Decisions about where to shoot a film or television project are often driven by the tax incentives available in a given location. There are two primary types of incentives: rebates and tax credits.
1. Rebates
Rebates are straight-up cash reimbursements paid to a production company. They are generally administered by the film offices or economic development departments in a jurisdiction. Rebates are primarily based on the amount of qualified money spent locally and can also be tied to job creation. This type of incentive usually requires a tax return to be filed in the state and is often subject to an audit.
2. Tax Credits
Tax credits are a bit more complex and are typically administered by the local tax authority or Department of Revenue. There are several types of tax credits to be aware of:
Refundable Tax Credits
Refundable credits function similarly to a rebate but require a filed tax return. Even if the production company does not owe any taxes in the jurisdiction, the refund is granted based on the return.
Non-Refundable Tax Credits
These credits are carried over to offset or reduce taxes in later years. This is only beneficial if the company anticipates having a tax liability in that jurisdiction in the future.
Transferable Tax Credits
Transferable credits are non-refundable but can be sold to other tax-paying companies that do have a liability. This is common in states like Georgia. Production companies usually sell these credits at a discount (e.g., 85 to 90 cents on the dollar), and for studio productions, these transactions are often handled by a broker.
Non-Transferable Tax Credits
These credits cannot be sold and must be used by the entity that earned them to offset their own tax liability.
Choosing the right type of incentive can be the difference between a project being financially viable or not. It is essential to read the fine print and understand the specific rules of the program you are applying for.