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Fed’s big tax bill pays for indies

Producers of small-budget pix can write off costs in a single year

For the DGA, an awards ceremony filled with small-budget features shot in the U.S. follows a year in which the guild led a successful lobbying effort for federal tax breaks that directly benefit just these types of films.

In October, as part of the $136 billion corporate tax break signed into law by President Bush, provisions were put into the tax code to attract investment for films budgeted at or below $15 million.

The Directors Guild of America was instrumental in the inclusion of these provisions, spearheading the Runaway Production Alliance — a lobbying coalition of unions, producer organizations and other Hollywood interests — which has worked five years to move the legislation through Congress.

Starting this year, producers of small-budget films shot primarily in the U.S. can write off their costs in a single year — an advantage for investors over previous tax code, which mandated they amortize such a write-off over several years.

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Films similar in profile to Alexander Payne’s DGA Award-nominated “Sideways” — shot in California’s Santa Ynez wine country last year at a cost of $14 million — will benefit from such a bill.

Films with slightly higher budgets — up to $20 million –qualify if they are made in areas designated as economically distressed.

There has been some concern within the entertainment investment community as to whether Congress will keep all of the provisions intact.

On Jan. 18, entertainment tax attorney Schuyler Moore told Variety that Congress’ Joint Committee on Taxation now believes several provisions resulted from oversights that need to be corrected.

Moore said one such alleged oversight allows investors who sell a film to be taxed at the 15% capital gains rate as opposed to a 35% income tax rate.

A DGA spokesman dismisses Moore’s concern as a “misinterpretation” of the language of the new provisions. He says there was never any intent on either the part of Congress or lobbyists for the provisions to include any elements pertaining to capital gains. If such provisions exist, he adds, it’s not because the Runaway Production Alliance lobbied for them.

“Nobody ever asked for changes to capital gains,” the DGA spokesman says.

A House Ways and Means Committee spokesman told Variety it couldn’t comment on any legislation being considered — or re-considered, for that matter. Congress might officially comment on the matter in February, when it starts dealing with the myriad technical corrections bills that always come along with such a huge piece of legislation.

For now, the DGA is going about educating its members about new tax incentives it says are on the books to stay.

In mid-January, the guild held a two-day session featuring accountants briefing directors on how the new laws work and their various complexities. Director Taylor Hackford, who chairs the DGA’s political action committee, keynoted.

“I’m confident that the combination of state and federal incentives will help to narrow the margin between shooting at home or abroad,” he said.

Hackford should know. His biopic “Ray” — nominated in the DGA’s feature category this year — was filmed primarily in Louisiana, which offers state income-tax credits of up to 15% to investors in pictures made in-state, as well as a credit of up to 20% in payroll expenses and a sales-tax exemption for projects over $250,000.

Indeed, the new federal breaks become even more attractive when they’re leveraged along with lucrative tax incentives on the state level — other states with such breaks include New Mexico, Illinois and Arkansas.

In New Mexico, for example, Warner Independent Pictures’ “Around the Bend” took advantage of a 15% tax break on all money spent in the state last year. Additionally, the film — which stars Christopher Walken and Michael Caine — was able to shoot at no cost in government-owned facilities, including a shuttered mental hospital in Albuquerque.

Count in New York City, too. It has a new 15% tax incentive — 10% from the state and 5% from the city — that also got strong backing from the DGA.

When the federal and state incentives are combined, it’s now possible for a qualifying film’s budget to be cut by about a quarter.