taxgirl

New Orleans Saints Players Involved in Tax Credit Loss

Kelly — Sun, 05 Jul 2009 12:07:21 +0000

As previously blogged, film tax credits may be popular in many states, but in Louisiana, there are at least 27 members of the NFL’s New Orleans Saints who are not yet ready for their close up.

A number of people associated with the team including Kevin Houser, Drew Brees, Sean Payton, Archie Manning (dad to Peyton and Elijah), Charles Grant, Mitch Berger and Jeremy Shockey made investments totaling nearly $2 million by purchasing state film industry tax credits from Louisiana Film Studios. The studios boasts such projects as Meet the Spartans (2008, with Carmen Electra, Method Man and Sean Maguire), Cirque du Freak (2010 release, with Sean Reilly, Salma Hayek, Willem Dafoe and Jane Krakowski), The Expendables (2010 release, with Sylvester Stallone and Jet Li) and Dead of Night (2009, with Taye Diggs and Jason Routh) on their web site.

The investments were to be used as part of an expansion of the film studios, providing more than 500,000 square feet of space for movie sets, soundstages and other film production work. Those who invested in the expansion were expecting a return on their investment in the expansion after tax credits were obtained by the company.

The problem? Louisiana Film Studios never made application to the state of Louisiana for the credits. According to the director of the Office of Entertainment Industry Development, “They never submitted the required documents to receive tax credits.”

Is it a scheme or just bad judgment? Law investment officials have been reportedly been asking questions about the investments but the FBI has refused to “confirm or deny” their involvement. In the meantime, at least one of the players, Kevin Houser, is considering legal action against the company.Similar Posts:

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Life, Liberty and the Pursuit of Happiness

Kelly — Sat, 04 Jul 2009 12:39:36 +0000

I was thinking this morning about what to write today about the 4th of July. I was sure that I could come up with something brilliant and pithy about how important the day is to all Americans. And then I realized that it had all been said, much better than I could ever say, almost three hundred years ago. So follows is the text of the Declaration of Independence.

When, in the course of human events, it becomes necessary for one people to dissolve the political bonds which have connected them with another, and to assume among the powers of the earth, the separate and equal station to which the laws of nature and of nature’s God entitle them, a decent respect to the opinions of mankind requires that they should declare the causes which impel them to the separation.

We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable rights, that among these are life, liberty and the pursuit of happiness. That to secure these rights, governments are instituted among men, deriving their just powers from the consent of the governed. That whenever any form of government becomes destructive to these ends, it is the right of the people to alter or to abolish it, and to institute new government, laying its foundation on such principles and organizing its powers in such form, as to them shall seem most likely to effect their safety and happiness. Prudence, indeed, will dictate that governments long established should not be changed for light and transient causes; and accordingly all experience hath shown that mankind are more disposed to suffer, while evils are sufferable, than to right themselves by abolishing the forms to which they are accustomed. But when a long train of abuses and usurpations, pursuing invariably the same object evinces a design to reduce them under absolute despotism, it is their right, it is their duty, to throw off such government, and to provide new guards for their future security. –Such has been the patient sufferance of these colonies; and such is now the necessity which constrains them to alter their former systems of government. The history of the present King of Great Britain is a history of repeated injuries and usurpations, all having in direct object the establishment of an absolute tyranny over these states. To prove this, let facts be submitted to a candid world.

He has refused his assent to laws, the most wholesome and necessary for the public good.

He has forbidden his governors to pass laws of immediate and pressing importance, unless suspended in their operation till his assent should be obtained; and when so suspended, he has utterly neglected to attend to them.

He has refused to pass other laws for the accommodation of large districts of people, unless those people would relinquish the right of representation in the legislature, a right inestimable to them and formidable to tyrants only.

He has called together legislative bodies at places unusual, uncomfortable, and distant from the depository of their public records, for the sole purpose of fatiguing them into compliance with his measures.

He has dissolved representative houses repeatedly, for opposing with manly firmness his invasions on the rights of the people.

He has refused for a long time, after such dissolutions, to cause others to be elected; whereby the legislative powers, incapable of annihilation, have returned to the people at large for their exercise; the state remaining in the meantime exposed to all the dangers of invasion from without, and convulsions within.

He has endeavored to prevent the population of these states; for that purpose obstructing the laws for naturalization of foreigners; refusing to pass others to encourage their migration hither, and raising the conditions of new appropriations of lands.

He has obstructed the administration of justice, by refusing his assent to laws for establishing judiciary powers.

He has made judges dependent on his will alone, for the tenure of their offices, and the amount and payment of their salaries.

He has erected a multitude of new offices, and sent hither swarms of officers to harass our people, and eat out their substance.

He has kept among us, in times of peace, standing armies without the consent of our legislature.

He has affected to render the military independent of and superior to civil power.

He has combined with others to subject us to a jurisdiction foreign to our constitution, and unacknowledged by our laws; giving his assent to their acts of pretended legislation:

For quartering large bodies of armed troops among us:

For protecting them, by mock trial, from punishment for any murders which they should commit on the inhabitants of these states:

For cutting off our trade with all parts of the world:

For imposing taxes on us without our consent:

For depriving us in many cases, of the benefits of trial by jury:

For transporting us beyond seas to be tried for pretended offenses:

For abolishing the free system of English laws in a neighboring province, establishing therein an arbitrary government, and enlarging its boundaries so as to render it at once an example and fit instrument for introducing the same absolute rule in these colonies:

For taking away our charters, abolishing our most valuable laws, and altering fundamentally the forms of our governments:

For suspending our own legislatures, and declaring themselves invested with power to legislate for us in all cases whatsoever.

He has abdicated government here, by declaring us out of his protection and waging war against us.

He has plundered our seas, ravaged our coasts, burned our towns, and destroyed the lives of our people.

He is at this time transporting large armies of foreign mercenaries to complete the works of death, desolation and tyranny, already begun with circumstances of cruelty and perfidy scarcely paralleled in the most barbarous ages, and totally unworthy the head of a civilized nation.

He has constrained our fellow citizens taken captive on the high seas to bear arms against their country, to become the executioners of their friends and brethren, or to fall themselves by their hands.

He has excited domestic insurrections amongst us, and has endeavored to bring on the inhabitants of our frontiers, the merciless Indian savages, whose known rule of warfare, is undistinguished destruction of all ages, sexes and conditions.

In every stage of these oppressions we have petitioned for redress in the most humble terms: our repeated petitions have been answered only by repeated injury. A prince, whose character is thus marked by every act which may define a tyrant, is unfit to be the ruler of a free people.

Nor have we been wanting in attention to our British brethren. We have warned them from time to time of attempts by their legislature to extend an unwarrantable jurisdiction over us. We have reminded them of the circumstances of our emigration and settlement here. We have appealed to their native justice and magnanimity, and we have conjured them by the ties of our common kindred to disavow these usurpations, which, would inevitably interrupt our connections and correspondence. They too have been deaf to the voice of justice and of consanguinity. We must, therefore, acquiesce in the necessity, which denounces our separation, and hold them, as we hold the rest of mankind, enemies in war, in peace friends.

We, therefore, the representatives of the United States of America, in General Congress, assembled, appealing to the Supreme Judge of the world for the rectitude of our intentions, do, in the name, and by the authority of the good people of these colonies, solemnly publish and declare, that these united colonies are, and of right ought to be free and independent states; that they are absolved from all allegiance to the British Crown, and that all political connection between them and the state of Great Britain, is and ought to be totally dissolved; and that as free and independent states, they have full power to levy war, conclude peace, contract alliances, establish commerce, and to do all other acts and things which independent states may of right do. And for the support of this declaration, with a firm reliance on the protection of Divine Providence, we mutually pledge to each other our lives, our fortunes and our sacred honor.

Enjoy your day and God Bless America.Similar Posts:

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Taxing Health Care Benefits

Kelly — Fri, 03 Jul 2009 15:39:35 +0000

Ever since President Obama raised the idea of taxing health care benefits, I’ve been asked what I think about the plan. Specifically, I’ve received a number of emails which more or less ask three questions:

How would it work?
Do I think it’s fair?
Do I like it?

I’m happy to oblige. But first, some history.

This idea of taxing health care benefits is nothing new. In fact, Senator John McCain put forth a similar proposal when he was running for President. At the time, the idea was widely criticized as damaging to working Americans. But, of course, even last summer, most Americans were blissfully (or perhaps not so much) unaware of the economic crisis that was brewing.

Jump ahead to today’s economic climate. Unemployment is up. Tax revenue is down. Government expenditures are up. The percentage of employers offering full benefits, including health insurance, is down.

And suddenly, that idea from more than a year ago doesn’t look so bad to many Congressional officials. Go figure.

So now, the proposal is not only back on the table, it’s back in a big way: it’s actually making its way through Congress.

So what’s the basic idea? Put simply, it would characterize employer-provided health insurance benefits as taxable. So, for example, to the extent that your employer pays a portion – or all – of your health insurance benefits, that portion would be reportable as taxable income on your form W-2 at the end of the year. To the extent that you pay a portion – or all – of your health insurance costs yourself, that portion is not taxable.

Sounds pretty simple, right?

That’s the answer to the first question.

Now, to the second: do I think it’s fair?

Actually, I do. Health insurance is a massive benefit not provided to all employees. It’s a perk. And a substantial one. If taxed, health care benefits are estimated to be worth nearly $246 billion in revenue – that’s nearly ten times the entire revenues of the state of Pennsylvania alone.

Let’s compare two employees, each nearly identical. One employee makes $50,000 per year and receives health insurance benefits of $4,700/year paid by her employer. The other employee makes $50,000 per year and pays her own health insurance costs of $4,700/year.

(Those figures are based upon the following statistics: In 2008, the annual premium for an employer health plan covering a family of four averaged nearly $12,700. The annual premium for single coverage averaged over $4,700. Median income in the US was approximately $50,000.)

What’s the difference?

Assuming a 20% tax rate (for easy math), here’s the breakdown:

The first employee has $4,700 health insurance benefit tax-free and walks away with $40,000 in cash ($50,000 – 20% tax on $50,000).

The second employee walks away with $35,300 in cash ($50,000 – 20% tax on $50,000 = $40,000 – $4,700 in health insurance). Even worse, the employee may not be able to fully deduct the cost of the health insurance because she must first satisfy the medical expenses floor and then only if she itemizes. And, complicating matters, the cost of that insurance is likely much higher for the employee – individual rates are statistically much more expensive than corporate rates (I can personally attest to this – my husband and I save several hundreds of dollars per month by buying coverage through our firm).

Is that fair?

If employees were taxed on the health care benefit, here’s the breakdown:

The first employee now walks away with $39,060 ($50,000 – 20% tax on $54,700, the cost of salary plus benefits).

The second employee still walks away with $35,300 ($50,000 – 20% tax on $50,000 = $40,000 – $4,700 in health insurance).

Remarkably, in both examples, the first employee is better off than the second employee. In the second example, however, there’s a wee bit more parity. So, do I think taxing health benefits is fair? Yeah, I do. Because getting health insurance benefits tax free is, quite simply, the same as being paid more to begin with.

But almost everyone gets health insurance as a perk, right?

Actually, no. Nearly 80% of all businesses in the US are self-employed. (Source: US Census) That means that at least 80% of the US workforce provides their own health care benefits; it is not a company-sponsored benefit. Additionally, most small businesses are overwhelmingly sole proprietors, partnerships, LLCs, LLPs, or S corporations, each of which has restrictions on tax deductibility for health insurance.

Of the remaining businesses in the US who report having paid employees, 78% have fewer than 10 employees. (Source: US Census) The US is still very much driven by small business. And small business is paying a lot for health care. Many small businesses have been priced out of quality employees because of the cost of health care. Interestingly, making health care insurance taxable would make compensation packages as between smaller and larger businesses much more balanced.

So do I think taxing benefits is a fair proposal? Actually, I do.

Do I like it? That’s a totally different question. I’m not sure. I like the idea of it in theory but I think that the imposition of the tax would be akin to a slap in the face for many taxpayers. As a society, we’ve come to rely on those benefits as something that we’re entitled to, a perk that we deserve, something that no one should be able to touch. I think of it like the mortgage interest deduction, something that inherently and unfairly benefits a disproportionately small percentage of the population but something that US taxpayers have come to rely on when making lifestyle choices. The imposition of a tax on health care benefits might be an unexpected and unwelcome addition for taxpayers who have made choices about employment based on a benefits package that, up until recently, would have been tax advantageous.

It’s a politically dangerous – and potentially complicated – proposal. I happen to think it’s a step in the right direction, though. What do you think?
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BlogHer Ads and Load Times

Kelly — Thu, 02 Jul 2009 12:14:31 +0000

I’ve received some negative feedback about the video ads currently running on the BlogHer sidebar. Apparently, they are significantly slowing load times. I’ve contacted BlogHer and they will be removed shortly. As always, I truly appreciate your feedback, thanks for letting me know! Similar Posts:

Is Amazon.com Playing Favorites?

Kelly — Wed, 01 Jul 2009 17:58:29 +0000

Last year, New York decided to aggressively pursue a sales tax rule already on the books by expanding the definition of venue to include companies with affiliates physically present in the state. Many vendors, Amazon.com included, made a lot of noise about pulling their affiliate program; interestingly, Amazon.com didn’t go anywhere. They did, however, challenge the imposition of the tax and lost. A strongly worded opinion from the court noted that Amazon didn’t “even come close” in successfully arguing that the affiliate programs were merely advertising. At the time, I posited:

What does it all mean? I think there will be two significant outcomes:

1, Online retailers will begin to rethink the way that they do business with affiliates – especially in a tough economic climate.
2, Other states will jump on the bandwagon. California, anyone?

Sure enough, in May of this year, California began exploring ways to enforce collection of sales tax from online sales – clearly a wink at the existing New York victory. Curiously, Amazon.com has remained relatively quiet.

But of course. Those are, after all, the big boys. New York and California are two of the largest, wealthiest states. Pulling affiliate programs out of those states, in my opinion, would be dramatic and costly – especially considering that the tax wouldn’t come out of Amazon’s pocket.

But say you wanted to make a statement, fire a warning shot to other states that might be considering similar behavior… What would you do? If you were Amazon.com, maybe you’d start pulling your affiliate programs from smaller states.

Sure enough, in May of this year, many Amazon.com affiliates in North Carolina received this letter via email (provided to me from an affiliate):

We regret to inform you that the North Carolina state legislature (the General Assembly) appears ready to enact an unconstitutional tax collection scheme that would leave Amazon.com little choice but to end its relationships with North Carolina-based Associates. You are receiving this e-mail because our records indicate that you are an Amazon Associate and resident of North Carolina.

Please note that this is not an immediate termination notice and you are still a valued participant in the Associates Program. All referral fees earned on qualified traffic will continue to be paid as planned.

But because the new law is drafted to go into effect once enacted – which could happen in the next two weeks – we will have to terminate the participation of all North Carolina residents in the Amazon Associates program on or before that same day. After the termination day, we will no longer pay any referral fees for customers referred to Amazon.com or Endless.com nor will we accept new applications for the Associates program from North Carolina residents.

The unfortunate consequences of this legislation on North Carolina residents like you were explained in detail to key senators and representatives in Raleigh, including the leadership of the Senate, House, and both chambers’ finance committees. Other states, including Maryland, Minnesota, and Tennessee, considered nearly identical schemes, but rejected these proposals largely because of the adverse impact on their states’ residents.

The North Carolina General Assembly’s website is http://www.ncleg.net/ , and additional information may be obtained from the Performance Marketing Alliance at http://www.performancemarketingalliance.com/ .

We thank you for being part of the Amazon Associates program, and we will apprise you of the General Assembly’s action on this matter.

Unconstitutional, you say? A Manhattan Supreme Court judge sure didn’t think so.

When I asked via twitter for affiliates in North Carolina to comment on the proposed pull out, I received a number of similar responses. One commenter summed up the sentiment nicely:

I run several web sites that sell books. I’ve been working on these sites for 2 years now, building them up with good content. At the start of June, for the first time ever, I started seeing the fruits of my efforts. I started seeing a decent return coming in from my Amazon referral fees.

So you can imagine how devastated I am now that my account is closed. My account had close to 200 outstanding orders that hadn’t yet shipped yet when the account was closed. That’s money I’ll never see. On top of that, today I checked my account (as of this writing we can still login to our accounts) and discovered that several high priced electronics had been purchased through my link. You can imagine how this made me feel. Right now I’m sitting here with a throbbing headache – I think it’s stress-related.

I hope the NC legislature removes Section 27C.2 from the proposed budget bill. I’ve really enjoyed being an Amazon affiliate and don’t want the relationship to end.

North Carolina, for its part, isn’t backing down, just as New York held its ground. The online retailer maintains that the tax is constitutional. It’s interesting that Amazon.com has chosen to argue that it isn’t constitutional in the media but so far as I know, it hasn’t made that argument in a North Carolina court. Maybe, just maybe, it’s not an argument that Amazon.com thinks actually has much merit. But then, I’m just speculating.

With one state down, Amazon.com has forged on. The online giant also cut ties with Rhode Island and today, it just announced that it will cut affiliate ties with Hawaii.

Quite the powerhouse line up (with apologies to my readers in Rhode Island, Hawaii and North Carolina). Are you perhaps seeing a pattern?

I know, I know. Amazon.com surely has some wonderful explanation for its cherry picking. I’m sure of it. And I’d really love to hear it. Because otherwise it sounds like, well, you know… that some states are just a little more valuable to them than others.

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Getting to Know You Tuesday: Frank Santoro

Kelly — Wed, 01 Jul 2009 01:57:46 +0000

It’s Getting to Know You Tuesday! Today’s featured tax professional is Frank “Vinny the Body” Santoro. Frank describes himself as “Preacher’s Wife (on leave), Adoptive Parent, CPA, Libertarian, Musician, Amateur Theologian, Muckraker, Instrument Rated Pilot, Cancer Survivor and Know-It-All.”

Let’s get to the interview!

1. Where are you now?

At home on the couch, logging in to work via VPN. If it were last week I would have been switching back and forth between the White Sox game and “I’m a Celebrity…Get Me Out of Here!”

2. What’s your official title and what does it mean?

Manager, International Corporate Services, Really Big Accounting Firm, Chicago (new title effective 1 July). I suppose it’s pretty self explanatory; I was already managing people, projects, and client relationships before except now I will have a firm-supplied Crackberry, be on call outside of “working hours” and will never have to share a hotel room with a colleague at training ever again. I’m basically smack in the middle of the food chain.

3. What books are on your night stand?

Mostly a pile of New Yorker magazines to catch up on – I’m only 4 or 5 issues behind right now. That and “Devil in the White City” by Erik Larson, which I finished a few months back.

4. If you weren’t working in the tax profession, what would your dream job be?

Pilot or stay at home dad.

5. What’s the last movie that you saw (DVD or in the theatre)?

“Up”. Sobbed like a baby during the introduction/backstory and never kept a dry eye for long during the rest of the film.

6. Tax is a huge subject. What’s your area of special interest?

Currently international tax for businesses. We generally split our time between advising US clients operating abroad and foreign companies operating in the US. All of our advice is from a US income tax perspective, but we often have to coordinate with colleagues in other countries to assist clients with foreign tax advice. A good deal of my work focuses on foreign tax credit or tax treaty issues.

In my last gig I specialized in religious nonprofit and charitable gift planning tax issues, which is an even more esoteric area than international.

7. What’s the best tax or financial advice that anyone ever gave you?

Never borrow money to buy a depreciating asset.

The best advice my wife ever got was when she was about to enter the ministry (she’s an ordained United Methodist pastor). A good friend told her she needed to get a good CPA. So she married me.

8. Coffee or tea?

Tea (green or caffeine free), although I have been known to drink coffee socially on occasion.

9. Name five artists on your iPod (or mp3 player).

These days I mostly have podcasts for the daily train/bus ride, but I do have Stephen Colbert’s Christmas Special and “Full Tilt”, the latest album from Lil’ Ed and the Blues Imperials. And I can go from “Whad’ya Know” to “The McLaughlin Group” to “Car Talk” to “Savage Love Podcast” to “Planet Money” without batting an eye on my commute, although I have had to teach myself to not laugh out loud at Dan Savage’s comments on the train.

10. What would I be surprised to know about you?

- My favorite genres of music are old school rap/hip-hop (Kurtis Blow, Grandmaster Flash, Fat Boys, Run DMC) and bluegrass. No cognitive dissonance, I swear!
- My wife and I met in the Seed and Feed Marching Abominable, Atlanta’s only street theatre cum attack marching band.
- I am a testicular cancer survivor.

11. What college did you attend (in what subject)?

I started at Loyola University in New Orleans on a music scholarship, but halfway through decided to switch to accounting. I thought since I was good at math it would logically follow that I would I would enjoy accounting. Wrong!!! All I can say is thank God for tax (Editor’s note: Don’t we all?). I finished my undergrad and Masters in Tax at Georgia State University in Atlanta.

12. If you had the opportunity to make one change in the tax code tomorrow – an extra credit, a disallowed deduction, whatever – what would it be?

I would say change the US tax system from a worldwide income basis to a territorial basis (i.e., you only pay tax on what you earn in the US). But then I would probably be out of a job. How about denying a deduction for companies who advertise on reality TV and cable news talk shows?

13. What’s the best thing on TV right now?

Ninja Warrior / Sasuke and Unbeatable Banzuke on G4. My wife complains that I often turn up the volume despite the fact that the announcer is speaking Japanese and I don’t understand a word of it. Or anything on Current TV.

14. What do you think Congress will repeal first: estate tax or AMT?

Neither, although I think more meaningful moves will be made to lessen the “collateral damage” from the AMT. The estate tax is here to stay but maybe with a pretty decent exemption (somewhere in the $3-5 million range)

15. If Uncle Sam handed you a huge refund check right now, what would you do with it?

Either buy a share in a flying club or start our next adoption, depending on who opened the mail.

16. Biggest tax newsmaker: Obama nominees, UBS or TARP?

The UBS story will be a blockbuster if the DOJ backs off like the Times claims. Otherwise TARP, but it’s much more boring.

17. And, other than taxgirl, what’s your favorite tax related web site?

TaxProf Blog, but I also follow re:The Auditors on public accounting issues in general.

–

Thanks Frank!

You can follow Frank at his blog at http://vinnysgotcancer.blogspot.com – a word of caution: it’s not as frequently updated now as before (but still looks to be a good read).Similar Posts:

taxgirl Has a New Home!

Kelly — Tue, 30 Jun 2009 03:11:54 +0000

No, I’m not really moving. And no, taxgirl.com isn’t going anywhere. What is happening is that I’m shifting my focus from a Facebook “group” to a Facebook “page.” It simply makes more sense for the blog.

If you’re interested in keeping up with even more taxgirl excitement (including some extra polls and discussion), please follow me on over to my new Facebook page. I hope you’ll become a fan!Similar Posts:

Ask the taxgirl: Alarm Systems

Kelly — Mon, 29 Jun 2009 11:36:38 +0000

Taxpayer asks:

After a string of robberies in my neighborhood, I decided to install an alarm system. I paid a flat fee for installation plus I pay an amount each month. Is any of this deductible on my taxes?

Taxgirl says:

If the property that you alarmed was your home, the answer is no. There is no tax deduction for installing an alarm system at your home. On the plus side, however, it’s possible that your insurance rates will go down!

If the property that you alarmed was a rental or commercial property, the answer is yes. Both the installation and the monthly fees are deductible as the cost of doing business on those types of property.

There is one more consideration: what if your home is also your place of business? If you take the home office deduction, then you may claim the pro rata portion of the alarm system on your taxes, just as you do with other home office expenses. However, the portion attributable to the non-office portion of your home is still not deductible.

Like any good lawyer, I need to add a disclaimer: Unfortunately, it is impossible to give comprehensive tax advice over the internet, no matter how well researched or written. Before relying on any information given on this site, contact a tax professional to discuss your particular situation.

Have a question? Ask the taxgirl! – Now on Facebook!

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Fix the Tax Code Friday: Tax Credits for Business

Kelly — Fri, 26 Jun 2009 14:09:33 +0000

It’s Fix the Tax Code Friday!

Over the past few weeks, I’ve reported on a number of industry-specific tax credits offered to businesses, including tax credits for the tech industry and for the movie industry. Reports have been mixed as to whether these credits produce any results.

I’m interested to know what individual taxpayers think. So today’s Fix the Tax Code Friday question is:

Should tax credits be extended to specific industries in order to attract (or keep) business in your state? If so, which industries?

(It would be great if you included the state where you live in your answer!)Similar Posts:

Lights, Cameras, Tax Burden Shifting

Kelly — Thu, 25 Jun 2009 21:19:14 +0000

The highest grossing movie of all time is Titanic, which has amassed nearly $2 billion in revenue in just 12 years. The five Harry Potter films, all released within the last 10 years, have grossed nearly $5 billion in revenue. It’s clear that even in an age where there are other distractions – TV, cable, internet – Americans are still going to the movies and movies still make a whole lot of money. But for who?

You and I know the answer to that: producers, big movie companies and stars like Cameron Diaz and Angelina Jolie who, for some bizarre reason, command millions and millions of dollars per picture.

Many states are hoping to grab a piece of the movie pie, even as their budgets are crumbling. Lawmakers seem focused on handing out tax breaks to woo production of movies and television to their respective state even in the midst of data that suggests that those tax breaks don’t actually benefit the state.

Two of the biggest entertainment centers in the world, New York and California, have pumped literally billions of dollars into the entertainment industry: both states are facing massive deficits this year. And despite throwing tax breaks at Hollywood, states are finding those companies to be fickle: the companies really just chase the money.

Take California for example. The state has spent loads of money to keep the movie industry inside its borders, despite a $24 billion budget deficit this year. The governor of the state even promised an appearance in the Terminator sequel if production remained in California. Nonetheless, the majority of the film was shot in New Mexico. Why? It was cheaper for Warner Brothers.

And California is not alone: states have handed out $1.8 billion in tax breaks and incentives to the entertainment industry over the past two years in an effort to woo business. Forty-one states currently offer some degree of tax break/incentive plan to attract or keep the TV and movie business.

Among them is North Carolina, currently facing a huge budget deficit. The state is introducing new taxes for its citizens all while pushing through new tax breaks targeted at the film and television industry. Will it work? Perhaps. North Carolina has been actively soliciting business from the entertainment industry for years – even since I was a kid. When I was in high school, my school band was chosen to portray a high school band in the movie, Hiding Out. We weren’t naive, we understood that we weren’t the best band out there, we were perhaps the cheapest. But we didn’t care: hailing from a poor county, we were able to use the “donation” from the film company to buy “new to us” uniforms for our band. The film went on to gross $7 million.

Since then, the city has played host to a number of television and movie projects including Dawson’s Creek and Matlock. But questions remain. Would those projects have chosen our town with or without tax breaks? Perhaps. Wilmington is a fairly low cost town with lots of affordable labor and beautiful scenery. That counts for something.

The North Carolina legislature thinks differently. Despite a giant hole in the budget, tax credits for film projects are still very much on the table with the state voting just this week to expand existing breaks. The reported impetus for the urgency? A Miley Cyrus project expected to film in North Carolina moved further south after Georgia offered the production company a better deal – double the tax credits.

As the states duke it out to position themselves as the most attractive place to film, they find themselves as odds with taxpayers who have been charged with the filling the budget gap in the interim. Proponents of the credits argue that the tax breaks will eventually pay for themselves because of the “extra” revenue generated when actors, extras and crew move in, visit their shops and eat at their restaurants (I will say that our albeit brief, weeklong experience was that those folks eat on a closed set, rarely venturing out into town).

Similarly, states argue that production can create new – albeit temporary – jobs for city workers. That’s not always the case: many production companies import a majority of their own sets, caterers, and crew. It is to be expected, quite frankly, since lighting crews, stunt people and other production positions require a level of training and expertise not always easily found.

So are the tax breaks paying off? Some states say yes. A recent report by Ernst and Young found that the local and state governments in and around New York City nearly doubled their investment on the entertainment industry, pulling in $1.90 for every $1.00 of tax credits. And New Mexico, which wooed The Terminator 2 away from California and just wrapped Jackie Chan’s The Spy Next Door, offers a slew of tax incentives: Ernst and Young claims that New Mexico brought in $1.50 for each dollar of tax credits they offered. Louisiana, buoyed by the success of The Curious Case of Benjamin Button, has such faith in the potential return on their investments that they recently introduced legislation to implement a more aggressive tax credit for movie and video productions.

Also pushing new aggressive new plans? Ohio, Massachusetts, Georgia and Texas. The legislators in these states are taking a gamble that their investments will work out.

Not all states are so confident. Connecticut has reported a loss on each dollar of investment in the industry. A recent bipartisan committee in the Michigan senate showed that the state was stung by huge losses as a result of its tax credit initiative: in particular, the refundable nature of their tax credit resulted in the state actually paying companies who reported a loss. And Wisconsin is actually looking for a way out of the tax credit incentives that they had promised before as the state grapples with finding a way to pay its bills.

Pennsylvania is also re-assessing its stance on film credits as it finds itself in a budget crisis. Successful projects recently filmed in the state include Baby Momma and Marley and Me. Proponents of expanding the credit point to those films as indicative of a pattern of growth in the area. However, opponents are quick to point to figures that show a net growth of less than $5 million after taking into consideration all related industries. Those same opponents argue that level of growth could have been generated through investing in long-term industry projects in the state – or by cutting tax for all businesses.

I’m not sure whether tax credits are a good solution long term for most states. I tend to believe that the amount of money being pumped out to an industry which grosses billions and billions of dollars each year could be better spent elsewhere – or put back in the pockets of taxpayers. But then, I also get the “ambient” benefit of having a movie industry in your state… I’ll admit to bar-hopping in Philly, looking for Brad Pitt when he was filming Twelve Monkeys because I had heard that he and Bruce Willis were hanging out downtown. And yes, my husband and I do watch Cold Case so that we can play “name that street.” There is a certain cachet associated with film and television projects that’s hard to value… But the real question is: is it worth it?Similar Posts: