Signed into law by Governor Jennifer Granholm in April 2008, the Michigan film-making tax incentives are part of an aggressive economic stimulus package designed to grow the economy and create jobs in new sectors of Michigan. This paper educates on the program and reports on its progress.
Tax Credits are a financial credit provided by the government in the form of a direct reduction in tax liability to reward citizens or businesses for taking a desired action. These credits can reduce the tax owed below zero, and result in a net payment to the taxpayer beyond their own payments into the tax system.
In the 1990s the U.S. market lost over 100,000 production-related jobs, as motion picture and television programming increasingly became manufactured offshore. The outflow of work was in large part due to lucrative incentives offered by Canada, its provinces, and European Union members. Canada has a federal refundable tax credit of 16% of qualifying Canadian labor expenditures, net of assistance (which includes provincial credits). Each participating providence has an additional tax credit for production work, ranging from 25 to 50% in Novia Scotia. The estimated loss to the U.S. economy since the Canadian rebates is $4.1 billion, or about 25,000 jobs, a year (Katz 2001). However, another economic impact study of “runaway productions” estimates the loss to Hollywood alone as of 2003 is $10 billion annually (McNary 2003).
In the last decade, US state governments have “gone Hollywood” by enacting dozens of movie production incentives, including tax credits for film production. Michigan joined this trend in April of 2008, launching its own film incentive program. The incentives were originally passed as part of a bipartisan effort to cultivate new industries. The state’s leadership was motivated by the need to begin replacing the manufacturing jobs that were being lost due to the shrinking auto industry and other heavy manufacturers.
The program offers incentives for film, television and other digital media production, as well as infrastructure development and work force training. The laws provide a refundable tax credit of up to 42% for production work in Michigan; a 25% MBT tax credit for infrastructure investment specifically designed for this industry; and a Michigan MBT tax credit for worker on‐the‐job training.
Production companies turn in their Post-Production Audit to the Michigan film office to determine the qualifying direct-production expenditures. For the expense to qualify it must have been made in Michigan, it must not be a personal expense, and must be directly attributable to the production or the distribution of the production and subject to taxation in Michigan.
An expenditure “made in Michigan” must meet the following standards: Tangible personal property and services must be acquired by the eligible production company from a source within Michigan, and services must be wholly performed within Michigan “a source within Michigan” means that the vendor has an established physical presence in Michigan that includes both a non‐temporary bricks and mortar storefront and at least one full time permanent employee working in Michigan.
In film production there are above the line personnel (this includes: Producers, directors, writers and actors) and below the line personnel (like: extras, grips, script supervisors, 2nd AD’s…). Compensation (wages and salaries) to above the line personnel is qualifies for a 40-42% tax credit regardless of their residency. Below the line personnel wages qualify for this percentage of tax credit only if they are residents. Otherwise, their compensation can be credited at 30%. Fringe benefit payments made for Michigan resident crew members are eligible for the 40% credit – and Non-Mi residents at 30% credit. Other qualifying expenses include those spent at Michigan Companies for goods or services.
Michigan businesses (even West Michigan businesses) benefit from the spending of film producers. Scott Miller’s company, Harbor Foam in Grandville, is one example. His company makes expanded polystyrene foam and until recently, his only creative endeavor was providing foam for the Nessie Project in the ArtPrize contest. Then one day, he got a call from Mark Zuckerman who was working on MGM’s remake of Red Dawn , which had been filming in Detroit since early fall. Zuckerman stumbled across the company while going through a list of Midwest foam makers; he needed a massive amount of foam to recreate an underground cave for the teenage freedom fighters in the film. When asked how his company benefited from the filming incentives, Miller was very passionate. “Our products are used by the construction and furniture industries, and they are hurting. Being able to replace lost business with something new is absolutely critical to our survival.”
Other businesses benefiting from the film incentives include: Mannie’s Bagel & Delicatessen; Chow Catering; Around the World Travel; Amway Grand Plaza Hotel, Days Inn and Ramada Hotel are seeing an uptick in room reservations, and Woodland Creek Apartments providing longer-term housing needs for filmmakers; S&R Event Rental of Harrison Township; Accounting professionals like Schellenberg & Evers CPAs in Grand Rapids; Legal firms like Warner, Norcross and Judd and Smith Haughey have opened Entertainment Divisions in their law firms since last year –Attorney Joe Voss at Clark Hill in Grand Rapids has become a leading counselor to film producers.
The Michigan Film Office reported that 2009 ended with 126 tax credit applications, 62 of which were approved, 36 were denied and the rest are either filming elsewhere or still under review. Of those approved, 52 completed their work in 2009. 38 submitted their post production audit for the 2009 tax year. These figures represent expenses for 41 productions (2009 through current 2010 wraps): Salaries 119,355,213 (includes both Above and Below the Line; Goods 30,899,499; Services 30,728,440; Total Expenditures 180,983,113; Estimated Credit 68,727,858; and Jobs 3867.
In order to meet the demand for film professionals, Michigan must retrain workers. This involves university programs, networking opportunities and exhibition opportunities. As of 2009, Michigan has 25 Colleges/Universities offering film programs along with 11 Trade Schools. Funding for these schools is provided in part by grant programs (IATSE and Wayne Community College, U.S. Department of Education Detroit‐Lebanon Training Grant) and the United States Department of Labor. Alliances (Skill Alliance, WMFVA) are being formed to ensure a network of film professionals, and seminars (Doing Business with the Business) and Film Festivals (29 Film Festivals in MI) are cropping up to keep the professional community abreast on the opportunities.
Along with a dedicated and educated film community, Michigan must provide areas (sound stages) for indoor filming. Though these infrastructure projects are slower in materializing, they are beginning to surface. One facility is now in operation in Walker and another in Manistee. Five other projects continue to move forward in metropolitan Detroit and Southwest Michigan. In February, Governor Granholm announced two new film-related development projects: the $89.5 million Wonderstruck Studios in Detroit, which will produce computer-generated and animated content; and the $70 million Motown Motion Pictures 600,000-square-foot soundstage development in Pontiac. Still, there has been no infrastructure tax credit claims filed.
Though, it’s difficult to quantify the opportunity cost of choosing to develop the Film Industry, there are hard numbers available, tracking the amount of money the incentives have lured to our state. Michigan has received 180,983,113 dollars from the expenses of this industry, and will refund 68,727,858 of tax payer’s dollars to producers for work in 2009-2010. Approximately 4,000 jobs have been created. Still, this employment is not yet permanent and consists of contract jobs. New educational systems have been created, infusing our universities with grant and federal funding. New business infrastructure development is being created, and this will lead to employment positions.
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