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Showing posts with label Miscellaneous. Show all posts
Showing posts with label Miscellaneous. Show all posts

September 27, 2017

Challenging the accepted wisdom: Are CA film tax credits a good use of public funds?

Jobs are good. Ask any politician. Who could be against jobs? You might as well be against apple pie.

More than likely, that is what Governor Jerry Brown was thinking when he signed the Film & Television Tax Credit Program 2.0 into law. As he said at the time, “This bill helps thousands of Californians, from stage hands and set designers to electricians and delivery drivers.” (excerpted from the Washington Post)

Embed from Getty Images
Gov. Brown signs AB 1839
granting tax credits to Film and Television Producers (9/18/14)
(Note: Getty images requires an ad be displayed in order to use the image. This is an exception to our non-commercial policy.)

The California the Film & Television Tax Credit Program was started back 2009 to stem the tide of runaway production. Places like Georgia, Louisiana, Canada and the UK were luring away productions with generous tax credits and other incentives. (see Jobs and Georgia on my mind). The California Tax Credit Program provided competitive incentives to companies that produced in California.

It appears the program was effective. FilmLA reports that the number of shoot days has increased 50% since 2010, and California Film Commission reports that every for $1M in tax credits there was $8M in direct spending.

Could there be a better use of our tax dollars? Possibly.

This past summer the LA Times published an op-ed piece by Steve Malanga called "When will states get smart and stop subsidizing movies?" (The op-ed was excerpted version of a longer piece published in City Magazine.) Malanga is the managing editor for City Journal*, In case it isn't obvious from the title, Malanga has a conservative, free-market bent. He's also no fan of Hollywood's political activism.

Putting aside his biases, Malanga makes several compelling claims that challenge the accepted wisdom that subsiding films is good for jobs. Here's a recounting of several of the points he makes in the City Magazine article:
  • Film jobs are temporary.
    Historically tax incentives are intended to boost development of businesses that produced permanent jobs. By contrast, film productions tend to produce temporary employment and rarely produce enduring assets to the economic infrastructure.
  • Film companies are mobile.
    A Film production can go to were the incentives are most generous. The mobility encourages bidding wars between states causing tax credit inflation. NFL owners have practiced a similar strategy to obtain public funding for new stadiums (ask San Diego).
  • The number of states offering incentives has grown. The benefits are short-lived.
    The cost of incentive-based competition has gone up. In 2002, 6 states offered incentives. In 2010, 44 states offered incentives. During that period total incentives increased an order of magnitude from $100M to $1.5B

    Malanga cited a recent example from Maryland. The producers of House of Cards threatened to move their production to another state if Maryland refused to provide more incentives. The Maryland legislature increased the incentives by $10M. The result: according to a Maryland legislative report, House of Cards and Veep have received $60.3 million of the $62.5 million credits.

    Similar cases were reported in Louisiana and Florida . Louisiana distributed $1.4B in filming incentives between 2008 and 2105. The Lousiana legislature the capped the program and, despite the prior investments, production dropped 90%. In Florida, an HBO series left when the tax credit program ended.
  • Most jobs go to out-of-state residents. Buying film jobs for residents is expensive.
    A Massachusetts report estimated the state spend over $125K in incentives for every film job that went to a Massachusetts resident. Michigan spend $37.5M in credits for 973 in-state jobs of which 216 were full-time film jobs. New Mexico reported that only 35% of key jobs went to residents.
We should point out the article does not reference source materials, so the reliability of the numbers could not be confirmed. However, if we take Malanga's claims at face value, they raise a challenging question: If most of the jobs are not going to residents of the states that offer the credits, where are those jobs going? California?

Consider this...
If tax credit in places like Louisana and Georgia are used to hire California residents, then, in effect, those tax are providing jobs for Californians. And, according to TurboTax, residents of California must pay tax on out-of-state earnings.**

If we take this reasoning a dubious step further, we can ironically claim that tax credits from places Like Louisiana, Michigan, or Georgia actually produce jobs for Californians. Of course those jobs require travel. However, if Malanga is correct that film jobs are inherently mobile, then the investment to keep California film jobs in California is fundamentally at odds with the nature of the business.

Perhaps we should give other states more credit for doing a lot to keep the California film industry vital and let them make the heavy investments.

* City Journal is a publication of the Manhattan Institute.
** Apparently, out-state-taxes paid on out-state-earnings are deductible. Don't take our word for it.

July 18, 2017

Eaton's Water: A nearly forgotten episode in Altadena history

In 1874, Benjamin Eaton laid 3-miles of iron-pipe for a pressurized system that moved water from Devil's Gate to what would soon become Pasadena. 132 years later, Sally Levi, then an undergraduate at the Art Center School of Design, made Eaton's Water, a film about this largely forgotten episode in the area's history.

Benjamin Eaton is a seminal character in our local history. He was a Harvard-educated lawyer who worked as an journalist, engineer, and horticulturalist. In 1864, Eaton purchased acreage near the Arroyo where he raised cattle and cultivated a vineyard. He was later named president of an early Pasadena land development syndicate, became Los Angeles District Attorney and then a Justice of the Peace. As if that wasn't enough, he hauled the first telescope up to Mount Wilson.

Incidentally Eaton's son, Fred, was a prime mover in the development of the LA Aqueduct and is reputed to have been an inspiration for some of the characterizations in Chinatown.

The Eaton's Water project began when Michele Zack, the notable Altadena historian, convinced the Altadena Foothill Conservancy that Eaton's legacy should be remembered. She thought a short docu-drama would provide an entertaining way for 7th and 8th graders to learn about local history. Under Zack's guidance the Conservancy asked Art Center to take on production. Based on the advocacy by the Conservancy and a $5K contribution from Altadena Heritage, Art Center agreed on the condition that a student would volunteer. Sally Levi did.

We learned about Eaton's Water thanks to a suggestion from Altadena Heritage. What could be a more appropriate topic for AF that a film about Altadena?

Correction: Michele Zack has generously send along a few corrections to the original posting.

She points out that most of Eaton's Water takes place 5-10 years before Eaton laid the iron pipeline system. The ditch depicted in the film was built between 1865-70 as part of the San Pasqual Plantation land development. By 1870, the San Pasqual Plantation failed. It would be another four years before the iron pipe system was started.

Our post, as written, incorrectly suggests that Eaton's Water is about the iron pipe and not the San Pasqual Plantation irrigation ditch. In fact iron pipe system is only mentioned near the end of the film.

Ms. Zack also pointed out the the "Pasadena land syndicate" mentioned above was actually the San Gabriel Orange Grove Association which preceded the founding of Pasadena by 10 years. In fact it was not until 1886 that area was incorporated and the name Pasadena was selected.

Eaton's Water (14 minutes, 2006)

Eton's Water Production Notes

Ms. Levi wrote and directed "Eaton's Water." The script is based on a short story by Ms. Zack. Despite a mere $15K budget, Ms. Levi had an ambitious vision for the production: full cast and crew, authentic sets, horses, saddlery, authentic costumes and a full-on post production effort including original score, foley sound effects, animated stills and titles. Thanks to generous support from family, friends and colleagues, and more than a little gumption, she succeeded. Ms Levi's sister was the cinematographer. Her father portrayed one of the characters. The horses and wranglers were donated, as were the costumes which were originally made for 'Back to the Future Part III.' The film has a look of a production with a substantially larger budget.

The principle photography was done in 2006 on 16mm film. There was a five day shooting schedule. The house scenes were shot at the Reid Baldwin adobe in Arboretum. The country scenes were shot in Eaton Canyon. Additional photography was done in Old town Pasadena. Post production took nearly a year.

The film was written up in the LA Times and is still shown in Pasadena school rooms.

Correction: In an earlier version of this posting, the financial contribution from Altadena Heritage was incorrectly attributed.

October 11, 2016

This could be the best tax loophole ever

If our California Film Commission (CFC) has it right, you don't have to be a billionaire real estate developer to enjoy a HUGE tax loophole. The CFC offers this simple alternative: "RENT YOUR HOME 14 DAYS TAX FREE - IRS Benefit".

No doubt you're saying to yourself, "Really? Can this can't be right? There's got to be a catch."

Don't ask me; I'm the last person you should ask for tax advice. I don't know which side of a Return is up. But, if you can believe our very-own, state-funded CFC (and why would they mislead us?), film location rentals fall under the same rules as vacation rentals.

While I don't know anything about taxes, I do know how to google, copy and paste IRS documents regarding vacation rentals.

For example, consider this snippet from IRS Topic 415 ­ Renting Residential and Vacation Property:
There is a special rule if you use a dwelling unit as a personal residence and rent it for fewer than 15 days. In this case, do not report any of the rental income and do not deduct any expenses as rental expenses.
Or the paragraph from the best selling IRS Publication 527, Residential Rental Property (Including Rental of Vacation Homes) under the heading "Used as home but rented less than 15 days":
If you use a dwelling unit as a home and you rent it for less than 15 days during the year, its primarily function is not considered a rental and and should not be reported on Schedule E (Form 1040) You are not required to report the rental income and rental expenses from this activity
All right then! But what could they mean by a "personal residence?" IRS topic 415 might just have that recipe:
If you rent a dwelling unit to others that you also use as a personal residence, limitations may apply to the rental expenses you can deduct. You are considered to use a dwelling unit as a personal residence if you use it for personal purposes during the tax year for more than the greater of:
1. 14 days, or
2. 10% of the total days you rent it to others at a fair rental price.
Does this mean that if my property is a personal residence and if I use it for personal purposes two weeks of the year and if I rent it to a film company for 14 days or fewer, I don't have to report any of that rental income to the IRS? Hmmm... you tell me.

But wait! What the heck do they mean by rental? What if my neighbor's cat sleeps in our tree, is that a rental?

Amazingly, the IRS has covered this contingency was well in Publication 527. The "Dividing Expenses" section offers the following guidance on what a rental is:
Any day that the unit is rented at a fair rental price is a day of rental use even if you used the unit for personal purposes that day. (This rule does not apply when determining whether you used the unit as a home.) Any day that the unit is available for rent but not actually rented is not a day of rental use.
What then is a "fair rental price?" Here's what Publication 527 has to say about that:
A fair rental price for your property generally is the amount of rent that a person who is not related to you would be willing to pay. The rent you charge is not a fair rental price if it is substantially less than the rents charged for other properties that are similar to your property in your area
In other words, this could-might-just-maybe mean that I wouldn't have to report film rental income if I rented our place for film shoots for no more than 14 days in a year and at a fair rental price. That would be sweet, but how sweet?

According to one blogger (whose bonafides are limited to showing up on page 2 of a google search) the "going industry rate per day is your monthly mortgage payment." (Note: I have heard from a reliable source that in the real world, prices vary a lot, but this heuristic fits the bill.)

I've never been much of a mathematician, but this advice inspired a bit of back of the envelope noodling.

According some authoritative-sounding data that appeared on the last real estate flyer that was generously left on our step on its journey to the round file, the average price of an Altadena home is about $800,000. Assuming the nominal 20% down and a 3.5% interest rate, the Altadena buyer might charge $4,000 per shoot-day rental as a film host and $2,000 for a prep day.

Now if this Altadenean home buyer was lucky and hosted three shoots in a year, that would come to a tidy sum of $18,000. But, if this tax break is an actual thing, it wouldn't be just any $18,000; it's a tax-free $18,000. In other words, if this lucky Altadenean had a 35% combined tax rate (i.e. state plus federal tax), this $18,000 from film rentals is like earning nearly $28,000 doing an actual job. That's pretty sweet.

One thing's for sure, on a county-wide basis, these tax-free film rental dollars could add up. But that's a topic for another day.

Of course, I couldn't say for sure if any of this is right. I guess that's why accountants make handsome (non-tax-free) fees. But if CFC is right as rain and you don't always have to report the income from hosting a film shoot...this might be the best tax loophole ever.

Postscript: A respected local film professional has passed along an excellent bit of advice to those who host a shoot. When you get your 1099, be sure your it shows the income as rental income.

September 21, 2016

Guide to renting your home for filming authored by fellow Altadenean

I'm filing this one in the 'who knew' file.

In 2006, a fellow Altadena resident, Trevor Bryant, wrote a guide for renting your property for filming. I haven't read it, but it may be a useful guide to those who are interested in hosting a film shoot.

Here's the specifics:
Title: How You Can Make $50,000 A Year Tax Free: A Complete Guide for Renting Your Home as a Location for Filming, Television Commercials, Television Shows and Location Based Events
Author: Trevor Bryant
Publisher: BookSurge Publishing
ISBN-13: 978-1419622076
Available on Amazon: Amazon link
No end to the surprises when it comes to filming in Altadena.