Motion Picture and Television Production Tax Incentives (hereinafter “MPIs”) are tax incentives that are available at the U.S. Federal Level, at most of the U.S. Multi-State Levels, and on a Global Level through nearly a hundred participating countries worldwide and should certainly be incorporated into the tax planning process for movie and television studios to properly tax affect their costs of production.
The Three Primary Phases of Film 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 should be duly noted that it is fairly common practice in the movie and television studio industry to shoot the aforementioned phases of qualified production throughout several locations (e.g., Qualified Production Phase in the City of Los Angeles, California, USA and the Qualified Post-Production Phase in the City of Vancouver, British Columbia, Canada). Consequently it is critical to be cognizant of tax incentives available, as applicable, not only state by state within the United States but also country by country worldwide in order to reduce a movie or television studios global effective tax rate.
Required Nexus Between QPAs and QPEs
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 such as documentaries; news programs; interview / talk programs; instructional videos; sports events; daytime soap operas; reality programs; commercials; and music videos. Additionally, while the applicable Qualifying Production Expenditures (hereinafter “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 to best ensure a sustainable tax return filing position.
Diverse Range of Incentives Available
It should be further duly 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 amongst many other highly diverse and advantageous incentives some of which may be statutorily based while other incentives may be discretionarily based which will need to be properly negotiated upfront before the onset of the filming. There are approximately forty 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 one hundred countries that offer MPIs worldwide with varying structures and highly diverse programs.
It is imperative to properly design and implement a sustainable methodology that will incorporate all applicable MPIs to properly tax affect the cost of filmmaking regardless of the size and structure of the movie studio, television studio, or production conglomerate whether your client is one of the “Big Six Majors” (e.g., 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” (e.g., Lionsgate Films; The Weinstein Company; Open Road Films; CBS Films; DreamWorks Studios; and MGM Pictures) or a smaller production and / or distribution company known as independents or “indies”. As a direct result of these advantageous MPIs, filmmakers that are properly represented by a trusted tax adviser are able to delightfully end their productions with “Lights, Camera, Action and Tax Cut!”