MA Film Tax Credit

Compromise Reached, July 7, 2021

I intend to support the compromise resolution of the controversy about the film tax credit. It is time to put this issue to rest.

The elements of the compromise are:

  • Elimination of the sunset — making the credit permanent, while preserving its transferability.
  • Increasing the Massachusetts required share of production expenses from 50% to 75%.

To understand the second element of the compromise, it is necessary to get into the weeds: The film tax credit has two main parts. The 25% credit for Massachusetts payroll and the 25% credit for Massachusetts production expenses. Payroll is a subset of production expenses. Of course, one cannot get double credit for payroll expenses, but payroll expenses that are not eligible for the payroll credit may still be eligible for the production expense credit.

The compromise tightens the eligibility rule for the credit for production expenses by changing the required Massachusetts share of expenses from 50 to 75%. This 75% rule does not apply to the credit for payroll in Massachusetts.

The payroll credit is currently not available for people paid over $1,000,000, but the payroll of these “stars” can be eligible for the production expense credit. This does not change, but the star payroll credit is now limited in its availability to those films that are 75% made in Massachusetts, as opposed to 50%.

Over the past 90 days, more constituents have contacted me about the film tax credit than about any other issue.  The credit will sunset in January 2023 if we do not vote to extend it or make it permanent.  Some kind of change is likely to be made as part of the state budget bill that is currently under debate.

Since arriving in the legislature in 2007, I have opposed the credit, while all constituents contacting me about it have urged me to support it.  It is time to offer an updated explanation of my views on the issue.

The film tax credit is a form of extortion by the U.S. film industry.  Because most films can be shot or edited in more than one location, the film industry can play locations off against each other, taking their work to the state offering the best incentives and threatening to leave the minute another state makes a better offer.

Instead of simply choosing the best and most cost-effective locations, the industry has invested heavily in lobbying, seeking to extract concessions from state governments at the expense of taxpayers who have little awareness of the intense persuasion campaign underway and little opportunity to offer a contrary view.

Massachusetts adopted its film tax credit in 2006 during a period when many states were competing with each other in a lobbyist-fueled frenzy to attract film business. The high water mark of the film tax credit was 2009 when 44 states offered film tax incentives. Since then, many other states have backed away and by 2018 only 31 still offered film incentives, according to the National Conference of State Legislatures.

Constituents who contact me generally work in an occupation that supports film production. They report, and I do not doubt, that their jobs depend on the film tax credit. Roughly 80% of the credits go to feature films, many of which could and would be shot elsewhere if Massachusetts did not offer a generous credit. 

It is worth understanding just how generous the film tax credit is.  The credit is computed as 25 per cent of amounts spent in Massachusetts. So, if a film brings in a movie star and pays them $1 million for their time shooting on location in Massachusetts, then Massachusetts effectively pays $250,000 for the movie star’s salary.  The “credit” is often much greater than the production company’s tax liability and it may be sold to another taxpayer or redeemed for cash.

This level of credit is just not fair to other industries.  Many other industries receive tax incentives, but none of the various incentives is as generous as the film tax credit. If Massachusetts were willing to pay 25% of the costs of any other particular industry, Massachusetts could likely become the world leader for that industry. 

But the state could not possibly afford to do that for other industries. The film tax credit, which serves a high visibility but relatively small industry, cost over $600 million in its first 10 years of existence (from 2006 to 2015) and could be up to $1 billion by now.  It is a very substantial investment.

The industry often points out that their spending creates jobs and supports local businesses. When the industry brings in a crew they patronize local restaurants, for example. But the majority of the benefits of the spending goes to out of state residents just passing through to produce a film.

Estimation of the full economic impact of a feature film requires econometric modeling, which always requires some guesswork, even when done by the finest professionals. While the modeling is imperfect, the studies we can find (see resources below) indicate that the net taxpayer cost per full time equivalent job created for Massachusetts residents is very high, likely over $100,000 per year. Not that people are getting paid that much. That $100,000 number is the net tax expenditure divided by the number of full-time equivalent jobs created.  Many of those jobs pay much less.

Understanding net state cost per job

The Department of Revenue (based on the 2015 DOR link below) computes the net state cost per job created as follows. The numbers in parentheses are averages for the period 2006 through 2015. The net state cost is the total credits paid (approximately $60 million per year) offset by new tax revenue generated by the film production spending (approximately $9 million per year), including taxes on spinoff/multiplier activities.  The count of jobs created consists of all direct jobs created by film production for Massachusetts residents (variable, approximately 500 full time equivalents per year)  plus spinoff/multiplier jobs created by film production and minus spinoff/multiplier jobs which would be created by the average state spending program which might have been undertaken if we were not reducing revenue through the credit.  The spinoff/multiplier jobs for film production are roughly 600 full time equivalents per year and are slightly more than offset by the loss of spinoff/multiplier jobs by other state spending.  Dividing the net state cost of approximately $51 million per year by the net job creation of approximately 500 full time equivalents, one gets approximately $100,000 per job.  This is the right number to use compare to other state spending options.  Indirect/spinoff jobs are computed using a dynamic model of the Massachusetts economy developed by Regional Economic Models Incorporated.

With net expenditure per job that high, there are many more direct ways to create jobs, jobs which might be more equitably distributed and which might provide more direct benefits to Massachusetts residents.  If we just want to attract business, we would do better to consider broad-based incentives that apply to the full range of businesses considering location decisions in Massachusetts.

Overall, the appeal of the film industry to legislators is great enough that notwithstanding objections like mine, many support the credit.  Over the next few weeks some form of compromise is likely to emerge.

Resources on Impact in Massachusetts

Resources and summary bullets assembled by Alicia Brisson.

Department of Revenue Overview of Film Tax Credit in Massachusetts.

Department of Revenue Report on Impact of Film Tax Credit through Calendar Year 2015:  

  • Calendar year 2015 had $272.5M in tax credits claimed, with DOR estimating that $9.6M in spending would have occurred without the film credits. Of the remaining $262.9M, $112.3M (43%) went to MA residents/businesses, while $150.5M (57%) went to out of state residents/businesses.  
  • From 2006 to 2015, one net new MA-resident job was created per every $102,888 spent in film tax incentives, and one non-MA-resident job was created for every $65,404 spent in film tax incentives. 
  • Of the $619.3M in film credits from 2006-2015, $531.4M were sold directly to other MA taxpayers or to tax credit brokers. Film producers received $467.8M in sales, while $10.1M was gross profit of tax credit brokers and an additional $52.5M benefits other MA taxpayers in the form of reduced net tax payments to MA 

Department of Revenue Report on Impact of Film Tax Credit through Calendar Year 2016: 

  • For calendar year 2016, tax credit spending totaled $182.6M, with DOR estimating that $11.1M in spending would have occurred even without film tax credits 
  • Of $171.5M of new 2016 spending attributable to tax incentives, $83.4M (49%) paid to MA residents/businesses, while $88.1M (51%) paid to non-residents or businesses located outside of MA 
  • From 2006-2016, one net new MA-resident job was created for every $102,370 spent in film tax incentives 

Pioneer Institute: For FY19, film tax credit cost state $80M in lost revenue. MA film tax credit does not effectively attract businesses to MA, create lasting employment, or simulate the economy. 

Tax Foundation: 2014 study found that from 2006 to 2012, Commonwealth offered $411M in film tax credits, which only created 3,000 jobs to state residents at cost of $109,000/job, most of which were temporary, lasting less than 3 months. In 2012, MA gave $78.9M in tax credits, which cost the state $100.6M and only generated $10.6M in new state revenue, meaning that the state lost $68.3M in revenue. 

MassBudget: 2015 study found that film tax credit cost MA $80M for both FY15 and FY16. For every dollar of tax revenue given away by film tax credit, the credit only delivers 13 cents of new revenue for the Commonwealth. Almost 2/3 of the film tax credit net wages went to non-residents ($394M) than residents ($213M) from 2006 to 2012. 

Mass Taxpayers Foundation: 2015 Testimony offered by Eileen McAnneny, the president of the Massachusetts Taxpayers Foundation, favored eliminated the MA film tax credit due to its high cost per job created, and instead advocating that this state money be spent on EITC. 

Tax Expenditure Review Commission: The Massachusetts Tax Expenditure Review Commission reviews each tax expenditure every 5 years to evaluate its purpose, intent, goal, and effectiveness. Its 2021 report found that (pg 86-87):

  • “The TERC somewhat agrees that this credit provides a meaningful incentive as it returns 25% of the filer’s spending, whether that is $25,000 on $100,000 for a commercial or $25 million on $100 million in spending for a feature film. We somewhat disagree that it benefits smaller businesses or is relevant today. We also somewhat disagree that it is claimed by its intended beneficiaries, as nearly 90% of the credits are transferred. We strongly disagree that it benefits lower income taxpayers or that it is claimed by a broad group of filers. We are between “somewhat” and “strongly” disagreeing that it justifies its fiscal cost. The TERC notes that, by its nature, this credit produces immediate and measurable spending within the Massachusetts economy. This can be contrasted with, for example, an investment credit. Unlike the film credit, an investment credit would have little immediate impact; however, where an investment credit contributes to long-term capital formation, the Film credit has had no discernable impact beyond its one-time spending. Further, much of the initial spending that qualifies for the Film credit occurs outside of Massachusetts, providing no benefit at all. The result is that, while the film credit provides some immediate stimulus, it does not contribute to the long run growth of the state’s economy. Even though we are able to measure in detail all of the economic benefits of this credit, it still results in a cost of $100,000 per job created. We conclude that this is not the best use of the state’s money”.

Resources for State Film Tax Credit Impact Broadly

Chart of film tax incentive (or lack thereof) in each state.

NSCL Report found that fewer states offer film tax incentives or have tightened restrictions on film tax incentives than in 2009.

  • In 2009, 44 states offered some form of film tax incentive, but that number has dropped to 31 states in 2018, with other states tightening these tax incentives 
  • Wyoming and West Virginia eliminated their tax credits in 2018 
  • Colorado, Maryland, and Texas reduced annual appropriations available in film tax credit for FY18; Oklahoma decreased annual program cap from $5M to $4M; Louisiana also introduced program cap at $150M 

Atlanta Journal Constitution: 2020 study found that because Georgia film tax credits are transferrable and most productions don’t owe taxes, they sell tax credits to other Georgia taxpayers, which they use as vouchers to cover own tax liabilities. In Georgia, the tax credit costs $230 per Georgia household, which is 3% of the state-funded budget. Studies have also found that most jobs created are temporary and given to out-of-state workers, namely from Hollywood. 

Pioneer Institute: Film tax credits create predominately short term jobs, and the majority of this money ends up in out of state movie star pockets, not into local businesses or state revenue. 

Tax Foundation: 2016 study found that in California, $1 of every $3 in tax incentives went to projects that would have been filmed regardless of if state awarded tax incentive to the film production or not. 

Published by Will Brownsberger

Will Brownsberger is State Senator from the Second Suffolk and Middlesex District.

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