Fiscal Note & Local Impact Statement
127 th General Assembly of Ohio
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STATE FUND |
FY 2008 |
FY 2009 |
FUTURE YEARS |
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General Revenue Fund |
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Revenues |
Potential loss |
Potential loss |
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Expenditures |
- 0 - |
Minimal increase |
Minimal increase |
Note: The state
fiscal year is July 1 through June 30.
For example, FY 2007 is July 1, 2006 – June 30, 2007.
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The
nonrefundable but transferable personal income tax credit for investments made
in motion picture production companies based in Ohio may reduce income tax
revenue. The GRF would bear 94.1% of
any revenue loss. Any unutilized tax
credit may be carried forward for up to ten consecutive tax years.
·
The
Department of Development would process applications from companies to produce
state-certified motion pictures, and would certify the amount of tax credits
available to the Tax Commissioner.
There would likely be some increase in expenditures on account of
administering this tax credit.
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LOCAL
GOVERNMENT |
FY 2008 |
FY 2009 |
FUTURE YEARS |
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Local government funds
(LGF, LLGSF) |
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Revenues |
- 0 - |
Potential loss |
Potential loss |
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Expenditures |
- 0 - |
- 0 - |
- 0 - |
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Note: For most local governments, the fiscal year is the calendar year. The school district fiscal year is July 1 through June 30.
·
The
nonrefundable but transferable personal income tax credit for investments made
in motion picture production companies based in Ohio may reduce income tax
revenue. The local government funds
would bear 5.9% of any revenue loss from the proposed tax credit.
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H.B. 196 creates a
nonrefundable income tax credit for investment in a state-certified motion
picture production. The bill defines
motion picture to be "a nationally distributed feature-length film, video,
television series, or commercial made in this state, in whole or in part, for
theatrical or television viewing, or as a television pilot" excluding the
production of television coverage of news and sporting events. The Director of Development would be responsible
for certifying motion picture production expenses, so that the Tax Commissioner
may issue tax credit certificates to taxpayers who invested in the
production. Besides initial
administrative costs, there could be some additional administrative expenses
because of the provision of transferability of the tax credit.
The amount of the tax credit
depends on the "base investment" in the production, defined by the
bill to be the amount invested by the taxpayer in an Ohio based motion picture
production company multiplied by the production expenditure of the company
spent in Ohio as a percent of its total production expenditure. If the base investment is greater than
$300,000 but less than or equal to $8 million, the taxpayer may be allowed a
credit worth 25% of the qualifying investment made by the taxpayer. If the base investment is greater than $8
million but less than $100 million, the taxpayer may be allowed a credit
of $2 million plus 15% of the qualifying investment exceeding $8 million. If the base investment is greater than $100
million, the taxpayer may be allowed a credit of $15.8 million plus 5% of the
qualifying investment exceeding $100 million.
The credit is nonrefundable and unused credits may be carried forward
for up to ten years.
Additionally, an investor
may transfer all or part of the credit amount stated on the credit
certificate. Any subsequent certificate
owner also may transfer all or part of the credit represented by the
certificate. All transfers must be made
in accordance with rules prescribed by the Director of Development and must be
reported to the Tax Commissioner.
Fiscal effect
Without reliable data on
eligible film production expenses in Ohio, LSC could not estimate the revenue
loss due to the proposed tax credit.
The magnitude of any revenue loss would depend on the number of eligible
productions certified by the Director of Development, under rules adopted by
the Director.
As an illustration, if a
production company spends 40% of its total expenditure in Ohio out of a total
budget of $50 million, and if an Ohio taxpayer invests $10 million in this
production, the eligible investment is $4 million (40% of $10 million) and the
tax credit would be for $1 million (25% of $4 million). The taxpayer would get a certificate for a
tax credit of $1 million, which could be claimed over a period of ten
years if carried forward, or transferred to other taxpayers.
Given the limited number of
eligible films, the revenue loss from tax credits for productions that would
have been produced in Ohio may be expected to be on the low side. However, because the tax credit is
transferable and can be carried forward over a ten-year period, more taxpayers
may be encouraged to invest in the film industry, and the number of films produced
in Ohio may increase, thus increasing the revenue loss. This revenue loss may be offset partially,
if the tax credit program succeeded in luring movie productions to Ohio that
would otherwise have been produced elsewhere, thus increasing Ohio employment
and income generation.[1] In the above illustration, the production
company's Ohio budget of $20 million (40% of $50 million) is estimated to
create around 100 direct jobs connected to film production, which in turn is
projected to generate an additional 130 indirect jobs elsewhere in the economy.[2]
Tax concessions for motion picture companies in other states
Several states have enacted
tax provisions in recent years to encourage motion picture production companies
to engage in filmmaking in their states.
Most of these states offer sales tax rebates to the production companies
and production expenditure rebates or credits.
It is notable that while 18 states offer income tax credit for film
production, only 8 have made the tax credit transferable to taxpayers who are
not film producers but invest in eligible companies.
Louisiana, one of the first
states to introduce this tax incentive (through the Louisiana Motion Picture
Incentive Act, enacted in 2002), has increased its tax credit from an initial
10% to 15% to a current level of 25%.
The state also has a 10% employment tax credit and a 4% relief from
sales and use taxes for motion picture productions. The State of Louisiana Department of Revenue 2006-2007 Tax
Exemption Budget reports that revenue lost due to the credit was
$45.6 million in FY 2005 and $37.0 million in FY 2006.
LSC fiscal staff: Isabel Louis, Economist
HB0196IN.doc/lb
[1] According to the Louisiana
film industry, every $1 invested in it generates $1.85 for the Louisiana
economy (output multiplier is 1:1.85).
Sources in Massachusetts claim an employment multiplier of 1:1.3 (each
job created by the film industry supports 1.3 jobs elsewhere in the state's
economy).
[2] Using average numbers for
the U.S. film industry, direct employment generated by a $1 million film budget
is estimated at 4.89 jobs.
(Source: Motion Picture
Association of America – U.S. Entertainment Industry, Market Statistics, 2006.)