In order to attract film production and provide incentives and economic development, many states and territories, including Arizona, Rhode Island, Georgia, Connecticut, Illinois, New Jersey, Iowa, Pennsylvania, Louisiana, Massachusetts, Connecticut, and Puerto Rico have enacted laws aggressive. which provides negotiable tax credits for film production.

Historically, negotiable tax credits have been part of state and federal programs aimed primarily at real estate development, including the rehabilitation of historic structures, energy, and other activities that stimulate economic growth.

With film projects, production companies get a transferable tax credit on total eligible production costs and salary expenses. That can translate to 20% – 30% of the total cost of producing a film, in the form of a tax credit issued directly to the production company. It can be used to offset the state tax liability or sold to another taxpayer.

In Illinois, a 20% tax credit is available based on “Illinois Production Expenses” plus an additional 15% tax credit based on Illinois labor expenses generated by the employment of residents of geographic areas of high poverty or high unemployment. . New Jersey offers filmmakers a 20% tax credit for productions filming at least 60% in the state, as well as a 30% loan guarantee from the New Jersey Economic Development Authority.

In Connecticut, filmmakers can get a tax credit worth 30% of their eligible Connecticut production costs, and in Massachusetts, productions with a minimum spend of $ 250,000 earn 20% and 25% for production expenses and labor costs. work, respectively, when at least 50% shoots up within the Commonwealth. Note: In MA, pending regulations propose a fixed combined tax credit of 25%, a minimum spend of $ 50,000, and the removal of the per-project limit.

In CT., The 4 new bills are being debated in the legislature, and the expected result in June will be a combined bill. Rhode Island offers a 25% tax credit for productions with a minimum eligible spend of $ 350,000, when 51% of the total budget is spent within the state. For more information on how to qualify for each state’s tax credit, contact Tax Credits, LLC In Pueto Rico, a tax credit is granted to investors in a Film Project equal to 40% of the budget items paid to residents of Puerto Rico, up to 50% of the cash invested as capital in the project. 50% of the tax credit granted to the investor may be made available to the investor when making the investment if a termination bond or letter of credit is obtained, including the Secretary of the Treasury of Puerto Rico as one of the beneficiaries.

Negotiable tax credits allow production companies that obtain credits to sell their credits to companies and / or high net worth investors who have a tax liability within the state where the credit was obtained. Tax credits are sold at a cash discount, allowing the seller to obtain cash to reduce their net production expenses.

Any business can take advantage of these “Financial Assistance Programs” to reduce its state tax liability. Purchased credits can generally be used for any year in which a tax return was not filed. In general, credits can be used to offset any or all of the following: personal income tax, corporate business tax, franchise tax, premium tax, and utility tax (the qualified taxes allowances for compensation vary by state).

Large corporations and high-net-worth investors with a significant state tax liability can benefit from purchasing movie production tax credits as they can purchase a $ 1 discounted tax credit.

NJ, RI, CT and MA movie credits give the buyer the right to carry over the tax credits for at least 3 years, protecting the buyer from investing significant dollars in tax credits that they cannot use immediately. In Illinois, tax credits can be extended for 5 years. The negotiable and therefore marketable aspect of these state-issued tax credits means that investors in tax credits can also retain an equity position in a film or list of films.

For example, let’s say a tax credit investor has $ 3,000,000 in tax credits that he needs to buy. While the final amount of the tax credit is normally calculated after a movie is produced, he decides to take advantage of the potential earnings and receive his tax credits.

So if a movie has a budget of $ 6,000,000, 50% of the budget is equity ($ 3,000,000) and 25% is tax credit, a tax credit investor / buyer will receive benefits of $ 1,500,000 and 50% equity on the total international film. earnings and income.

But what about the other $ 1,500,000 that you still need to receive as tax credits?

Well, if your or a company’s film investment was part of a movie package, that amount carries over to another movie that can be shot in a state or province where there may actually be a higher tax credit incentive that would be transferable. to him and any other investor on a pari pasu basis. For multinational companies and investors, this can also be leveraged and cross-guaranteed to a transaction from multiple countries and territories where there are significant tax credit incentives, such as Manitoba, Saskatchewan, Spain, Hungary, UK, South Africa, Australia, New Zealand , and others.

Another option would be to leverage the initial tax credit investment with a direct equity joint venture and establish several additional tranches of debt for a larger film fund.

To find out how a tax credit investment can also be turned into a film investment that covers risk and income on multiple films, please contact [email protected]