A North Carolina House bill that would end tax refunds for film production companies is generating debate over the value of government-backed incentives for businesses.
The measure would stop production companies from collecting a check when the size of their credit is greater than what they owe in state taxes. Under the new legislation, companies could use tax credits to reduce what they owe but not to collect additional money.
Opponents say that change would gut the incentive because most crews have little to no tax liability and North Carolina can expect to see its film boom go bust. Supporters of the bill counter that there's no evidence the $30 million spent subsidizing production companies in 2011 directly links to the level of job growth cited by the film industry.
Currently, production crews that spend more than $250,000 are eligible for credits valued at 25 percent of in-state expenses, up to $20 million. Those companies receive direct refunds if the value of their credit exceeds their tax liability. The bill, sponsored by Democrats and Republicans, would limit the credit to what the companies owe, effectively eliminating refunds.
Although they may not pay income taxes, film companies generate sales tax revenue and tourism interest, said Johnny Griffin, director of the Wilmington Regional Film Commission. They also employ people who pay taxes, he said.
But, he pointed out, the companies are rational players hunting for the best deals in a market with plenty of choices.
"I think in our case it's very clear that our clients basically run financial models on each state, and the films taking place in 'Anytown U.S.A.' can be done in multiple locations," he said. "It basically comes down to a business decision."
Wilmington is the center of an industry that has grown as tax benefits in the state have become more attractive. But North Carolina hasn't been alone. Elected officials across the country have pushed for incentives to draw film production, and now 45 states offer a combination of credits, rebates and exemptions.
After former Gov. Beverly Perdue more than doubled the cap on refundable tax credits in 2010, the film industry has reported record year after record year of investment in the state. In 2011, a year that saw Iron Man 3 and The Hunger Games film in the state, the North Carolina Film Office reported $220 million in spending that created 3,300 jobs. That number climbed to more than $376 million the next year.
In 2011, the state paid $30 million in tax credits to 22 film companies that spent $120 million and employed 10,500 people, according to the N.C. Department of Revenue.
But unlike some N.C. Department of Commerce grants that tie incentives to job creation, film industry credits don't come with accountability, said Rep. Paul Luebke, D-Durham and the bill's lead sponsor.
"We know there are jobs in Wilmington in the film industry, but we don't know how many are linked to this tax break," he said. "I could support such a tax credit if it were linked to job creation."
A recent analysis from the General Assembly's nonpartisan research division concluded that only 55 to 70 jobs in 2011 can be directly attributed to the state's tax credits. It also argued that the money spent in 2011 would have yielded 290 to 350 more jobs if the state cut business taxes across the board by the same amount.
Rep. Rick Catlin, R-New Hanover and a bill sponsor, said the report supports tax reform that reduces the burden for all businesses by eliminating special benefits. His district includes Wilmington.
"The current process of picking winners at the expense of taxpayers, that's what I oppose," he said. "We're on a tight budget, and we could use some of that money for schools, infrastructure and lower taxes for everyone."
Calls to roll back tax credits that quickly swept the country have taken root in other states as well. A report in Massachusetts questioned the local benefit of the state's film incentives, stoking calls for cuts from some lawmakers. Michigan and New Mexico, once considered among the most attractive sites to film, have imposed new caps under Republican governors in recent years only to see business drop.
Sen. Thom Goolsby, R-New Hanover, said ending subsidies would ensure North Carolina follows a similar path.
"What we get is well worth what we're paying for it, and we've seen what happened in Michigan," he said.