New York’s Film Tax Credit Program Bolsters Its Success in the Film Industry

By:
Zev Landau, CPA, MBA
Published Date:
Jun 1, 2014

Hollywood has always been the ideal place to centralize the film business for several reasons. Its perpetual sunniness is a convenient work condition, and it is ideal for the technology involved. In addition, perfect lighting conditions in the early cinema era; the centralization of talent, technology, resources, and infrastructures; and plenty of space for studios all contributed to Hollywood’s status as the center of the movie industry. Five big studios controlled every aspect of movie making. All talents were employees of those studios and, depending upon the era, their compensations were considered negotiable salaries. As time progressed, however, camera and lighting technologies improved; for these reasons,the movie scene spread out to other areas, leaving Hollywood less prominent than before.

Although filmmaking on the East Coast really started in New Jersey, it quickly moved to New York. Today, although Hollywood remains dominant, New York state offers plenty of filmmaking opportunities, making it a leader in the very competitive, multibillion dollar film industry. In New York, one can find all the properties and backgrounds—interior or exterior—that are required for luxurious settings. New York stimulates imagination with new ideas. It is the home of the best actors. It is sometimes hard for key moviemakers to see any other center possible for securing artistic success.

Just recently, New York state proved its serious intention to win its competition with Hollywood by increasing the budget and enacting a bill that will extend tax credits for production and postproduction, based on qualified costs.To increase the film production and postproduction industry presence in New York and strengthen its positive impact on the state’s economy, New York state’s Film Tax Credit program was designed.

Program Highlights

The details of the program are as follows:

  • The Film Tax Credit program provides incentives to qualified production companies that produce feature films, television series, relocated television series, television pilots, and television movies or incur postproduction costs associated with the original creation of these film productions. Program credits of $420 million per year can be allocated and used to encourage companies to produce film projects in New York and to help create and maintain film industry jobs. Up to $7 million of the $420 million may be dedicated to supporting and growing the postproduction industry in the state, increasing to $25 million beginning in 2015.
  • Film production companies may be eligible to receive a credit of 30 percent of qualified production costs incurred in New York state and 35 percent of postproduction costs if incurred in upstate New York. Additional credits are available beginning in 2015 for labor expenses incurred in certain counties in upstate New York.
  • The program is limited to feature films, television series, relocated television series, television pilots and television movies.
  • The Film Production Tax Credit Program has two separate components: the film production credit and the postproduction credit. The former is available for companies that film a substantial portion of their project in New York state. The latter is available when the project was filmed outside of the state and the film production company contracts its postproduction work to any of the companies in New York state that specialize in postproduction work.
  • The law also describes how each credit is calculated and what qualified costs are.

This program was such big news in the national film community that on Jul. 27, 2012, the Los Angeles Times called it a punch in the gut to Southern California’s own film and television community, already struggling to keep business in the Golden State. It predicted that the new tax credit “will give New York another competitive advantage over its main rival California, which does not offer a specific credit targeting postproduction expenses for such cost as visual effects.”

Everybody loves a bargain, and movie production owners are no exceptions. CPAs play an important role. The following section discusses just some of the opportunities available to them.

Film Budgeting

World Book article explained:

Making a feature film calls for a special blend of art and business skills. A motion picture may take less than six months to more than two years to create. The film can cost less than $250,000 or more than $100 million. A big-budget film will employ several hundred people.

One reason for this high cost is that each film passes through several stages: 1) preproduction, 2) production, 3) post production, 4) distribution, and 5) exhibition. The producers are the business people, and they understand that developing story or acquiring story rights, assembling the production team, casting, directing, cinematography, and other artistic or operational challenges cost money; thus, preparing an accurate budget as often as possible is necessary. This is where CPAs can step in.

The production manager begins laying out the actual cost of the film and must stay within the estimated budget and the amount of money funded by all sources. The final budget includes above-the-line costs and below-the-line costs. The former arethe salaries for key actors, producers, and directors, as well as the purchase of the script and other creative fees. Combined, this is known as the “creative talent.” Below-the-line costs include direct production costs (e.g., crew salaries, equipment rental); postproduction costs (e.g., editing, visual effects); and other costs, such as insurance and completion bond. The budget could be more than 150 pages long and is used to secure financing for the film.

Each element may be determined by a standard set up by the appropriate guild or union, but sometimes it can be a very high amount, either as a weekly salary or a percentage of gross profit. Important skills in preparing the budget are to use tactics for cutting costs. Several examples include eliminating night scene, avoiding location filming in famous or commercial areas, or asking the above-the-line talents to defer their salaries. In exchange for agreeing to deferral they may bargain for higher percentage of the profit.

Note: This is the first part in a two-part series that will be continued in the July 2014 issue. Tune back then for more on film financing, tax incentives, development of New York’s media sector, and new technology initiatives.

Zev Landau CPA, MBAZev Landau CPA, MBA (taxation), practiced in the area of taxation for over 30 years. He has published numerous tax articles, as well as articles about industries and the accounting profession in professional publications such as The CPA Journal, The Trusted Professional, and the Journal of Accountancy. In addition, he served as a member in numerous tax committees affiliated with the NYSSCPA. He was also an instructor in accounting and taxation at Pace University and LaGuardia Community Colleges. He earned his MBA degree in taxation from Bernard Baruch College and an MBA degree from Tel Aviv University in Israel. He can be reached by e-mail at zevlandau@gmail.com.

 
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