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People often think the credit helps Hollywood moguls — some of whom never set foot in the state — cut the tax bill they accrue on their production. Or that crew supervisors get rebates on goods, such as lumber, dry cleaning, or bottled water for crews and extras. But things are a bit more nuanced than that.
Say you spend $1 million shooting a movie in Georgia and you include the state's logo at the end. Your production company qualifies for a $300,000 tax credit. You, typically through a broker, can sell the credit for about 80 cents on the dollar to the well-to-do and corporations of Georgia, which use it to offset their state tax liabilities.
That's cash in hand that can be used to pay off film investors or cover some of your marketing costs. The Arthur Blanks and Coca-Colas of the world get a break on their state tax bills. Lighting technicians, caterers, and carpenters get steady work. The broker usually takes a cut of 3 to 5 percent, depending on the film's budget.
The tax credits can be "broken up," brokers say, which makes them available to people who owe less than, say, a Fortune 500 CEO or Delta.
"If you made $25,000 and owe the state of Georgia $1,500, you can buy $1,500 in tax credits," says Don Mandrik, an Atlanta film producer and credit broker. But he notes the potential savings at that level are so small that it's almost not worth the trouble. This May, rules were changed to make the credits more accessible to average Georgians. Previously, all shares had to be spoken for to complete a sale. Now brokers can sell tax credits in individual chunks.
But there are downsides. For one, we don't know who's using the tax credits. CL's request to the Georgia Department of Revenue for a list of the companies that qualified for the tax credits — and who claimed them on their taxes — was declined. The state's Open Records law prohibits disclosure. And any audits, even if they are conducted, can't be shared because of confidentiality laws. The state's entertainment office can only disclose names of films shot in Georgia, and cannot provide information about budgets or the names of qualifying productions. That makes it difficult to track and compare how much we're gaining in terms of economic activity and losing in terms of tax revenue.
An independent, objective study of the incentive has not been done. As a result, it's hard to calculate whether the state is actually seeing a return on the more than $200 million it's passed up over the last three years — cash that could potentially pay for education, transportation, and better social services — or just watching money fly away.
Economists are split on whether the tax credit is a good investment and practice, especially considering that states have made a sport of leapfrogging each other in the past by each trying to offer a better financial incentive.
Free-market champions, who shoot darts at nearly all tax incentives, view film tax credits as politically popular giveaways that ultimately don't pay off. The Tax Foundation, a Washington, D.C.-based think tank that monitors fiscal policy, often points to studies of such programs that have determined that they typically bring in less than 30 cents for every dollar spent.
"What's generally been found is that they're not as valuable as seen at first," says Eileen Norcross, a senior research fellow at the Mercatus Center, a free-market think tank at George Mason University. "They end up costing revenue with very little in return. Why not just create a neutral environment that doesn't try to pick winners?"
Earlier this year, Massachusetts Gov. Deval Patrick proposed placing a cap on the state's film tax credit over concerns the program was sometimes used to subsidize questionable expenses. North Carolina state lawmakers in early June battled over whether to extend the tax credit in that state, considered Georgia's chief rival in the filmmaking business along with Louisiana.
Christine Ries of Georgia Tech, who served on a special council created by former Gov. Perdue to reform Georgia's tax code, thinks the state's rosy estimates of economic impact neither tell the whole story nor take into account the revenue the state's giving away. She's also bothered by the idea that the state is indirectly providing a payoff for predominantly out-of-state producers.
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