A race to the bottom on taxes
Opinion by Jonathan D. Kaufelt From LA Times
Re “Making film deals with tax credits,” Dec. 26
When a small Caribbean nation offers itself as a tax haven to a foreign corporation, it is not hard to see what is going on. The haven country is bribing the multinational, and the multinational is soliciting the bribe. Tax havens even compete to offer the best terms in the form of the lowest taxes. This sets off a race to the bottom in tax rates.
One would hope for better at home, but here states compete by bribing filmmakers with tax credits. Filmmakers solicit deals from the states and pin the states against one another in bidding up these credit deals. This erodes the tax base. Tragically, the states are even more misguided than those Caribbean nations, because those countries at least make money from their incentive programs, while states are competing for the right to lose the most tax money.
What is needed is a multi-state tax compact. Perhaps the U.S. government can broker one — right after it finishes negotiations in the Middle East.
PHOTO: Wilbur Fitzgerald, left, and partner Ric Reitz are part of an expanding web of brokers, tax attorneys, financial planners and consultants who help filmmakers exploit the patchwork of state programs to attract film and TV production. (Dustin Chambers / For The Times)
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Hollywood’s new financiers make deals with state tax credits
By Richard Verrier From LA Times
Brokers take the credits given to studios for location filming and sell them to wealthy people and companies looking to shave their state tax bills.
ATLANTA — Ric Reitz makes movies. He helped bankroll the Matt Damon thriller “Contagion,” Clint Eastwood’s “Trouble With the Curve” and the Robert Downey comedy “Due Date.”
Reitz, an energetic 58-year-old, doesn’t hang out at the Polo Lounge, red-carpet premieres or swank offices in Century City. Instead, he works out of a former cotton mill near Martin Luther King Jr.’s boyhood home, hustling for business at Chamber of Commerce dinners and Rotary Club lunches. Recently, he was looking forward to attending a meeting of prosperous chicken farmers.
Reitz is one of Hollywood’s new financiers. Just about every major movie filmed on location gets a tax incentive, and Reitz is part of an expanding web of brokers, tax attorneys, financial planners and consultants who help filmmakers exploit the patchwork of state programs to attract film and TV production.
In his case, he takes the tax credits given to Hollywood studios for location filming and sells them to wealthy Georgians looking to shave their tax bills — doctors, pro athletes, seafood suppliers, beer distributors and the like.
“I’ve got a giant state of people who are potential buyers,” he said. “It’s the funniest people who are hiding under stones.”
The trade benefits both sides. The studios get their money more quickly than if they had to wait for a tax refund from the state, and the buyers get a certificate that enables them to cut their state tax bills as much 15%.
About $1.5 billion in film-related tax breaks, rebates and grants were paid out or approved by nearly 40 states last year, according to Times research. That’s up from $2 million a decade ago, when just five states offered incentives, according to the nonprofit Tax Foundation.
Film tax credits have become so integral to the filmmaking process that they often determine not only where but if a movie gets made. Studios factor them into film budgets, and producers use the promise of credits to secure bank loans or private investment capital to hire crews and build sets.
“You just follow the money,” said Ben Affleck, the actor-director who said he would shoot part of his upcoming film “Live by Night” in Georgia. “What happens is that you’re faced with a situation of shooting somewhere you want to shoot, versus shooting somewhere you’d less rather shoot — and you get an extra three weeks of filming. It comes down to the fact that you have X amount of money to make your movie in a business where the margins are really thin.”
The credits and incentives can cover nearly one-third of production costs. In 14 states, there is an added benefit: They can be sold, typically enabling the filmmakers to get their money months sooner than if they had to wait for refunds. States that permit the sale of tax credits, including Georgia and Louisiana, are now among the most popular for location shooting.
Tax credit brokers like Reitz, although little-known outside the industry, play a key role in greasing the skids of location shooting. Reitz and his partner sold $1 million in credits in 2009, their first year in business. Their company, Georgia Entertainment Credits, did $15 million last year, and they expect to hit $30 million in 2014.
Most referrals come from entertainment industry attorney Stephen Weizenecker, whose clients include Viacom Inc. and Comcast Corp.
“He has been a great advocate for the industry,” Weizenecker said of Reitz. “He gets buyers in the door.”
Not everyone is such a fan. Hollywood’s trade workers — the electricians, carpenters, caterers and others who work behind the scenes — have long complained that they’ve lost their livelihood as states vie for film business with ever-richer incentives. The number of top-grossing films shot in California has plummeted 60% in the last 15 years, according to a Times review of public records, industry reports and box-office tracking data.
Some economists question whether these programs create long-term benefits to the local communities they are supposed to help. The sale of tax credits, meanwhile, has triggered criticism that companies and people with no connection to the film industry are benefiting from film credits.
Selling tax credits is “a particularly bad public policy because they allow purchasing corporations to shelter income from something unrelated to their activities,” said Lenny Goldberg, executive director of the California Tax Reform Assn.
Entertainment Partners keeps a list of 25 companies that regularly purchase credits and has three full-time brokers who handle the sales.
“It’s not just a phone call and handshake. There’s a lot of work and discussion involved,” Chianese said. “It can take weeks, it can take days.”
Chianese also makes cold calls to prospective buyers and relies on leads from his staff, many of whom worked for major accounting firms with clients searching for tax breaks.
“Eight or 10 years ago it was, ‘I want a beautiful mountain, should I go to Montana or Colorado?'” said Mark Goldstein, chief executive of Entertainment Partners. “Now it’s, ‘I can re-create anything. Just tell me where the money is.'”
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