The Basics of Financing your Independent Film with Tax Incentives
Most filmmakers simply chase equity in order to finance their films. However, most investors don’t want to shoulder the financial risk involved in a film alone. That’s where tax incentives for independent film can come in and help to close the gap. But proper use of tax incentives for independent film financing is somewhat complicated. Here’s a primer to get you started.
Cities, States, Regions, and countries can have tax incentives
First of all, it’s important to understand that most forms of government can issue a tax incentive. In the US, the biggest and best incentives generally (but not always) come from states, however many cities, counties, and regions may supplement those incentives with smaller Internationally, many countries also provide some level of subsidy.
Europe Tends to provide better tax incentives than the US.
From the standpoint of the federal government, most European countries are much better about independent film subsidies than the US. Most of the time, these incentives take the form of co-production funding, but it’s relatively common for film commissions to provide grants to help promote the arts among their citizens.
This is particularly notable given that citizens of EU Member States can strategically stack incentives in a way that the majority of your film is financed via government subsidies. If, like me, you are based out of the United States, that’s just not possible due to the structure of most tax incentives.
There’s normally a minimum spend.
Especially in the US, there’s generally a fairly hefty minimum spend to qualify for a tax incentive. In some states that spending can start around 1 million dollars for out-of-state productions. Some states offer a lower cap for productions helmed by residents of the state.
There’s generally a minimum percentage of the total film budget needing to be shot there.
Most of the time you’ll only be eligible for a tax incentive if you shoot a certain percentage of your film or spend a certain percentage of your budget in a given territory. These can vary widely from territory to territory so look at the first place.
It’s normally not cash upfront
Unless you’re getting a grant from whatever film commission you’re shooting in, you’re probably just going to get a piece of paper that will state that you will be audited after the production and paid out according to the results of the audit. There are generally a few different ways that a tax incentive can be structured, but we’ll touch on those next week.
You need to plan for monetizing it.
In general, you’ll either end up selling the tax incentive for a percentage of its total value to a company with a high tax liability in your state, or you’ll have to take out a loan against your tax incentive in order to get the money you need to make the film. Both of these incur some level of cost which is different depending on which state you’re shooting in.
For example, Georgia and Nevada both have transferrable tax credits. Due to the large amount of productions going on in Georgia on a pretty much constant basis, the transferrable tax credit often monetizes at around 60% of face value. Nevada on the other hand has relatively few productions and many casinos that have very high tax burdens. As a result, the tax incentive in Nevada tends to monetize at around 90%. That said, there is presumably a more tested, experienced crew in Georgia than in certain parts of Nevada, of course, the film commission will tell you differently.
Not everything is covered
Not every expense for your film is covered. Exactly what is covered can vary widely from state to state, but in general only expenses that directly benefit the economy of the state are covered. There are often exceptions. One common exception is some mechanism to allow recognizable name talent to either be included in a covered expenditure or at least exempted from minimum thresholds of state expenditures.
Most of the time, high pay for above-the-line positions such as out-of-state recognizable name talent or directors are not covered covered by tax incentives. However, there are a few states that allow it. I talk a lot about it in this Movie Moolah Podcast with Jesus Sifuentes, linked below.
Related Podcast: MMP:003 Non-Traditional Investors & Maximizing Tax Incentives W/ Jesus Sifuentes
Not every program is adequately funded
Many film programs have a “cap” If that cap is too low, the money can be gone before the demand for the money is. Some states have the opposite problem.
Communicating with the film commission pays dividends long term
In general, the film commissions I’ve talked to are extremely friendly and easy to talk to. However, many times these commissions lose touch with the filmmakers they’re supporting shortly after they shoot. This isn’t necessarily a good thing, as most film commissions have significant reach into the greater film community and other aspects of local government. If you make sure they stay up to date as to what’s going on with your project you may find yourself getting help from unexpected places.
Also, if this is all a bit complicated, you should check out this new mentorship program I’ve started to help self-motivated filmmakers get additional resources as well as get their questions answered by someone working in the field. It’s more affordable than you may think. Check out my services page for more information.
If you’re not there yet, grab my free film Business Resource package. It’s got a lot of goodies ranging from a free e-book, free white paper, an investment deck template, and more. Grab it at the button below.
