http://www.hollywoodreporter.com/hr/content_display/film/news/e3i3d82e5b0896238024e8360eeca9130bb
Savvy film, TV productions makes most of tax incentives
By Todd Longwell
In the upcoming Warner Bros. film “The Losers,” Puerto Rico portrays a wide variety of locales, including India, Bolivia, Chile, Miami and Los Angeles. But according to Puerto Rico film commissioner Mariella Perez-Serrano, it wasn’t the Caribbean commonwealth’s visual versatility that drew the comic book adaptation to its shores. It was its production incentive, which offers filmmakers a 40% transferable tax credit.
“These days, it’s all about the money,” Perez-Serrano says.
When it comes to incentive programs, there’s a lot of money to be had. In the past eight years, film and TV tax credits and rebates have proliferated, with one region leapfrogging over the other to offer a better deal. Today, there are significant production incentives in 44 U.S. states — up from five in 2002 — and a broad selection of countries around the globe, from Canada to New Zealand.
Faced with this wide variety, filmmakers have become savvy shoppers. Today, more than ever, they’re aware that the program offering the biggest raw percentages doesn’t always prove to be the best deal in the final audit.
“There are creative needs, financial needs, quality-of-life issues, travel time,” says Susan Croome, head of the British Columbia Film Commission. “The things they look at are different from show to show.”
One of the primary factors that drove Universal’s direct-to-DVD sequel “Death Race: Frankenstein Lives” to shoot in Cape Town, South Africa, this year was the travel requirements for its large cast of cars.
“We needed to import a lot of cars that were built in the U.S. that were not really registered, because they’re basically props,” producer Mike Elliott says. “South African custom officials recognized quickly what we were trying to do and guaranteed they’d be able to clear them for us in a couple of days, which they did. Other places we were considering shooting wanted as much as a month or even six weeks to clear the vehicles, and we just didn’t have time.”
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Cape Town, South Africa |
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On top of that, “Death Race” needed a locale with decayed urban environments in which to stage its centerpiece demolition derby. A number of states in the northeastern U.S. have locations that fit the bill physically, and many come with attractive incentive programs, such as Michigan’s refundable 40%-42% tax credit. But they also tend to have regulations that make racing and wrecking cars more challenging, so Elliott looked to Central and Eastern Europe, where government restrictions tend to be more lax.
“The best locations we saw anywhere for this film were in Romania,” he notes. “There are gigantic, closed-down factories and steel plants on the same scale as the Northeast, but it would have been winter, and it’s hard to race cars around in the snow and the rain. It’s the same reason we couldn’t look at Montreal, where the first film was shot.”
In addition to warm weather, South Africa boasts a base 15% rebate on qualified expenditures, which “Death Race” was able to increase to 25% by structuring itself as a German/South African co-production.
Hawaii’s production incentive is relatively small by today’s standards, offering a refundable tax credit of 15% on Oahu and 20% on neighbor islands (Kauai, Lanai, Maui, Molokai and the Big Island). Worse, the total payout is capped at $8 million per production, paltry when one considers that “Avatar” earned $44.7 million by utilizing New Zealand’s 15% tax rebate program. Yet Hawaii was able to beat other tropical locales, including top contender Puerto Rico, to land the Disney sequel “Pirates of the Caribbean: On Stranger Tides,” which is scheduled to shoot on Oahu and Kauai in the summer.
“From what I understand, creatively people wanted to be here,” says Georja Skinner, administrator and film liaison for the Hawaii Film Office. “It’s closer to Burbank, with direct flights.”
Hawaii also has a substantial production infrastructure, with an experienced crew base bolstered by the presence of another Disney project, ABC’s “Lost,” which is conveniently wrapping its six-season run as “Pirates” ramps up preproduction. And the Aloha state tends to escape direct hits from hurricanes, an important consideration given that sets for the previous two “Pirates” sequels were destroyed when Hurricane Wilma blew through the Bahamas in October 2005.
But the tipping point in bringing “Pirates” to Hawaii might have been the potential for promotional cross-pollination with another venture.
“There’s a new Disney resort that will be opening here in 2011 around the time the film (premieres), called the Aulani Resort,” Skinner explains. For both Disney and Hawaii, “there are opportunities to promote the destination where the film was shot.”
Such cross-pollination, however, is rarely what matters most.
Typically, producers are more concerned with other things — like basic issues such as the currency exchange rate, the wages paid under local union agreements and, crucially, whether the government offering the incentive can pay in a timely fashion, a factor that might have influenced producers considering Michigan as a locale.
The initial enthusiasm that greeted the announcement of Michigan’s generous incentive in April 2008 was subsequently dampened by rumors that the state is slow to pay. But that may have been caused by misunderstanding of how the program works, according to Ed Spiegel, president of the payroll company Cast & Crew Services, which also offers incentive consulting for its clients.
“People are saying, ‘So-and-so hasn’t been paid yet; it’s been six months,’ ” Spiegel says. “Well, if you’re a corporate taxpayer and you filmed a movie in 2008, your corporate tax return isn’t due until March 2009, and most of them are going to file a six-month extension. It’s not a rebate state where you just submit the (paperwork) to a department and they cut a check right there.”
Failure to heed the fine print in Australian incentive regulations nearly cost the producers of Summit Entertainment’s “Knowing” upward of $10 million. The standard rebate for foreign productions shooting Down Under is only 15%, but co-writer/director Alex Proyas figured that, since he and the majority of the cast and crew were native Aussies, it would qualify as a homegrown production, entitling it to a 40% rebate. Then last year, after the $50 million film was completed, Screen Australia, which administers the rebate, announced it was only granting it a 15% credit, arguing that to get the full 40% a film needed to be created “from inception” by Australians. “Knowing,” which had been developed by a series of other writers and directors before Proyas got involved, didn’t qualify.
After Proyas went public with his complaints about the decision, the film was quietly granted the full 40% rebate.
Filmmakers also have to beware of content restrictions. In May, the Texas Film Commission refused to approve incentives for “Waco,” a proposed film about the 1993 raid on David Koresh’s Branch Davidian compound, because it was deemed in violation of a 2007 provision in the incentive law barring payments to movies that “portray Texas or Texans in a negative light.” Utah’s incentive has a similar clause.
The producers of “Waco” decided to take their project elsewhere, but some aren’t above altering their story lines to take advantage of an incentive.
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“Justified” |
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“What I’ve heard of from network executives is they can write a show about New York that’s shot in Toronto, but they can also have the writers change a show that’s written about New York and move its story to Boston,” says Stuart Suna, president of Silvercup Studios in Long Island City, which has been home to such TV shows as NBC’s “30 Rock” and HBO’s “The Sopranos.”
A studio is more likely to leave the story line intact and move the show wherever it can get the best deal. ABC’s New York-set “Ugly Betty” shot its pilot in the Big Apple in 2006, moved to Los Angeles for its first season, then in 2008 picked up and moved back to New York (and Silvercup) for its third season to take advantage of the state’s then-new 30% tax credit.
The loss of “Betty” finally pushed the California legislature to pass a production incentive package last year. It includes a 25% tax credit for “relocating” TV series, which helped draw the new Kentucky-set FX Western drama “Justified” to Santa Clarita, Calif., for its first season order, after shooting its pilot in and around Pittsburgh.
“They could’ve gotten the look they wanted in Georgia or Louisiana,” says Amy Lemisch, director of the California Film Commission. “They could’ve stayed in Pittsburgh. But they came here.” She adds, “Nine times out of 10, the producers would rather shoot here, because we have the crews and the infrastructure.”
Ironically, after years of moving around the world chasing the best deal, producer Elliott has come to the conclusion that the best place to shoot a really cheap film is, indeed right here in Hollywood, incentive or no incentive.
“Just hire a bunch of film students,” he says.
