Space was a little tight in Sunday’s paper, so a few details were cut from the paper version of my story on film incentives in Oklahoma. Below the links to other background information is an expanded version of the story:
–View a presentation (5.5 MB) by the Oklahoma Film and Music Office on the state’s film rebate program.
Tax Commission Letters
(Note: The Tax Commission redacts the name and address of all recipients of private letter rulings. So far, Indion is the only company with permission to use the rural small business venture capital credit for film production.)
Tax credit to attract movie, TV production may hit cutting room floor
State film incentive faces cut
BY PAUL MONIES
A controversial tax credit used to produce films in Oklahoma like “The Killer Inside Me” faces an uncertain future as lawmakers take aim at state incentive programs.
Just one company, Tulsa’s Indion Entertainment Group, has qualified to take advantage of the rural small business venture capital tax credit for film production.
Indion’s owner, Chad Burris, said six films, including “The Killer Inside Me,” have used the tax credits to provide financing. Another four films are expected to begin shooting by late summer.
But the films in the pipeline face an uncertain future after Gov. Brad Henry’s budget proposal recommended elimination of that tax credit. The budget projected additional revenue of $37.4 million if the tax credit is eliminated.
Burris said he is notifying investors and producers about the possible elimination of the tax credit, which provides cash financing of 12 percent of a production budget.
“There are a few big movies that have been working for many months prepping to bring large productions here to this state, founded in large part on the belief that Indion will be investing,” Burris said in an e-mail. “Producers will not risk taking a movie somewhere if the incentive may go away once they arrive.”
Indion’s tax credit is separate from the state’s film rebate program. Lawmakers last year increased the film rebate to 35 percent, up from 15 percent. Producers can get an additional 2 percent rebate if they use Oklahoma music in their films. The state put a cap on the film rebate at $5 million per year.
There are no barriers against producers using both the tax credits and cash rebates to finance films made in the state. The combination of those incentives can help defray up to 49 percent of the qualified expenses of movies and TV shows shot in Oklahoma.
Jill Simpson, director of the Oklahoma Film and Music Office, said producers for “The Killer Inside Me” planned to shoot in New Mexico and Texas.
“At first blush, they were going to take everything to New Mexico except for a couple of locations,” Simpson said. “We just kept after them and kept after them. What we had to offer was customer service, so if they ask for one location, we gave them 10 options.”
That effort paid off for Oklahoma, Simpson said. The production spent almost $3 million in the state last summer on hotels, labor, equipment and other expenses. In return, producers of “The Killer Inside Me” stand to get a rebate payment of more than $440,000 in July.
Other projects that have qualified for the rebate include “Pearl” and the reality TV show “Extreme Makeover: Home Edition,” which has shot two episodes in Oklahoma this year.
Incentives for film production have become increasingly competitive in the last decade. In 2002, Oklahoma was among just a handful of states that had some type of incentive to attract Hollywood productions and spur local filmmaking. That number has now grown to 44 states, according to a recent report by the Tax Foundation in Washington.
But incentives are being targeted nationwide as state legislatures deal with budget shortfalls and look for additional sources of revenue. New Mexico, which offers one of the country’s most generous film incentives, is contemplating an annual cap after granting film tax credits worth $82 million in fiscal year 2009. Iowa’s program was briefly suspended after an investigation showed a few producers were keeping Mercedes-Benz and Range Rover vehicles bought with that state’s film rebate money.
“Will they get rid of these things? I don’t know,” said Tony Popp, an economist at New Mexico State University who has studied film production incentives across the country. “Everybody’s taken with the glamour of it all.”
Even with New Mexico’s aggressive incentives, much of the post-production work on movies that shoot in the state is done back in Hollywood, Popp said. Effective incentive programs should also focus on growing filmmaking infrastructure like training programs, permanent production offices and soundstages, he said.
Private investors in New Mexico spent more than $74 million to build Albuquerque Studios, which opened in 2007. The cable TV drama “Breaking Bad” and the Denzel Washington movie “The Book of Eli” are among the productions shot at Albuquerque Studios.
In Oklahoma, the Film Office has held preliminary discussions with several Indian tribes about building a film studio, Simpson said. The state already has soundstages at Oklahoma City Community College, Tulsa and Broken Arrow.
“If we could get a TV series, with that kind of sustained production and on-the-job training, that is our dream scenario,” Simpson said. “When you start having sustained production, you start attracting permanent companies.”
Gray Frederickson, an Oscar-winning producer who is now Artist in Residence at Oklahoma City Community College, said Oklahomans aren’t yet jaded by film productions like they are in other states.
“That’s the great thing about Oklahoma,” Frederickson said. “The whole state is like a wonderful big back lot right now; the state bends over backwards to help you. We’re getting some good filmmakers in who can get some savings from the rebates.”
Simpson said she’s proud of the safeguards built into Oklahoma’s film rebate program. It has an annual cap of $5 million and audit requirements for producers. The Film Office also established rules to make sure producers meet deadlines for financing and production. Producers whose projects fail to secure financing in time are dropped from the program and can’t reapply until the next year.
“We want this program to be around for the long haul,” Simpson said. “We care about the taxpayers’ dollars. That’s our first priority, and I tell producers that when they come in.”
Tightening up tax credits?
Burris received approval from the Oklahoma Tax Commission to use the rural small business venture capital credit for film production in 2006. Burris and Simpson said the tax credits helped attract film production to Oklahoma while the state’s film rebate was at 15 percent and other states were offering more generous packages.
“The Indion investment made Oklahoma viable as a production state because it gave us just enough of a financial nudge to be considered along with New Mexico and Louisiana,” Burris said in an e-mail.
State Treasurer Scott Meacham said lawmakers have tried twice to tighten up the legislation that governs the small business and rural small business venture capital tax credits. He said those tax credits have been used for some good projects, such as hospitals. But they’ve also been subject to abuse because they lack defined cost-benefit analyses.
“Are we paying for some economic activity that would be going on anyway in our state?” Meacham asked. “We need to get back to the drawing board on these and put some mechanisms in place. But until we can get that done, we need to close the barn door.”
Meacham said the rural small business venture capital tax credit wasn’t really intended for temporary film production.
“This credit was really intended for permanent job production in the state of Oklahoma,” he said.
The Oklahoman’s Watchdog Team: Looking out for you. Visit http://www.newsok.com/watchdog.
Written by Paul Monies