Tax breaks draw films, but cost state
$120m revenue loss over 3 years fuels critics' call for cuts to program
By Todd Wallack
Globe Staff / March 27, 2008
Encouraged by a bundle of new tax incentives, dozens of movie and television directors have flocked to the Bay State in the past year - bringing actors like Kevin Spacey, Cameron Diaz, and Matthew McConaughey to the area for filming. But stardom has its price.
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According to a report by the Department of Revenue, the tax incentives have cost the state $119 million to $120 million in lost tax revenue over the past three years, which could give new ammunition to critics of the tax incentives and may force the state to cut back on other spending. The analysis comes at a time when the state faces a $1.3 billion budget deficit that could make it a challenge to fund the tax breaks.
"Government should stop playing favorites with various industries," said Barbara Anderson, the executive director of the Center for Limited Taxation and a longtime crusader for smaller government in the state. "This is about politicians rubbing elbows with Hollywood celebrities."
But the report also suggests the film productions have generated $545 million in direct spending from 88 productions, which supporters say has given a major boost to the local economy and outweighed the cost of the tax breaks. The report also cited employment data that indicated the state has created hundreds of jobs in the motion picture and video industries.
"This is an investment," said Nick Paleologos, the executive director of the Massachusetts Film Office. He said the tax credits are benefiting everyone from hotels to carpenters to hairdressers.
The Revenue Department report, circulated this week, is significant because it is the first time the state has tried to quantify the cost and benefits of the tax breaks. It also comes at a time when the state is considering expanding the tax credits to encourage movie companies to build studios in Massachusetts, such as the projects proposed for Plymouth and Weymouth.
So far, giving tax breaks to Hollywood has faced relatively little opposition. Former Governor Mitt Romney signed the initial tax incentives into law in 2005, in an effort to compete with Rhode Island, New York, and other states that already offer an array of tax breaks to attract major films. And last year, Governor Deval L. Patrick approved legislation expanding the tax credits. Under the old law, credits were capped at $7 million per film and applied only to major productions costing $250,000 or more. The new law removed the cap and expanded the help to films costing as little as $50,000.
The law benefits film producers in two ways. First, it lets them avoid sales taxes on purchases in the state. And second, it makes them eligible for tax credits worth up to 25 percent of their payroll and other production costs related to filming in Massachusetts. Even if they don't owe much in the way of taxes themselves, film companies can sell the credits to other companies or cash them in directly with the state for 90 cents on the dollar. For instance, when Walt Disney Pictures spent $50 million filming pictures in Massachusetts in 2006, it said it received nearly $10 million in credits from the state, according to the Massachusetts Film Office.
Based on early filings, the Revenue Department estimated the state will eventually issue tax credits worth $135.7 million for films produced from 2006 to 2008. And it will also forgo another $1.9 million to $2.9 million in sales taxes.
On the plus side, the report estimated the state could collect up to $18.6 million in new income taxes. But that still leaves a $119 million to $120 million gap, where the cost of the credit outweighs any new tax revenue.
Still, Howard Merkowitz, director of the state Office of Tax Policy Analysis, cautioned that the numbers are preliminary. And he said he thought the gap would likely shrink as the agency factors in other forms of new tax revenue and the "multiplier effect" - the positive economic impact the film industry has on other industries.
"I assume the gap will get smaller," Merkowitz said.
The report didn't include the impact of government spending cuts or consider how much of the wages to nonresidents could be spent in other states. And the agency warned that some of the filming, including advertising and local programming, would have occurred even without the tax credits. Merkowitz said the agency will likely have more concrete figures by the end of the year.
Yet supporters say the dollar figures leave out another crucial benefit of attracting the film industry - free advertising. Paleologos, for instance, cited the movie "21," which tells the story of six Massachusetts Institute of Technology students who beat the Vegas casinos at blackjack by counting cards, and is being released in theaters tomorrow.
" '21' is like a love letter to Boston," Paleologos said. "There are more beauty shots of Boston and Cambridge than any movie I have seen in the last 10 years."
Todd Wallack can be reached at
twallack@globe.com.
? Copyright 2008 Globe Newspaper Company.
