TAXING DECISIONS
New York’s independent film community learns to love the state and city’s new refundable tax credits.
BY ANTHONY KAUFMAN
Nicole Kidman in Steven Shainberg’s Fur,
which recently wrapped in New York.
New York’s independent film community comes back together in Autumn after days of sweating it out on humid film shoots across the United States, Canada and now, more than at any time in recent memory, right in their own backyards. As executives and filmmakers mixed it up at the fall film festivals and the IFP Market, they also exchanged information about how best to leverage the new tax incentives launched by both city and state governments. These incentives have created a surge in New York filmmaking. Roughly 30 films have already applied for the tax credits, according to the New York Mayor’s Office of Film, Theatre and Broadcasting, and more than $450 million in new business has been generated.
If you’ve been living in a hole over the last year, let’s recap: in August 2004 New York State legislated a 10 percent non-transferable tax credit on all qualifying below-the-line production costs incurred within the state (including pre- and postproduction) for films that complete 75 percent of their total stage work at a preapproved facility and either shoot 75 percent of their location days within the state or simply spend at least $3 million at the facility. In January 2005 New York City followed suit with the “Made in New York” program for films that shoot within Gotham’s five boroughs — an additional 5 percent tax rebate on top of the state’s 10 percent that follows the same guidelines.
There’s little doubt that the tax programs have helped galvanize Gotham-based shoots: “It’s certainly picked up,” says one producer. “I’ve having trouble finding a line producer.” But what kinds of productions and the ease with which they can utilize the tax benefits are still up for debate. Studio projects, television shows, Indiewood companies and the New York studio lots like Steiner and Silvercup have the most to gain, say New York area producers, while smaller budget films and micro-companies are less firmly situated to take advantage.
The tax benefit program requires a corporate entity and a budget number to be set prior to principal photography, but not all indie films can come up with figures so easily. “If I have 10 scripts, I’m not going to incorporate all those 10 films, get in line and put my paperwork in, because I’m not sure how much money I’ve raised,” says Andrew Fierberg, a producer on the Gotham-lensed Fur and Matt Mahurin’s upcoming Feel. “It’s a Catch-22. I can’t start the process until I’ve raised the money, but I can’t guarantee investors that I have the right number for the tax breaks until I have the financing.”
GreeneStreet’s production head Tim Williams says that for a consistent entity like GreeneStreet the tax breaks are advantageous. However, “if you’re a small production company trying to raise money for a movie,” he says, “it’s hard when you don’t know who the investors are and how to take the tax benefit and project years ahead to how they’ll make money off it.”
There’s also the added hassle and expense (anywhere from $25,000 to millions of dollars) to shoot on preapproved stages. Films must shoot one day on a stage and build some sort of set. One or more build days, a shoot day, a strike day plus the general costs of a day of film production add up. And then there’s the difficulty of simply getting into one of the large New York stages, which are suddenly booked up with work.
Here, though, there are options. Lesser-known facilities like Greenepoint’s Broadway Stages — and even warehouse space — can meet the criteria of the credits. The 7th Floor’s Allen Bain, in preproduction on Kevin Connolly’s Gardener of Eden, which relocated from New Jersey to New York because of the tax benefits, says the city will quickly qualify a stage of at least 7,000 square feet as long as filming has been done there before or if the owner of the space will commit on paper to allowing filming there on a regular basis. Even if your qualifying budget is as low as $1 million, argues Bain, the $150,000 in tax rebates should make up for additional stage costs. “How can you not justify it?” he says. “It doesn’t make sense not to figure it out.”
Another complication revolves around how exactly to set up their film’s corporations. The tax credits are meant to offset New York State or City income tax. If insufficient taxes are owed — i.e., if the film does not generate profit in the two years following completion — the excess credits are refunded in cash, 50 percent of which is paid in the first year after completion and the remaining 50 percent in the next year. But the way the money funnels back can be tricky. If the production company is a pass-through entity for New York state tax purposes — an LLC partnership or S corporation — the 10 percent credit passes through to the LLC members or shareholders’ tax returns, offsetting these members’ personal taxes. (Because New York City does not have a similar pass-through system, the “Made in New York” credit will be claimed on a corporate tax return.) “It’s very important when you structure the LCC to determine the degree of people’s investment, because the credit is based on their shares in the LLC,” says entertainment attorney Victoria Cook, who worked with such “Made in New York” films as Jim Jarmusch’s Broken Flowers and Mira Nair’s The Namesake.
Films can also form a C corporation, where the money doesn’t flow back to individuals, and which could allow for “banking” the credit — meaning using the tax incentive to get a bank loan up front for a percentage of the tax benefits to help finance the film. Currently, producers are investigating which banks and financial institutions are open to banking the credits and for what sorts of dollar amounts, but such deals have not been solidified. In fact, due to the vagaries of the law and the fact that in many cases the rebate is relational to the tax status of an LLC or S corporation’s members, these deals may not be forthcoming.
Whatever challenges the tax programs present to indies, Andrew Fierberg believes the incentive is creating a greater willingness for financiers to invest in New York film. “They may not be 100 percent clear on how they will make the benefit work, but it makes them feel like they have a better hedge against their investment,” he says. “If you can go to an investor and say, We don’t have to fly the actors, we don’t have to make up the locations, and we can get 15 percent back down the road, it has and does give the idea of a deal closer.”
“It makes a big difference for individual financiers, because it makes it more safe for them to put money into a small movie,” agrees Cook. “They might put in a little extra to qualify for the stage days because there’s a guaranteed way of getting some money back.”
Still, producers say the ultimate tax program would be one that is transferable, like the one that exists in Louisiana, where a film can sell off their tax credits to wealthy individuals in advance. “Then all of a sudden,” argues Fierberg, “all of the speculative capital will want those tax breaks, and they will start negotiating for hard cash. So people outside of the film business will find a way to get involved.”
And even with the tax programs, New York is still an expensive place to make a movie. “The cost of shooting in New York is exactly the same,” says Williams. “We still have the teamsters, we still have the IATSE. [The tax breaks] just mean your risk is reduced. On a $10 million movie your risk is now $8.5 million.”
As of press time, no film had actually received the tax benefits, but Jim Jarmusch’s Broken Flowers may be the closest. Jon Kilik, one of Broken Flowers’ producers, says they will eventually funnel the rebates back into the budget to reduce the negative costs. But the production won’t see the credits until they complete all their deliverables, including a video master, and calculate their final postproduction costs. “Delivering doesn’t end when the movie is in theaters,” he notes. Still, Kilik is counting on the incentives. “The bottom line is that it enables you to do a New York show,” he says. “A New York budget pushes us higher, but this helps level the playing field.”
For complete information, see the New York State and City’s Web sites: http://www.nylovesfilm.com/tax/ and http://www.nyc.gov/html/film/html/incentives/tax_credit_overview.shtml
Also in the New York Scene: CONSUMER MARKET: With its Independent Film Week, the IFP Market reaches out.
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