Film Production Activity Tax Credit Report 2014
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Maryland Film Production Activity Tax Credit Annual Report Pursuant to Tax General Article §10-730 Submitted by Maryland Department of Business and Economic Development December 2014 Maryland Film Production Activity Tax Credit Overview CH 516 Acts of 2011 created the Film Production Activity Tax Credit (Film Tax Credit). The Act repealed the existing Film Production Rebate Program and replaced it with a tax credit for qualified direct costs of qualified film production activities including feature films and television series. Under the Film Tax Credit, the Department of Business and Economic Development (DBED) could award a maximum of $7.5 million in credits, in each fiscal year, beginning in FY 2012 through FY 2014. Qualifying production activities were eligible for a tax credit of up to 25% of the qualified direct costs for a feature film and 27% for a television series. If the amount of the tax credit exceeded the total tax liability in the tax year, the entity could claim a refund in the amount of the excess. The Act became effective on July 1, 2011 with a sunset date of June 30, 2014. A total of $22.5M ($7.5 per FY) in tax credits was available for FYs 2012 through 2014. All of those tax credits were committed to six productions by January 2012 to: House of Cards – Season 1; VEEP – Seasons 1 & 2; Jamesy Boy; Better Living through Chemistry; and, Ping Pong Summer. In order to retain the filming of the two television series House of Cards and VEEP in Maryland, CH 28 Acts of 2013 increased the Film Tax Credit by $32.5M over three years and extended the sunset through FY 2016. All of the tax credits were committed by the end of the first day DBED began accepting applications (April 17, 2013). Those credits were committed to House of Cards – Season 2 and VEEP – Seasons 3 & 4, with some credits left over to attract the HBO film, The Immortal Life of Henrietta Lacks. In August 2013, HBO informed DBED that the production on this film had been pushed back indefinitely and DBED withdrew its commitment of $4 million in tax credits. Once the funds were released, DBED encumbered those credits toward House of Cards – Season 3. During the 2014 legislative session, House Bill 520 Business and Economic Development – Film Production Activity Tax Credit Program was introduced to increase the amount of tax credits the Secretary may issue in FY 2015 by $3.5 million from $7.5 million to $11 million. Senate Bill 1051 Business and Economic Development – Film Production Activity Tax Credit Program was introduced and proposed an increase of $11 million from $7.5 million to $18.5 million. Both bills passed with amendments but failed to pass before the end of the legislative session. SB172 - the Budget Reconciliation and Financing Act - authorized funds from the Economic Development Opportunities Fund (Sunny Day) and Special Fund for Preservation of Cultural Arts to provide $7.5 million in grants to enhance the Film Tax Credit. Page 1 of 4 Specifics Tax General Article § 10-730 requires DBED to report on specific data before January 1 of each year: (1) the number of film production entities submitting applications; (2) the number and amount of tax credit certificates issued; (3) the number of local technicians, actors, and extras hired for film production activity during the reporting period; (4) a list of companies doing business in the State, including hotels, that directly provided goods or services for film production activity during the reporting period; and (5) any other information that indicates the economic benefits to the State resulting from film production activity during the reporting period. Two applications for tax credits were received in 2014 - one from HBO on April 14, 2014, for VEEP – Season 4 and one from MRC on January 24, 2014, for House of Cards – Season 3. Both HBO and MRC submitted letters of intent to DBED in 2013 to film subsequent seasons in the State in order to reserve tax credits for additional seasons. Based on the timing of their letters of intent and other applications, $7,429,091 in tax credits were reserved for VEEP – Season 4, but there were no credits available for MRC. However, in August 2013, HBO informed DBED that production on its film, The Immortal Life of Henrietta Lacks, had been delayed. DBED withdrew its commitment of $4M in tax credits and encumbered those credits for House of Cards – Season 3. As all tax credits had been committed, no other applications were received in CY 2014. Attached is a summary (Appendix A - Maryland Film Production Activity Tax Credit Recipients FY 2012-FY 2016) outlining those tax credits that closed in CY 2014, as well as the tax credits that are currently encumbered through FY 2016. All productions have been qualified and approved to receive a tax credit and have either been issued a final tax credit certificate, a preliminary tax credit certificate or a letter of intent indicating the maximum amount of tax credits for which the company is eligible and the fiscal year from which those credits will be drawn. In addition, the chart includes the projected spend, the estimated hires and the estimated number of local businesses impacted for each company. This information is taken directly from the applications for tax credit submitted by the production companies or projected from prior seasons of the production. The final tax credit amount will be determined based on the company’s actual qualified direct spend after the conclusion of the film production activity in the State and the State’s review of all their closing documentation, including a Report on Agreed Upon Procedures by an independent CPA. Two production companies were issued Final Tax Credit Certificates during CY 2014: 1) VEEP – Season 2 completed 51 days of filming on March 23, 2013 and submitted their final application for tax credit along with all of their closing documentation (including a Report on Agreed Upon Procedures by an independent CPA) on December 13, 2013. The materials were reviewed by Maryland Film Office (MFO) staff and a final tax credit Page 2 of 4 certificate was issued on March 14, 2014. VEEP – Season 2 received a tax credit of $5,415,019 and had an economic impact of $39.5 million.* The production hired 215 local technicians and 864 local actors/extras. In addition the production company provided business for 1,033 local Maryland businesses, vendors and contractors. Attached is a copy of the vendor list for VEEP – Season 2. (Appendix B - VEEP – Season 2 Vendor List). 2) House of Cards – Season 2 completed 135 days of filming on November 8, 2013, and submitted their final application for tax credit along with all of their closing documentation (including a Report on Agreed Upon Procedures by an independent CPA) on June 30, 2014. The materials were reviewed by MFO staff and a final tax credit certificate was issued on August 6, 2014. House of Cards – Season 2 received a tax credit of $14,397,625.61 and had an economic impact of over $93.2 million.* The production hired 341 local technicians and 1,280 local actors/extras. In addition the production company provided business for 3,085 local Maryland businesses, vendors and contractors. Attached is a copy of the vendor list for House of Cards – Season 2. (Appendix C – House of Cards – Season 2 Vendor List). Only one production, VEEP – Season 3, completed production in CY 2014. Filming wrapped on February 8, 2014 and their final application for tax credit along with all of their closing documentation was submitted on October 27, 2014. The final application and supporting materials are currently under review by MFO staff. As of December 2014, two productions, VEEP – Season 4 and House of Cards – Season 3, were still filming in the State. House of Cards – Season 3 is expected to finish filming at the end of December 2014, while VEEP – Season 4 is scheduled to conclude filming in early January 2015. The MFO expects to receive the final application for certification and all closing documentation from House of Cards – Season 3 sometime around June 2015 and from VEEP – Season 4 in 4th quarter of CY 2015. In February 2014, the Regional Economic Studies Institute of Towson University (RESI) released a study analyzing the impact of Maryland’s Film Industry Tax Credit for Maryland Film Industry Coalition (MFIC). RESI assessed the current tax credit policy for productions that had finished filming in the State of Maryland. The report found that for every dollar claimed in film tax credits, Maryland gains $1.03 in total tax revenues and $3.69 in economic output. Attached is a copy of the study. (Appendix D – MFIC impact analysis FINAL) Further information regarding the Maryland Film Production Activity Tax Credit process can be found on the MFO website at: http://www.marylandfilm.org/FilmProductionEmploymentAct.html * A new multiplier went into effect as of January 1, 2014. Previous film industry analyses calculated a multiplier of 2.17 to estimate the total effect that film industry spending has on the Maryland economy. The most recent study calculated a slightly lower multiplier of 1.7. Both of these multipliers were calculated using IMPLAN, an industry-recognized economic modeling software package. The revised multiplier was calculated using updated IMPLAN data. Page 3 of 4 Appendix A - Film Tax Credit - Report 2014 APP A - Maryland Film Production Activity Tax Credit Recipients FY 2012-FY 2016 Appendix B - Film Tax Credit - Report 2014 APP B - VEEP – Season 2 Vendor List Appendix C - Film Tax Credit - Report 2014 APP C - House of Cards – Season 2 Vendor List Appendix D – Film Tax Credit - Report 2014 App D - MFIC impact analysis FINAL Page 4 of 4 MARYLAND FILM PRODUCTION ACTIVITY TAX CREDIT RECIPIENTS (FY2012 - FY2016 ) CERT TYPE & PRODUCTION ECONOMIC NO.