A favorite Hollywood tax break could be curtailed as part of a surprise deficit-cutting plan sponsored by House Ways & Means Committee chairman Bill Archer (R-Texas).
A committee source said the Archer plan will force studios to adjust what’s known as the “income forecast method” of accounting for taxation of films and TV programs. The change in tax law would result in a slower depreciation of pics and TV shows, and could cost the industry as much as $400 million over seven years, according to one staff aide.
Archer’s proposal – the details of which still had not been released at press time – is part of a bid to close $30 billion in tax loopholes that critics have labeled “corporate welfare.”
Under the current method of accounting, Hollywood is permitted to postpone the “speculative” revenue studios might derive from a film or TV program some 10 years after its initial release, according to George Smith, VP and general tax counsel for MCA Inc.
Sources said Archer’s plan will require studios to estimate upfront a film or TV show’s revenues from future ancillary markets, resulting in higher tax payments in earlier years.
“This forces us to estimate income that we don’t know exists,” said Smith. “It forces us to prepay tax on income that has not yet been realized.”
Smith could not put a figure on how much the Archer plan will cost Hollywood. “It’s fair to say this is substantial to the industry, and it’s unfortunate,” he said.
Another Hollywood source conceded the industry “may take a hit, but we’re not the only ones who will be hit. They (the committee) have to raise $30 billion.”
Blocking the Archer plan probably will prove more difficult this time around, in part because House Speaker Newt Gingrich (R-Ga.) reportedly has signed off on the loophole-closing plan.
An MPAA spokesman said, “Until we read the details of congressman Archer’s plan, it will be hard to calculate its impact.”