Film tax incentive in danger of not being renewed
Proponents of a bill that offers tax incentives to film productions made in Montana are hoping to revive it after it was tabled by a House committee Feb. 9.
House Bill 120, sponsored by Bozeman Democrat Kathleen Williams, re-enacts the Big Sky on the Big Screen Act, which was passed in 2005 and sunsetted Dec. 31, 2014. The act allowed productions to apply for a tax credit of 14 percent on the first $50,000 they paid to Montana residents, plus another 9 percent tax credit on goods and services purchased in the state.
Each year, a handful of films are shot in the state, and they aren't small-time, either. Last year, "Nebraska," a film partially shot in Montana, was nominated for the best picture Academy Award.
Enacted by states over the past decade, film incentives are increasingly becoming a requirement for productions to film in any given state, according to those in the film industry. Many states have enacted incentives, some more aggressive than others. Montana's incentive is relatively tame compared to states like Louisiana and Alaska, which offer a 30 percent tax credit on expenditures, plus other perks. Alberta offers both tax credits and the opportunities for grant funding.
An August 2014 Los Angeles Times report confirmed that other state incentives had been successful in luring films away from California, long the capital of American filmmaking. But some states' economic studies found that the cost to the taxpayers outweighed economic benefits.
That's the question for the Big Sky on the Screen Act, which is currently sitting on the table in the House Appropriations Committee. Williams hopes to get enough support to move the bill forward (it passed through the House Taxation Committee and its first reading in the House on a 60-40 vote) and eventually get it passed. If it is, it would retroactivate the incentive to Jan. 1, 2015.
Good investment?
In the decade since its original passage, the state has paid out just more than $700,000 to 48 productions that have claimed the credit. Those 48 productions spent $9 million in Montana, according to data from the Montana Department of Commerce.
However, 129 productions were precertified for the credit but never filed for it. Montana Film Commissioner Deny Staggs said some of those other productions were never made, but some filmed in Montana but did not file for the tax credit.
"The key is, it gets us that call, gets us into the factoring of the bottom line of production," he said.
Productions may ultimately decide they don't have time to or money to hire someone to prepare the paperwork to get the tax credit. According to Allison Whitmer, a freelance unit production manager, every cent spent has to be accounted for by a receipt, and the Department of Revenue must be able to contact the person or entity who was paid to confirm the purchase. Likewise, DOR also requires proof of residency for all Montanans employed by the project.
Whitmer, of Wolf Point, compares the incentive to a coupon for tuna fish a shopper clips from the newspaper. The shopper then goes to the grocery store, buys some items and ultimately decides she doesn't need the tuna. The coupon got the shopper to go to the store and spend money even if she didn't use the coupon.
"By the very fact that they did the application and followed through on spending funds in Montana, they fulfilled the spirit of the incentive," she said. "And if you don't fill (the paperwork) out, the state doesn't expend the money."
Whitmer, currently working on a project in Livingston, says that the incentive encourages productions to purchase local products for films instead of ordering online or purchasing from out-of-state vendors.
"We're going to local thrift stores, antique stores, distributing the funds you have to make this film in the community instead of automatically going to the larger vendors," Whitmer said.
She continued, "Even though the incentive is in sunset, so it doesn't apply at this exact moment, but the film is anticipating it will be approved, so we're working to use Montana vendors and hire Montana crew and do this locally."
Whitmer worked on "Winter in the Blood," filmed over three months in 2012 in Havre and Chinook.
"We spent probably $600,000 between salaries and all that kind of stuff in Havre," she said.
Similarly, when a production crew came to Billings for 10 days in 2013 to shoot "Nebraska," about $370,000 was injected into the local economy, according to Staggs.
During the House Appropriations Hearing, the lone opponent was Joe Balyeat, a lobbyist for Americans for Prosperity.
Balyeat cited at the Appropriations committee hearing a study of Florida's tax incentive program that showed that that state's film tax incentive returned 43 cents on the dollar in terms of tax revenue. Doug Mitchell, deputy director of the Department of Commerce was also at the hearing and told legislators that that number may be roughly accurate for Montana. However, Mitchell said, the direct taxation is not the number to focus on. Rather, it's the $9 million the productions spent in the state, plus any increased tourism due to the film.
Balyeat, also a certified public accountant, criticizes targeted tax credits in general, saying they have been shown not to stimulate economic development as well as private-sector entrepreneurship.
According to Balyeat, leaving the money spent on the tax incentive — $700,000 over 10 years — in Montana taxpayers' pockets would have improved the economy and created more jobs than this targeted tax incentive has.
"When you have a balanced budget amendment, the government money that's spent was taken out of the private sector, so there's no net gain," Balyeat said.
Balyeat also criticized using tax credits on film projects that are, by nature, short term and thus do not engender any long-term growth or jobs.
He also questions the Department of Commerce's and Film Office's claim that the incentive lured more than just the 48 productions that took advantage of it.
"You could just as easily argue that the data presented proves that the film incentive was not a deciding factor at all in these films coming to Montana," he said.
Ultimately, Balyeat says targeted tax credits like the film tax credit are "grossly unfair" to average Montanans, who pay in their taxes the credit that the incentivized productions receive.
Show business
According to Staggs, Montana competes with the likes of New Zealand, Australia and Alberta for films. The state's tax credit is given the lowest ranking available for states that have an incentive by a group called Film Production Capital, which works with productions on attaining the tax credits in states where they are made.
That means, according to filmmakers, that Montana loses productions to other states and Alberta.
The film "Cut Bank," set in the Glacier County seat and scheduled for release in theaters April 3, was filmed in a small Alberta town, complete with a replica of the famous penguin.
The filmmakers of "Cut Bank" likely went to north because of the incentive, Staggs said. Similarly, a film currently in production called "The Revenant" with Leonardo DiCaprio scouted Montana locations before deciding on locations in Canada.
An HBO miniseries about Lewis and Clark that has been in the works for about a decade has scouted Montana locations for years, Staggs said. In January, a Calgary Herald story cited an unnamed source close to the production who said producers have decided to shoot the film in Alberta instead of Montana.
Staggs said the fact that the incentive was set to sunset month before filming would begin didn't help Montana's chances with HBO.
"They're a business and have to plan way ahead, so that didn't help us that we're in this situation where the Legislature has been wishy-washy about it," Staggs said.
Whitmer makes no bones that Montana communities miss out when these films are made elsewhere.
"In Cut Bank, (the producers) took some pictures, ate some meals and took the show to Canada. So they spent all that money in Canada. Cut Bank may get some great residual tourism, but Cut Bank didn't get any economic benefit out of it, nothing but a couple hotel rooms and a meeting with the Chamber of Commerce. So that sucks," she said.
Of the Lewis and Clark miniseries, she said, "We're filming American history in someone else's country."
While a few plate shots and B-roll may be shot in Montana, what they will spend in Montana will be a fraction of what they spend in Alberta, Whitmer and Staggs said.
With its relatively small incentive, Montana attracts films with budgets around $10 million. Larger budget films can get a better deal by going to states like Louisiana with larger incentives.
"We were attracting really nice independent films, which is kind of what Montana has become known for," Whitmer added.
What's next?
Without the incentive, Staggs says many productions won't even consider Montana.
Proponents of the incentive look to North Dakota with some trepidation. The state doesn't have a tax incentive, but two bills in the state Legislature would create an incentive and provide funding to hire a film commissioner.
Balyeat believes that without an incentive, companies in Montana that produce films and provide services to outside productions will sink or swim based on relying on a national clientele and the free market.
"I would argue that if the free market generates enough work for these people based on their national reputation to enable them to work in Bozeman, then more power to them. But if what they're saying is that they can't survive in the free market, only if the government subsidizes their particular line of endeavor, then that's a sad state of affairs," he said.
Oracle Film Group in Bozeman produces motion picture, commercial and interactive entertainment. The company's CEO, Ari Novak, says Oracle has taken advantage of the film tax incentive in films his company has produced and for films that have hired Oracle for production services.
According to Novak, the incentive is not a luxury or simply a break to enrich Hollywood fat cats. The incentives are essential to getting movies made in Montana.
"Movies only go to places where there are incentives. If there are no incentives in Montana, I think it's going to be catastrophic for our business," Novak said.
Oracle employs four people full time, including Novak. Last summer, an additional 45 seasonal workers were brought on. This year, Novak plans some post-production work that will require keeping 15 people on through November.
"We have plans to bring a full animation studio to Montana to do Pixar-style movies. We wanted to bring a huge project to the area, but with the prospect of losing the incentive, we won't be able to do that," he said.
Novak is also seeing a burgeoning film industry in the state, with professionals coming and infrastructure being built. The University of Montana and Montana State University have begun turning out talented graduates who can find work here.
"It's a fertile place to make art and prosper, and create work for other Montanans. We've seen it firsthand," Novak said.
Novak and Whitmer doubt without the incentive it will be business as usual.
While Oracle has offices in New York and Los Angeles, Novak prefers to live in Bozeman. But he says he may not be able to do that if the incentive is not reinstated.
"It would be as if there was no more farming. A farmer has to go where there's farming," Novak said.
Whitmer estimated she may be able to work one to two months in Montana if the incentive isn't renewed.
Staggs is looking forward to a location show in Los Angeles this March. Producers and studio representatives go to the show and will be asking questions of Staggs and his staff to find out about Montana's incentive. He isn't sure what he'll be telling them.
"We'd really like to be further down the road and say, 'Well, we're waiting for the Senate to vote on it,'" he said. "It's a tough business when everyone's looking at summer movies."