Towson University, commissioned by the Maryland Film Coalition, which “said that for every dollar Maryland allocates in film tax credits, it receives $1.03 back in tax revenues.”

The issue, just as every question about art, then becomes a matter of opinion. With varying studies, and a competitive international market for film production, some lawmakers might be wary of turning their backs on a multimillion dollar industry. However, others may very well believe that states are better off focusing on attracting more traditional and sustainable businesses. Regardless, it is now the entertainers who can sit back and enjoy the show as Maryland lawmakers begin discussing the future of the state’s film tax credit.

*Continue the discussion on Bloomberg BNA's State Tax Group on LinkedIn: Should Maryland continue to offer its film production activity tax credit in light of this new report? 

For more information about film tax credits, check out Bloomberg BNA’s Credits and Incentives Portfolios by signing up for a free trial of the Bloomberg BNA Premier State Tax Library today.

By:  Jason Plotkin

Follow Jason on Twitter at:  @jplotkinSALT

Follow BBNA on Twitter at: @BBNATax.