The Mystery of Georgia Film Tax Incentives Explained

For filmmakers the lure of state film tax incentives is equal parts enticing and confusing. So confusing, in fact, it will take multiple issues of CinemATL to elucidate the mystery. In this, the first of a three-part series, the basics of the Georgia Film Tax Incentives are explained in common-sense English. In our next issue, Part II will compare Georgia to our surrounding states to see how Georgia incentives really stack up. Then in Part III, Georgia's and other states' efforts will be compared to their most feared competitors: Canada and Eastern Europe. But first, Georgia.

Gene Jeffries and Penny Wannamaker are both filmmakers. (Note: Gene and Penny aren't real people but their names sound good and they make dandy examples to help us understand the ins and outs of our subject.) Gene has been a DP and producer for several years. He's written a script he loves and somehow he managed to convince a small group of investors and one foreign distributor to give him $1.2 million to shoot his film. Penny is a producer/director whose first small film won her a three-picture deal with HBO. This is picture number two and she is elated to have $42 million to spend.

Both have decided to shoot in Georgia.

Downtown Atlanta can look like gritty New York on Gene's low budget. Penny needs mountains and "small town America" landscapes. Both Gene and Penny were impressed with Georgia's deep well of experienced talent and crews, easy access from Hartsfield Jackson International Airport, ready availability of equipment and studio space, and a helpful state Film Office.

Sure, there were lots of reasons that helped tip the scale in favor of Georgia. But the Georgia Film Tax Incentives made the ultimate difference.

There are actually two incentives. The first is the Georgia Sales and Use Tax Exemption. The second is the base tax credit earned through the Georgia Entertainment Industry Investment Act. Here is how these two filmmakers are making those breaks work for them.

So Long Sales Tax!

Before filming began both Gene and Penny applied for the Sales and Use Tax Exemption Certificate. This allows them to purchase and rent a wide range of production and post-production equipment and services in Georgia without paying sales tax. They use their exemption certificates for the rental of camera and lighting equipment, vehicles, props, furniture, sets, and other equipment. They use it at the point of sale for all their set and materials purchases. In Atlanta, that can mean as much as eight cents on every dollar.

Gene is shooting almost entirely in the city. On his $275,000 budget for qualified items, he is saving almost $22,000. Penny is shooting on numerous locations throughout the state and is saving over $500,000 on her $8.6 million dollar budget for those items. And that ain't chump change!

It's also possible to file with the state for a rebate of sales tax after the fact. The number of forms and hoops to jump through multiplies, however. Before filming begins, the application for the certificate is simple, easy to qualify for, and generally quick to process.

The sales tax exemption does not extend to hotels, food or makeup supplies. But there is no minimum budget. Any production shot in Georgia qualifies: films, documentaries, commercials, music videos-even industrial films. That six to eight per cent savings really adds up fast.

The Georgia Entertainment Industry Investment Act, or, How I Made a Movie and Money Too

Nice as the sales tax break is, the most attractive incentive that the state of Georgia offers to filmmakers is contained in the Georgia Entertainment Industry Investment Act. The foundation of the Act is a 9% base tax credit with uplifts based on jobs created in Georgia, direct expenditures in the state, and the production of multiple projects by a single production company in Georgia. The only stipulation to qualify is that a minimum of $500,000 must be spent in Georgia on a single fiscal year.

Gene and Penny have both made films before. But even for them, base tax credits are perplexing. They are artists, not accountants. It is important for them to understand exactly what a "base tax credit" is and what it is not.

A base tax credit is a credit against corporate or income taxes owed, in this case, in the state of Georgia. It is not a rebate. It is not a 9% off sale.

"But," says Penny, "my funding comes from California. Any revenues, assuming there ever are any revenues the way studios do accounting, will be realized in California and the taxes will be due there, not Georgia."

"Income?" quips Gene. "Who makes income from movies?"

Good points.

The state does, however, allow several uses of the tax credit that both Gene and Penny immediately see as advantages.

The first advantage is in the way the tax credits are accrued.

Almost any money spent in the state of Georgia on a production is applied toward the total for figuring the 9% credit. Any equipment rented, any location fees, supplies, materials, set dressings, Georgia talent and crews, even the salaries of the stars and above-the-line personnel up to $500,000 of their salary. They all apply.

The state even kicks in an extra 3% for all Georgia residents hired.

Gene's crew and talent come almost exclusively from Georgia. Only his star, the ingénue daughter of a well-known celebrity, and the aging star of a 70's sitcom that is flying in for three days to do a cameo, are from other places. Yet even their salaries are figured in the base 9% since the work happens in Georgia. That gives Gene a total of 9% for his stars and 12% credit for all the rest of his salaries.

Penny is faring almost as well. Her auteur director, DP, and two feuding stars are all from outside Georgia and will all make more than $500,000 each. But that still gives Penny $2 million to add to the other salaries when figuring her credits.

Georgia also adds an additional 2% break for location shooting in Tier 1 and Tier 2 counties. Those are counties the state counts as underdeveloped.

But surprise! Fulton County is a Tier 2 county so Gene is realizing an extra 2% just for shooting in Atlanta. Penny is earning the same extra credit by shooting in several rural areas.

Penny is also enjoying another 2% credit because her studio, HBO, is shooting more than one made-for-TV project in Georgia this year.

The only exceptions not included in the base tax credit include anything rented or purchased outside of Georgia and brought in for use, production insurance bought outside of Georgia, and travel booked through a company outside Georgia.

But Gene still manages to qualify the airfare by booking his star on Delta, a Georgia-based company. And Penny finds a Georgia-based travel agent who makes all her airfare and travel arrangements, thus qualifying for the credit, too.

The math can get a little complicated, but here is a basic way to figure Gene and Penny's tax credits.

Gene, as we learned earlier, has a total budget for his film of $1.2 million. But that has to cover everything from script purchase to production insurance to newspaper ads in the Village Voice for the Tribeca Film Festival.

His actual budget for real expenditures in Georgia is $275,000 for sets, equipment, locations, props, etc., $52,000 for hotel and travel, $325,000 for his stars, $100,000 for other above-the-line personnel, and $110,000 for other talent and crew expenses. His total eligible Georgia expenditures are $862,000.

Gene¹s credits are figured as follows: 9% base tax credit plus 2% for shooting in Fulton County. That¹s 11% on the $862,000 total for a tax credit of $94,820.

Now add an additional 3% credit on $210,000 in salaries. That¹s $6,300.

Out of Gene¹s total $862,000 shooting budget, he is earning $101,120 in tax credits.

For Penny, the numbers look even better.

Included in Penny's $42 million budget are $8.6 million in eligible shooting expenses, $640,000 for hotel and travel, $2 million in eligible credits for stars and above-the-line personnel making over $500,000, $1.2 million for other above-the-line personnel earning less than $500,000, and $1.8 million for below-the-line talent and crew. Penny's total eligible Georgia expenditures are $14,240,000.

The tax credits for Penny's HBO project look like this: 9% base tax credit plus 2% for shooting in Tier 1 and Tier 2 counties. That's 11% of $14,240,000 for a total of $1,566,400. Now add 3% of $1,800,000 in eligible salaries. That total is $54,000.

Added together, Penny's total base tax credit is $1,620,400.

But wait! HBO is shooting another project in Georgia this year. So add another 2% to the overall $14,240,000 total. That extra $284,800 brings Penny's total tax credit to $2,001,200.

Not too shabby.

The Pretty Part

Lovely as those numbers are, they are still just a credit against taxes due in Georgia. And who ever heard of a production company making a profit?

But here is the sweet part. Those tax credits can be used by the production in a number of ways.

First, both Gene and Penny take advantage of the option to apply part of the credits to employee withholding taxes due. They can also hold onto any remaining credits and apply them to future withholding taxes on their next projects filmed in Georgia.

Second, any company that owes taxes in Georgia may also utilize the unused credits. ANY company.

And that gives Gene an idea.

When Gene put his investor package together, he figured up the tax credits his production would earn. Now he offers them to his Georgia-based investors for 60 cents on the dollar, the least amount allowed under the Entertainment Investment Act.

His Georgia investors pay Gene $66,522 but receive $110,870 in tax credits which they can apply to any taxes they or their companies owe in Georgia.

Even if Gene's movie never realizes a profit, his investors are receiving at least a small return. If Gene hadn't sold them to his investors, he could sell them to any Georgia corporation or individual.

As for Penny, well, HBO's accounting department certainly loves her. And the $2,001,200 in tax credits they will be using to offset their Georgia tax liabilities.

The Color of Other Pastures

Other states have incentive programs, too. Some have higher base credit rates but with more stipulations attached. Others have tax credits with lower budget thresholds, which are attractive to cash-strung independent filmmakers.

For instance, hypothetical fledgling filmmaker Carey Hawks has just $500,000 for everything and he can't find errors and omissions insurance in Georgia. He can only get it in California. Which means his total expenditures in Georgia will fall below the $500,000 qualifying threshold. So he's filming in Louisiana.

But Carey's story is for Part II.

Kay Hallahan, local screenwriter and producer, is a guest writer for CinemATL.