The Palmetto Insider

The blog of the South Carolina Policy Council

State Budget Funnels Tax Breaks for Film Producers to Tourism Marketing

with one comment

As the House considers whether to concur with the Senate budget, one of the sticking points concerns just how large a tax break the state is going to continue to give the film industry (read: Army Wives, which films in Charleston).

If the House has its way, the incentives will reach 20 percent of aggregate payroll costs for film production companies. This is a 30 percent increase over and above what the state currently provides.

By comparison, the Senate budget directs (proviso 89.145) the state Department of Revenue to transfer $1.5 million from motion picture wage rebates to the South Carolina Conservation Bank. Additionally, the Senate version of the budget reduces proviso-based film incentives of 20 percent for wages and 30 percent on other expenditures to 15 percent for both.

In other words, state law already grants film companies an income tax break on up to 15 percent of aggregate payroll costs for persons subject to S.C. income tax (§ 12-62-50).The Senate budget does not nullify this handout – just nullifies the increase over and above what already exists.

Who pays for this rebate? Other taxpayers. The rebates are taken from the state’s General Fund.

Moreover, state law grants film companies a 100 percent state and local sales and use tax exemption.

As indicated, the House – via proviso 39.8 – also wants to double a separate tax break currently available to film producers. Under current law, the S.C. Film Commission may rebate up to 15 percent of total expenditures (excepting payroll) to qualified film producers. Proviso 39.8 would double this tax break to 30 percent.

Who pays for this? Again, other taxpayers. The rebate comes from an admissions tax of 5 percent applied to theatres, golf courses, and similar venues.

Now, if things were as simple as all that, we would point out that film incentives simply don’t work. As we’ve written here, here, here and here. As demonstrated in Unleashing Capitalism, handing out rebates to the film industry does not lead to long-term economic growth. In fact, these incentives “generate a net loss in revenue equal to 81 percent of expenditures on rebates.”

What does that mean? Well, if the state provides $1 to a film company, that $1 must be taken from the General Fund. But the state’s return on that $1 is only 19 cents. Several other states have made similar estimates that show the government/taxpayers suffer a net loss on film incentives.

Now, whether the General Assembly realizes film incentives don’t work is an interesting question. In any event, they seem intent on using money set aside for film incentives on other things — thus, tacitly acknowledging that these film incentives aren’t all they’re being made out to be.

As House leaders balk at the Senate lowering tax breaks for film producers, both the House and Senate plan to raid the Motion Picture Rebate Fund to use on the Destination Specific Tourism Program.

Thus reads proviso 39.12, which remains intact in both budgets:

39.12.      (PRT: Destination Specific Tourism Transfer)  From the funds set aside pursuant to the Motion Picture Incentive Wage Rebate, for Fiscal Year 2010-11 unexpended funds carried forward from the prior fiscal year shall be transferred from the Department of Revenue to the Department of Parks, Recreation and Tourism and utilized for the Destination Specific Tourism Program.  These funds shall be carried forward from the prior fiscal year into the current fiscal year and be expended for the same purpose.

The Motion Picture Rebate Fund is set to receive $10 million for FY10-2011 – the same amount allocated to the tourism marketing program last year.

Again, who pays? You do – via that 5 percent admissions tax.

Such budget games illustrate why we need real budget reform – especially regarding the use of Other Funds.

They also show that not only taxpayers, but even special interests, need to be vigilant when it comes to deciphering the state budget. It truly is a shell game.

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Written by Robert Appel

May 12, 2010 at 11:17 am

One Response

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  1. […] 18, 2010 8:18 am As we’ve written, one of the current sticking points between the House and Senate budgets concerns film […]


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