Economy and Economic Development and Manufacturing & Technology and Media & Marketing

Celluloid tax credits?: Incentives for movie makers getting bipartisan support

February 14, 2005

House Bill 1639 would put in place a hefty set of tax incentives for companies making movies, television shows, music videos, commercials and corporate videos on Hoosier soil.

Though the bill has bipartisan support in the House, a similar measure was spiked last year because of concerns over lost tax revenue. Even the bill's author thinks there could be a fight over the measure in the Senate.

Those who think the idea of drawing movie producers to Indiana is far-fetched need look no farther than Louisiana, said George Evans, co-founder of the lobbying group behind the bill and executive producer for locally based ASA Productions Inc.

"What's happening in Louisiana is astounding," Evans said. "We think Indiana could have the same kind of success."

Film industry spending in Louisiana hovered around $20 million annually for years until state lawmakers there passed incentives for filmmakers in 2002. In 2004, the Louisiana Film and Video Commission reported film companies spent more than $350 million there, as the state granted $83 million in tax credits.

And enrollment at the University of New Orleans film school has increased 40 percent since the legislation was passed, university officials said.

"We used to cold call on the studios," said Alex Schott, director of the Louisiana Film and Video Commission, which operates under the governor's direction. "Now they call us and invite us to the table."

Louisiana landed such shoots as Universal Studios' "Ray," the story of Ray Charles, and even nabbed the CBS miniseries "Elvis," a decision that maddened Tennessee movie and film officials. CBS officials said Louisiana's incentives were the deciding factor.

Indiana's bill proposes waiving sales tax on anything used in film or video production and offers a 30-percent tax credit for state-based companies involved in a production. Out-of-state production companies could take advantage of the incentive by selling the tax credit to any Indiana business. For instance, a California-based production firm could shoot a $1 million production here, sell its $300,000 tax credit to an Indiana-based company, and use the proceeds to underwrite production costs. The bill also authorizes the use of state- and university-owned property for location shoots at no charge.

Indiana isn't just looking to join a growing number of states to pass such legislation.

"This [tax incentive package] would be a trailblazer in many ways," said Kent Smith, producer for locally based Side Show Entertainment and a founding member, along with Evans and a handful of others, of Indiana Media Industry Network, a lobbying group shepherding HB 1639.

"The 30-percent tax break would be the highest in the U.S., and coupled with the sales tax break, would be very powerful in drawing filmmaking companies," Smith said.

Indiana's 30-percent tax credit is double Louisiana's, and Indiana's bill doesn't have size requirements for the production to qualify for tax breaks as Louisiana's law does. Industry observers said film industry spending in Indiana is below $10 million annually, but this proposal could easily grow that tenfold.

Louisiana lawmakers are already considering increasing their tax credit, causing worry a bidding war could ensue among a number of states eager to slice a piece of this lucrative pie. Canada is also aggressive in offering tax breaks to the film and video industry.

Illinois, New Mexico, Pennsylvania, Rhode Island, Tennessee and Texas are all contemplating enacting or sweetening tax incentive packages.

"If it's successful here, the way it has been in Louisiana, I'm sure other states will come after us," Smith said. "That's why it's important to get in early and get the infrastructure built up that these companies need." If the bill becomes law and more on-location shoots come to Indiana, Smith said that will give rise to local firms and facilities needed to make anything ranging from commercials to major motion pictures.

The state could draw a steady stream of $3 million to $10 million productions, especially those looking for rural or nondescript suburban settings, people in the industry said. But Smith, who has worked extensively with productions outside Indiana, thinks the potential is much greater.

"Movie production companies are very good at making one place look like another," said Smith, who's won an Emmy Award for youth programming and last year won the top international award for TV commercials at the Cannes Film Festival. "Those really big-budget movies are few and far between, but there are a lot of great feature films with $15 [million] and $20 million budgets, productions like "American Beauty" and "Goodwill Hunting" I think we could compete for. I can tell you from experience a lot of time movie-making financiers dictate where a project is shot."

"It wouldn't take much to market this," said Greg Malone, executive producer of locally based Road Pictures. "I wouldn't be surprised if there were several feature films ready to roll here shortly after this law is enacted."

One advantage Indiana has in place is a steady stream of educated film and video talent. Butler University is planning to launch a screen studies program in the fall, and the telecommunications departments at Ball State and Indiana universities are nationally renowned, Malone said. "As it is now, many of them leave directly from graduation to Los Angeles or New York," he said.

Indiana's bill, which is gaining bipartisan support, unanimously passed out of the House Commerce Committee earlier this month. It is likely headed for the House Ways and Means Committee before getting a hearing before the full House in the next 60 days. A similar bill was proposed last year, but died due to the short session and its inclusion of tax credits during a fiscal crisis. If the bill survives the House, it would head for the Senate.

"The way we've looked at it for years in Indiana is that it has to have a smokestack to be economic development," said the bill's co-author, Rep. Jerry Denbo, DFrench Lick. "Those manufacturing jobs are going to China and Mexico. We have to rethink economic development. This is something that Indiana needs, and I can't think of one reason not to support it."

The bill is co-authored by Rep. Jack Lutz, R-Anderson. Various proponents said Gov. Mitch Daniels and Lt. Gov. Becky Skillman support the measure.

Officials in Daniels' and Skillman's offices said the Republican duo is receptive, but they stopped short of saying they were supportive.

"The bill is being closely monitored," said Vicki Duncan, Skillman's spokeswoman. "Of course, [Lt. Gov. Skillman] is the first one to push for initiatives that would help Indiana, but she hasn't yet taken a position on this bill."

The bill is not without expenses, one reason it stalled last year. An analysis by Legislative Services Agency projected the sales tax exemption would cost Indiana $940,000 in reduced taxes in 2006 and up to $2.5 million by 2007 in reduced corporate and individual income taxes due to the production tax credit.

A major concern would be the level of business activity in Indiana that was once subject to taxation that would be exempt under this proposal, said Patrick Barkey, director of economic and policy studies at Ball State University. Another concern is encouraging investment contrary to what the market would dictate without the tax breaks, he said.

"This distorts the market while complicating the tax code," Barkey said. "There are definitely costs."

Such losses are difficult to gauge, the bill's supporters said.

"There's no cost until someone takes advantage of the incentive," Smith said. "In that way, it's really a 70-percent net gain."

The bill's cost needs more analysis, said Pat Kiely, Indiana Manufacturers Association president.

"A tax credit is essentially a line-item budget appropriation," Kiely said. "Money is certainly being allocated to a certain interest. We're basing this off intuitive analysis. If you're going to do this, there needs to be a dynamic study that shows we make up what we lose over time."

Any so-called losses, the bill's backers said, would go right back into the local economy.

"If we could have gotten a tax credit, it would have gone right back into the production, which is money that goes right back into the state," said Joel Umbaugh, whose recently released feature film "Fake ID" was shot entirely in Indianapolis. "I don't see any way you could call this proposal a loser."
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