Tax incentives to attract the entertainment industry to specific locales have supporters as well as detractors. Count Peter Stathopoulos as an enthusiast.

“There’s a national debate playing out as to whether these are a good idea or a bad idea,” observed Stathopoulos, a partner at Atlanta-based Top 100 Firm Bennett Thrasher. “From my perspective it’s very effective in shifting the production to Georgia. We went from less than $32 million in entertainment production expenditures in 2007 to an excess of $2.3 billion last year – it can ramp up fairly quickly.”

Georgia’s credit legislation was enacted in 2005, but was broadened considerably by the Georgia legislature in 2008. Stathopoulos helped craft some pieces of the legislation that ultimately became the incentive program.

A still from 'The Walking Dead'
Tax credits helped bring 'The Walking Dead' to this Georgia road. AMC Network Entertainment LLC

“Both New York and California have very large incentive programs, which tells you how necessary they are,” he said. “New York traditionally dominates the television industry, and California dominates the film industry. The fact that they had to pass credits of their own to keep from losing more of their industry shows how effective these are.”

Roughly 20 states have some sort of entertainment incentive, according to Stathopoulos. “They come in a number of flavors,” he said. “Some, such as Georgia, provide for a transferable credit, so if you can’t use your credit against your own tax liability it’s transferable. Any taxpayer can buy it.”

“Other states have refundable credits,” he indicated. “If the credit exceeds your tax liability, the state will cut you a check. A variation is a grant program that some states have, where you don’t need to file a tax return, and the state cuts you a check as a grant.”

Increasingly, states are allowing enterprises to transfer their unused tax credits by selling them to other taxpayers at a rate less than the dollar value of the credit.

“In certain circumstances, transferable tax credits can be a win-win-win situation – a win for the state in attracting new investment, jobs and economic activity; a win for the company leveraging its investment in the state; and a win for the taxpayer purchasing tax credits at a discounted rate,” said Mary Benton, a partner in law firm Alston & Bird’s State and Local Tax Group. “But these programs operate under significant regulations, are not without controversy and may present risks and challenges to the taxpayers involved.”

“Georgia’s tax credit is transferable,” Stathopoulos said. “The production can get a credit of up to 30 percent of qualified production expenditures. If it makes a film or TV show and spends $10 million in Georgia in qualified expenditures, it will get a credit of $3 million which it can then sell.”

Benefits from locating entertainment production go beyond initial influx of cash, Stathopoulos noted. “It has led to a boom in infrastructure, including sound stages and other movie studio construction in and around the Atlanta and the Savannah areas,” he said. “Major studios, including Pinewood, Marble Films, EUE/ Screen Gems and Raleigh studios have facilities here. The city of Senoia, where ‘The Walking Dead’ is filmed, was very economically depressed. Just having one TV show based there has completely revitalized the town. And as a tertiary effect, real estate prices for the entire area have risen.”

The entertainment industry is conducive to moving around, Stathopoulos explained. “It’s unlike a manufacturing facility, because it’s much easier to move film and TV production, which is why the incentives have been so effective. We could have huge manufacturing incentives, but that would not mean that the big three automakers would move plants down here.”

Roger Russell

Roger Russell is senior editor for tax with Accounting Today, and a tax attorney and a legal and accounting journalist.