Movie Studios: Boston is the new Hollywood.

No, you are wrong about the program. The company does not get taxes paid back as a credit.

Company A spends $10 million on its production, including salaries, sets, etc. It files a form with the state proving that more than 50% of the spending was in-state.

The company gets credits that it can either a) sell back to the state; or, b) sell to another company or individual.

The credits are worth 25% of the amounts spent in-state. It is not 25% of TAXES PAID. It is not 25% of TAXES PAID. It is 25% of money spent in-state.

If a company spends $10 million in the state, it gets a credit of 25%, or $2.5 million. It can then sell this to another company or individual. If it does, the second company can reduce its tax liability by this amount. The incentive to Company A is it gets $2.5 million back, just for showing up. Company B gets to reduce its tax liability with the state. The state gets nothing, in fact, loses $2.5 million in earned tax revenue.

If the film company wishes to, it can sell its credits back to the state, for 90 cents on the dollar. So, if the company spends $10 million on production costs, it gets a $2.5 million credit. It can sell the credit to the state for $2.15 million. The production company benefits because it has more money to spend on production (or, star salaries), the state suffers because it just spent $2.15 million.

Please read the documentation before making hypotheses on how it works and/or the benefits of the program.

It seems as though some people will always think this program is worth the cost - worth the expense. I don't see how they feel that way, but, w/e, that's democracy. I think if more pople understood the cost, they would be against it, 100%.
 
John is right. There are two things that make this different from most tax credits.
1. It's refundable or transferrable (can be sold back to the state or sold to a third party).
2. It's not based on tax paid it's based on money spent.

So if Paramount makes a $100M movie with 50% budgeted to salaries and 50% budgeted to purchases (for simplicity), their tax bill would be:
$50,000,000 x 5.3% = $2,650,000 (state income tax)
$50,000,000 x 0.0% = $0 (since movies are exempt from state sales tax).

Total tax bill: $2,650,000

Total tax credit: $100,000,000 x 25% = $25,000,000

So in this case the tax credit is something like 10x what their tax bill would be. They sell the remaining 90% of the tax credit back to the state or to a third party investor.

So, no matter how you cut it, the state has just invested over $20M in the movie. Now you can argue that the state will make this up with multiplier effects, "brand equity," etc., but the fact remains that the state invested $20M in a movie.
 
AmericanFolkLegend said:
So, no matter how you cut it, the state has just invested over $20M in the movie. Now you can argue that the state will make this up with multiplier effects, "brand equity," etc., but the fact remains that the state invested $20M in a movie.
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Did the state invest in a movie or did the state invest in the movie industry? Isn't there a significant difference?
 
The state invested in a movie. The tax credit goes directly to some vapid Kate Hudson flick, not to a lasting film infrastructure that will create a movie industry.

Now in the case of Plymouth Rock studios, you could absolutely argue that that would be an investment in the movie industry. But for some reason the state won't subsidize that project (even the infrastructure portions) but will subsidize individual movies.
 
AmericanFolkLegend said:
The state invested in a movie. The tax credit goes directly to some vapid Kate Hudson flick, not to a lasting film infrastructure that will create a movie industry.

Now in the case of Plymouth Rock studios, you could absolutely argue that that would be an investment in the movie industry. But for some reason the state won't subsidize that project (even the infrastructure portions) but will subsidize individual movies.
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Ummm... do you really think these studios would even be on the table if not for the tax credit? Connect the dots, there are only two.
 
Wow! I thought you just didn't understand the tax credits. But your actually arguing that the most effective way to subsidize the film industry (or any industry?) in Massachusetts is to provide tens of millions of dollars in one off donations to individual productions?!?!

For the amount of money the state has already bequeathed to production companies they could have largely built their own studio (or paid Druker to build one for the Mayor - j/k).

An excellent analysis on what's wrong with this picture:

June 15, 2009
Plymouth Rock Studios loses state aid because it would attract too many movie projects
A proposed movie studio in Plymouth lost its bid for a $50 million state infrastructure subsidy last week largely because it would have been too successful in attracting movies to the state.

Plymouth Rock Studios was seeking $50 million for road, water, and sewer improvements under a new state infrastructure subsidy program called I-Cubed. The studio hoped to break ground this summer on a $400 million complex that ultimately would employ 3,000 to 4,000 people.

But Leslie Kirwan, the Patrick administration?s secretary of administration and finance, ruled that Plymouth Rock didn?t qualify for the infrastructure money because the new tax revenues generated by the studio project would not be sufficient to cover the debt service on the bonds the state would sell to raise the $50 million. The implication from the brief statement was that the Plymouth Rock project was a bust financially for the state.

But what state officials didn?t disclose initially was that they reached their decision by taking an expansive view of the tax revenues and costs generated by the movie studio project.


The state Revenue Department, in its analysis of the proposal, concluded the movie studio itself would easily bring in enough new state tax revenue to cover the cost of the debt service on the bonds.

But Revenue Department officials said the studio would also attract lots of filmmakers to the state, who would shoot movies here and become eligible for the state?s 25 percent film tax credit. The officials said the cost to the state of those film tax credits would far exceed the new tax revenues generated by the studio itself, turning the project into a money loser for the state.

In essence, the Patrick administration required the Plymouth Rock project to not only generate enough tax revenues to cover the cost of the infrastructure subsidy it was seeking for its own project, but also the cost of tax credits going to filmmakers who would use the studio to shoot their films.

Joseph DiLorenzo, chief financial officer at Plymouth Rock, said he was stunned at the Patrick administration?s interpretation of the I-Cubed law.

?If I had known we had to offset credits that had nothing to do with our project, I probably wouldn?t have spent all the money and time I did working on this,? DiLorenzo said. ?We don?t get any of that tax credit money.?

A Revenue Department spokesman emailed a statement saying his agency and the office of administration and finance were in agreement on how to interpret the law. ?Under I-Cubed, taxes generated by new economic activity funded by I-cubed infrastructure are required to cover I-Cubed related debt service, and with the film tax credits generated by new economic activity, Plymouth Rock doesn?t meet the I-Cubed test,? Robert Bliss said. ?That doesn?t mean Plymouth Rock wouldn?t merit other state assistance, just not I-Cubed under its very specific requirements.?

Revenue Department projections show that in 2012 the proposed movie studio would have generated $14.4 million in new income, sales, and rooms taxes for the state. But the analysis also showed the studio would attract $407 million in spending by filmmakers, who would qualify for $102 million in state tax credits. The Revenue Department apportioned only 60 percent of the tax credits to the Plymouth Rock project, but even at that level the studio project would end up costing the state some $46.5 million in lost tax revenue.

Over the 30-year life of the state bonds, the numbers were huge. The Revenue Department projected the studio itself would generate $705 million in new tax revenues by 2039, but that would be offset by the cost of $2.6 billion in tax credits paid to filmmakers, yielding a net loss for the state of nearly $1.9 billion.

DiLorenzo said Plymouth Rock is trying to cobble together other revenues to compensate for the loss of the state infrastructure aid.
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http://www.cwunbound.org/2009/06/film-tax-credits-spurred-plymouth-rock-rejection.html
 
I think as debatable as the tax credits, and they certainly are, the two potential movie studios in weymouth and plymouth would not be happening at all if not for them. So in the long run, these credits may bring in a whole new industry that would have had no reason to leave LA or NYC, and by doing so there is a whole new tax base of the industry and the supplemental industries.
 
choo said:
I think as debatable as the tax credits, and they certainly are, the two potential movie studios in weymouth and plymouth would not be happening at all if not for them. So in the long run, these credits may bring in a whole new industry that would have had no reason to leave LA or NYC, and by doing so there is a whole new tax base of the industry and the supplemental industries.
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But wouldn't make more sense to offer that aid directly to the industry itself (in this case Plymouth Rock Studios) rather that a tangibly related product?
 
AmericanFolkLegend said:
Wow! I thought you just didn't understand the tax credits. But your actually arguing that the most effective way to subsidize the film industry (or any industry?) in Massachusetts is to provide tens of millions of dollars in one off donations to individual productions?!?!

For the amount of money the state has already bequeathed to production companies they could have largely built their own studio (or paid Druker to build one for the Mayor - j/k).
Click to expand...

No, I'm not arguing that. In fact, a couple pages back I wrote that, though I'm not entirely sure, I lean towards the notion that the tax credit is not a worthwhile investment for the state. Thank you for putting words in my mouth, though.

What I am arguing is that the money being spent by MA is a) not a donation to Tom Cruise or anyone else but an investment, and b) not an investment in individual firms but in bringing the film industry to Massachusetts.

I've done nothing but point out the inaccuracy of certain statements here, one of which was made by you.

The only logical argument to be had here is whether or not the state's investment in the film industry is worth it or not. Sarcastic comments about donations to Hollywood's rich and famous or investment in terrible Kate Hudson movies don't really add much to the discussion.

If we can now get back on track, I'll point out that subsidizing the building of studios would not do any good if people did not want to film here. Without that tax credit they would be filming in another state and any studio would be a complete waste of money. The question again is whether or not the tax credit will come to be a wise investment. There are points to be made for each side here. Personally, I think there is a better chance it will turn out to be a waste of taxpayer money, but I cannot, nor can anyone else, know that for sure.
 
Sorry if I offended you Justin. Wasn't trying to be mean spirited, just a tad patronizing (in the same vein as your "connect the dots, there are only two" comment).
 
I apologize as well. I can be an ass. Let's get back on topic.
 
So, then what happens when one or more of the other 49 states, or Vancouver or Toronto, or Panama, for that matter, offers more perks?

Oh, right, then we offer more in return?

And, choo, that's the point - the money invested doesn't return any tax money to the state. Zero.
 
The incentives have been around for some time now, and like every other program, this one needs to be supported and given a chance to be productive. Sarcasm, crepe-hanging, narcissism, and grandstanding all need to be set aside in order for the tax credits to accomplish their goals.
 
Probably splitting hairs at this point, but again, it is not a tax credit. ^
 
According to WBZ on July 10, 2009, Massachusetts offered tax credits of $166 million between 2006 and 2008 to the film industry for their pumping $510 million into the state economy for the same period. Even not considering the amount of taxes paid on that $510 million, this seems like a worthwhile investment.
 
It seems that facts won't change anyone's opinion on this, so here's my last comment on the subject.

Why is a government making any "investment"? Isn't this what private industry does? In a free market, wouldn't private industry take care of business? Isn't this what happens in countless other industries? Do we invest state money into coffee shops? Pillow manufacturers? Condom makers?

If there were a "natural" need for this type of business, private industry would fill the void.

Massachusetts has a GDP of $368 billion (2007). Even if the film industry grew ten times what it is now, to $5 billion, it would still only contribute 1.35% to our state's economy.

For comparison with other industries:

The Massachusetts Marine Trade says boating creates $1.5 billion in spending in the state, each year.

Veterinarian Medicine brings in $1.3 billion to the state.

The Mass Office of Travel & Tourism says tourists spend $15.3 billion in a year, even though the industry gets zero in kickbacks. In fact, hotels and motels pay hundreds of millions in taxes.

The golf industry generates $2.8 billion in total economic impact and 29630 jobs in Massachusetts.

And, courtesy of Microsoft: Windows Vista will generate more than $2 billion in sales of software, hardware and services provided by Bay State companies in 2007. And another $400 million will be pumped into the state economy this year by local companies readying and rolling out technologies to work with the new operating system.

To those companies, I say, get in line! Get your piece of the pie!

Regarding taxes: There is very little tax paid on the $510 million; in fact, film production companies pay little tax since they receive discounts and exemptions on payroll and sales taxes. So, it's all money out and nothing back in.
 
So what are you saying? That economically everything is so great here we can just thumb our noses at the film industry?

States make tax concessions all the time, particularly with regard to enticing new industries and especially sports arenas. Cities do the same. The Prudential Center would have never been built if it were not for tax concessions.

"Facts" can and do change opinions, however, you appear to be distorting some of these "facts". It's simply not a case of "all money out, and nothing back in." You've contradicted yourself by saying, "little tax" and "nothing". Seventy-five percent of the tax is far better than zero tax, which is what we would have if we were not offering these incentives.
 
I really have nothing to add.

A final correction. As I have pointed out, over and over and over again, it is not a reduction in taxes paid, it is a subsidy by the state.

Example:

A film production company spends $10 million - on anything, including movie star salaries. It submits receipts to the state. It then submits a bill to the state for 25% of the costs, $2.5 million. The state then pays the film production company 90% of this, or $2.15 million.

It's hard to have a conversation about this if you aren't aware of how the programs work. The "facts" are available here an elsewhere for you to do your own research.

Oh, and making a comparison to handouts to owners of sports arenas doesn't help. That type of policy is even worse than the film giveaways.

Thank god the state has never stepped in to help these private enterprises.

The Commonwealth did contribute toward infrastructure upgrades on Route 1 which helped the New England Patriots and the construction of Patriot Place, which irked some people. Still, the upgrades were for the general good, everyone benefits who uses the road, not just those going to shop or see a football game (or, AC/DC!!). So, perhaps it can be defended.

I'm not in favor of subsidizing any private enterprise, be it sports teams, the film industry, or banking industry (i.e., JP Morgan in the Seaport District).
 
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