Refundable, Transferable, Rebate...What Does It All Mean?!?!
Unraveling the confusing lingo behind production incentives
If you’re new to media production incentives, your first thought might be, “Wow! I get how much of my budget back?!? Ca-ching!”
Then you start digging into the details…SO many details. It’s enough to cause anyone without an accounting degree to go running for the hills.
I’m often asked about the difference between the types of production incentives offered. I’ll caveat that I’m no accountant, but I can offer a basic breakdown of the four main types of production incentives you’ll encounter and what they mean for your production.
REBATE
These are the holy grail of production incentives (note: some places have grants, which are similar). It’s straight-up cash that the jurisdiction will pay to a production entity (generally a percentage of qualifying spend in the jurisdiction). Because this type of incentive is not contingent on filing a tax return, they generally pay out quickly—sometimes in less than three months. Malta, Mongolia, Morocco, Mississippi, and Minnesota all offer production rebates. And lest you think it’s just an “M” thing, so does Colorado—and various types of unscripted content qualify in all of them, too.
REFUNDABLE TAX CREDIT
These are also pretty juicy. Basically, the production entity files a return in the state, and any amount of credit above and beyond their tax liability will come back in the form of a cash refund. If the production entity has no tax liability, upon filing, they’ll receive a rebate in the full amount. Hawaii and New Mexico are just two US states that offer refundable tax credits, and as above, various types of unscripted content qualify. Keep in mind, however, that depending on the timeline for filing a return, you may not see your cash for over a year.
TRANSFERABLE TAX CREDIT
Transferable tax credits require a little more legwork. The full value of the credit can be applied against the production entity’s tax liability in the jurisdiction OR – if they have no tax liability - the credit can be sold on the open market, usually at a discount.
There’s often a decent market for these credits (for the buyer, it’s like buying a discount on your tax bill), and broker services to handle the transactions. If you simply sell the credit, you’ll likely get your cash faster than you would with a refundable tax credit, since you don’t have to wait to file a return.
One point of caution: if you know you’ll be selling/transfering a tax credit, be sure to factor the discount rate into your accounting, or you might be surprised when that million-dollar incentive your were counting on turns out to yield only $900K. The Dominican Republic and US state of Georgia offer transferable tax credits, and unscripted qualifies.
NON TRANSFERABLE, NON REFUNDABLE TAX CREDIT
These are the most restrictive, as the production entity can only apply the credit against their own tax liability. Often, if the amount of the credit exceeds the company’s tax burden, they can carry the credit forward and apply it to their tax bill for a given number of years. The downside is that the production entity might not recoup the full value of the credit for several years. This type of credit is less common, however.
Note that some jurisdictions offer additional non-traditional incentives, like exemptions on hotel, sales & use taxes or waivers on permit fees. It’s always worth asking what might be available.
That wasn’t so bad, right? As always, there are often plenty of caveats when it comes to production incentives, including minimum spend requirements, hiring requirements, application deadlines and more. Some states require out-of-state production companies to register and for out-of-state crew to pay local payroll taxes in order to receive their incentive. Audits are generally required, and they’re *not* free. A (real) production accountant can help you determine if these additional costs negate the value of an incentive for your production.
Still confused? Don’t worry! We can help you make sense of it all!
For more details on US and international incentives and how you can tailor your development strategy to best take advantage of them, drop Carrie a line at carrie@globalcontentstrategies.com. Or let us know what topics you’d like to see covered in an upcoming issue.
Film commissions: Would you like to be profiled in an upcoming Production Incentives Insider? Reach out!