Georgia Proposes Capping and Prohibiting Sale of Film Tax Credits

As seen in The Hollywood Reporter

Georgia is considering a proposal that would substantially blunt its film and TV tax incentive program, which may force production companies to reconsider shooting in the state if it passes.

A Georgia Senate committee on Monday supported a tax reform measure that would cap the amount the state spends on film and TV tax credits at $900 million a year. Even more impactful for Hollywood if it’s signed into law, the changes would eliminate the ability of production companies and studios to sell their tax credits.

The incentives program has transformed Georgia into a major production hub since it was created in 2006. Last year, the state doled out $1.2 billion in such credits for a return on $4 billion in spending from the industry.

Georgia, armed with the most generous tax incentives in the country, currently has no annual cap on tax credits. Productions that spend at least $500,000 are eligible for a tax break of 20 percent plus another 10 percent if they include Georgia’s promotional peach logo in their projects. Major studios spend big bucks shooting tentpole projects, including Black Panther: Wakanda Forever, Creed III, and Tales of the Walking Dead, in the state because of the program and the production infrastructure built as a result of it.

Most importantly, the credits are transferable. This allows studios that don’t owe taxes in the state to sell their credits to companies that do, often at around 90 cents on the dollar. If a studio is granted a $30 million credit on a project with a budget of $100 million, they can turn around and sell it for close to face value.

Under the proposal, companies would no longer be able to auction their credits.

Joe Chianese, senior vice president of Hollywood payroll service company Entertainment Partners, says “the cap isn’t going to be the end of the world” but making the credits nontransferable “would make it very hard for producers to utilize.”

The change significantly lowers value of the credits to studios because only companies that have existing tax liability in the state would be able to utilize them. Production companies often don’t owe much in taxes to Georgia because they aren’t based there.

Roughly 80 percent of these credits are sold, according to a 2020 report from state auditors.

“If producers can’t monetize the credit, they won’t film there,” Chianese says.

Critics of the program have long complained that the state is essentially subsidizing Hollywood with little to no return on investment and that the funds could have been used for other budget priorities or returned to taxpayers through tax cuts.

In 2020, state auditors found that nearly 90 percent of the credits went to non-Georgia companies and a majority of labor expenditures went to out-of-state residents. While the credits result in more in-state film production spending and some of the money ends up in the hands of Georgians, most of it leaves the state when the camera stops rolling, according to Kennesaw State University professor of economics J.C. Bradbury.

If the measure is signed into law, Bradbury believes that “you may see some companies become more permanently placed in Georgia” because film companies would no longer be able to sell the credits.

Chianese agrees “it’s a possibility” but is more skeptical since shifting state residencies does not necessarily mean a company will owe taxes and be able to utilize the credits.

The Senate Finance Committee proposed reining in the program as part of broader income tax reform. Instead of eliminating many deductions, which would lead to taxpayers who itemize them paying more in taxes, the measure aims to balance the added cost by decreasing the amount given in film and TV tax credits.

At $900 million, the ceiling on Georgia’s program would still be more than double California’s offering. The state has issued over the past decade $6.3 billion in film tax credits. And while the amount of credits has increased over time, Georgia has only given out in excess of $900 million a year once in 2021. This boom has widely been attributed to Georgia’s loosening of COVID-19 restrictions before other states.

Still, the cap could force studios to reevaluate whether they should shoot in Georgia because the predictability of being granted the credits is a major factor when deciding where to shoot.

“What’s unfortunate is that Georgia is the poster child in the United States about how good incentives work,” Chianese says.