When the Academy Awards are handed out Sunday, Feb. 26, it’s a good bet that most of the films already were tax winners. They used special tax breaks to help offset their sometimes enormous production costs.
As of Jan. 1, all those credits will come from states.
End of the federal film tax break: The only federal tax incentive designed specifically to keep film and television production in the United States ended when 2017 arrived.
It was part of a group of extenders — temporary tax breaks that must be periodically renewed by Congress — that lawmakers last year decided not to renew.
The law, section 181 of the Internal Revenue Code, reduced investors’ risk by allowing a 100 percent loss against taxable income in the year or years the money was spent. For example, a producer or investor in the 30 percent tax bracket who put up $1 million for a film could save $300,000 in taxes.
The deduction was allowed on the first $15 million invested in every qualified project. For shows made in certain low-income areas, the cap increased to $20 million.
In 2015, the same federal tax break was extended to theatrical productions. Thanks, Hamilton.
It’s possible that the film and TV tax break, which was enacted as part of the American Jobs Creation Act of 2004 in an effort to stem the stem the flow of shows to foreign countries, could be renewed, either separately or as part of expected tax reform.
It’s more likely, however, that with budget hawks, who are looking to trim any and everything, and Donald Trump, who has his own issues with Hollywood, now in charge of shaping U.S. expenditures, the federal film and TV tax incentive will not be revived.
State, local options remain: that means there will be more competition for state tax incentives, which have been around for a quarter century.
The National Conference of State Legislatures provides a brief history —
Louisiana was the first state to adopt state tax incentives for film and television production in 1992. In 2002, Louisiana expanded its program and the state’s film industry began to experience strong growth. Other states responded to Louisiana’s success. By 2009, 44 U.S. states, Puerto Rico and Washington D.C. offered some form of film and television production incentives. However, popularity for these programs has waned, and support for the film industry has decreased in recent years. In 2016, only 37 states continue to maintain film incentive programs, and several of these states are tightening the requirements for qualifying expenses and reeling-in per-project and annual program caps.
A count by The Hollywood Reporter in April 2016 shows 33 states, along with Washington, D.C. and Puerto Rico, offer film and TV producers a variety of tax credits, grants, rebates or a combination of the tax breaks.
Many cities also offer additional tax enticements for movie et al makers. Down I-95 from me, San Antonio is adding as much as 7.5 percent in incentives for film projects on top of Texas-offered incentives.
Weighing total cost of movie tax breaks: The key for lawmakers at all levels is finding a way to balance the creative arts’ production incentives with the fiscal needs of other state programs.
Others, however, have extended or expanded their tax breaks.
Once the film industry luminaries get past the Oscars, the final and most important event of the current awards season, expect its members to start lobbying for the return of the federal tax credit.
Financial film favorites: While tax breaks for movies, television shows and even video game productions do cost us taxpayers at the state and possibly federal levels, the immediate money matter to us as movie goers is whether our Cineplex ticket price was worth it.
This time of year also generates a lot of discussion about not only the current best movies and performances, but also of classic films.
In advance of the Oscars, FindLaw has been taking to its Twitter account to highlight Hollywood’s on-screen connections to attorneys. Most recently, the legal marketing component of Thomson Reuters, directed us to a Business Insider article on what movies get right and wrong about lawyers.
But what caught my eye were FindLaw’s polls, like stereotypes of onscreen lawyers and favorite legal classic movie. The results of that last one shocked me.
“Legally Blonde.” Really?
Judgy? Yes. But I had some legitimate alternatives. I sent FindLaw my list of best legal movies (they asked!). And it got me thinking about tax-related flicks.
Best tax movies: That social media conversation got me thinking about movies in which taxes played a plot role. Sometimes it was a major creative component. In others, it was a glancing tax mention.
Regardless, to celebrate the 2017 Oscars, here are my favorite movies, in my preferred order, in which a tax matter is part of the plot.
The Shawshank Redemption: Taxes aren’t the film’s major focus, but Andy Dufresne’s knowledge of the tax code helped him survive and — spoiler alert — escape prison, first by his helping prison guards and then getting inside the warden’s financial double dealing. Plus, it’s got a great cast (Morgan Freeman!). Regardless of where Shawshank is in its broadcast, when I run across it on TV, I must watch it to the end.
The Untouchables: This sleek version of mob boss Al Capone’s vicious reign and the efforts of a select group of Armani-clad Treasury Department agents to bring him down boasts a cast of three Oscar winners (Robert De Niro as Capone; Kevin Costner as Eliot Ness; and Sean Connery, who snagged his best supporting actor statue as Ness’ streetwise lieutenant Jim Malone). There are plenty of shootouts, but the film’s most frightening scene may well be the one in which the Untouchables’ tax accountant brandishes a Tommy gun.
The Producers: The plot for this zany movie, co-written by comic genius Mel Brooks, is one big giant, funny, zany tax fraud. Down-on-his-luck producer Max Bialystock (Nathan Lane) teams up with timid accountant Leo Bloom (Matthew Broderick) in a get-rich-quick scheme to put on the world’s worst show. Three words. “Springtime for Hitler.”
Stranger Than Fiction: Will Ferrell plays an IRS auditor who suddenly finds himself the subject of narration only he can hear. The narration, by a writer portrayed by Emma Thompson, begins to affect Farrell’s character’s entire life, from his work, to his love-interest, to his death. The movie wasn’t a commercial success, but I enjoyed it, even Ferrell playing against type. But the movie makers probably would have made more money if they’d come up with a story of the IRS auditing the Talledega Nights drivers.
The Descendants: The plot includes an arcane tax law, the rule against perpetuities, which helped make it a hit with estates and trusts attorneys. Oscar winner George Clooney made it a hit among the general public. The screenplay writers took home an Oscar for their work.
The Firm: In this thriller, based on a book by John Grisham, lawyers deal with taxes and securities for incredibly wealthy and awful people. It has an impressive cast of Oscar winners and nominees, including Tom Cruise, Gene Hackman, Ed Harris, Holly Hunter and David Strathairn, and the late, great Sidney Pollack in the director’s chair.
The Blues Brothers: A bit too long, especially for a concept that came out of a Saturday Night Live skit, but the soundtrack alone — Aretha! — gets this on my list. Jack and Elwood spend 2 hours and 13 minutes on a mission from God to raise money to pay taxes on the orphanage where they were raised.
The Mating Game: Yes, I know, you haven’t heard of this one, primarily because it was made in 1959. Tony Randall plays a tax collector who heads out to rural Maryland to find out why a farm owner hasn’t paid taxes, ever. As he tries to calculate the farm’s income, his task is complicated by the lovely farmer’s daughter, played by Debbie Reynolds. Hilarity ensues.
The Young Philadelphians: Another cinema classic, also from 1959. (What happening with taxes that year?). A young Paul Newman is an up-and-coming tax lawyer, struggling to climb Philly’s Main Line social ladder. The tax connection is overshadowed by themes of class, principle, loyalty and manipulation as Newman’s character must move from the Internal Revenue Code to the criminal legal world after his best friend is charged with murder.
Say Anything: Earnest slacker Lloyd Dobler, portrayed by John Cusack, and his boom box have become iconic symbols of devotion. Oh, yeah, the object of his love must deal with her dad going to prison for tax fraud and tax evasion. But that boom box belting out Peter Gabriel’s “In Your Eyes.” Perfect.
If nothing on the 2017 Oscar list catches your film fancy, consider tracking down one of these 10 tax-related movies.
You also might find these items of interest:
- Movie and TV production tax credits, trick or treat?
- Did tax credit cut cause Pixar to close its Vancouver office?
- Film tax incentives sometimes lead to extra state costs for criminal prosecution