Production incentives are a notoriously challenging niche in the world of film finance. Their value is immense, but the terminology alone can be enough to drive even seasoned producers off the deep end.
To keep you sane and stable, this post has been built as a cheat sheet for decoding incentive lingo. Below, we’ll break down all the essential terms you need to know to navigate production incentives.
First, a quick introduction.
Production incentives are financial benefits that governments offer to encourage film and television production within their borders. They come in many forms and can help a shoot stretch its budget in different ways.
In theory, production incentives create win-win circumstances for productions and states alike. Productions get more bang for their in-state buck, and states benefit from the elevated economic activity.
In practice, however, production incentives can get complicated fast. The diversity of available incentives makes the topic complex, and the rules governing incentives can vary wildly from state to state. To take full advantage of these powerful finance resources, it’s critical that producers familiarize themselves with the basic concepts surrounding their use.
This post will clue you in on essential terminology, but be sure to check out the Wrapbook Production Incentive Center for more critical tools and solutions that you won’t find anywhere else.
For instance, our Production Incentives Finder identifies exactly which incentives your next production is eligible for with just a little bit of budget information. Our State Comparison Tool empowers you to compare and contrast multiple state incentives side-by-side in one window. And our AI Production Incentives Tool answers your incentive questions with up-to-date information drawn from the latest incentives legislation available.
Wrapbook’s Production Incentive Center helps you work with incentives faster and easier. Before your next shoot, do yourself a favor and check it out.
Now, without further ado, let’s jump into our glossary. Please note that the following terms are presented in alphabetical order.
Cash rebates are the most straightforward form of production incentive. They’re a payment made by a state directly to a production company. Cash rebates are usually calculated as a specified percentage of a production’s qualified expenses.
The costs that count as “qualified expenses” will vary from state to state. Cash rebate incentives are usually issued after a production wraps. This is an important detail to remember when budgeting for production incentives.
A certified film tax credit is a state-approved credit that eliminates a part of a production’s in-state tax liability.
Contrary to common belief, tax credits are not literal refunds of taxes paid by a production. Rather, they’re generally calculated as a percentage of the money a production spends locally and are issued regardless of whether a production company actually pays taxes within the state.
Integrating tax credits into your film financing strategy can be a challenge. We’ll cover more key concepts later in this post, but you should also check out this guide to understanding production incentives with insight from Ryan Broussard, Wrapbook’s resident incentives expert.
Some tax credits can be sold (more on that later), but they have to be sold at a discount to create value within the exchange. To illustrate, let’s consider a quick example.
If a production qualifies for the Georgia Film Tax Credit, they can receive a 20-30% tax credit on qualified expenses. If that production company incurs no tax liability within the state, they may choose to instead sell their tax credit on the open market.
However, to provide gain to the credit’s buyer, the market value of the credit must be lower the value of its use against tax liability.
This difference between market value and actual value is known as a discount.
Exemptions are production incentives that allow a qualified production company to bypass taxes for certain expense categories. In other words, they don’t have to pay taxes associated with select transactions, which can significantly reduce in-state costs.
The most common exemptions are made for sales taxes and lodging taxes.
The provision of fee-free locations is a form of production incentive in which states or other localities allow productions to shoot at government-owned locations for no cost.
Fee-free locations offer relatively minimal value compared to large-scale production incentives, but their budgetary impact can be significant. Consider, for example, the difference between a fee-free location and the cost of permitting a location in Los Angeles or New York City.
Film commissions are public organizations that promote and lobby for media production in a given state or city. They often offer the most direct way to tap into local production knowledge. Film commissions can help you scout locations, lock permits, interface with local authorities, and secure local production resources.
For this post’s purposes, film commissions are usually a production company’s go-to resource for incentive information. They’ll make sure you have all the information, paperwork, and support necessary to get your shoot up and running on their home turf.
Film grants are sums of money paid directly to filmmakers to fund a particular project. They do not require any tax liability and are, therefore, easier for production companies to use.
However, there is a trade-off. Film grant funding is more limited and often requires a more rigorous application process compared to other production incentives.
Most production incentive qualifications are limited to physical production details, like total budget amount, shooting location, and resident labor. By contrast, grant qualifications can be wide-ranging and unique to each grant. Working with grants requires productions to do careful research and take great care in submitting applications.
To help you cut through the noise around film grant funding, here are a few resources from the Wrapbook Blog:
Grants can be important building blocks for a film finance strategy. Make sure you take advantage of tools like the Wrapbook Production Incentive Center to get the most out of your film grant efforts.
“Minimum spend” is a common qualification for production incentives. The term refers to an amount of money that must be spent in a specific state or area to qualify for a given incentive.
Minimum spend amounts vary with each state’s production incentives. North Carolina has a $1.5M spend on features – a big chuck of change! Alternatively, the Massachusetts program has only a minimum spend of $50,000 (along with other requirements). So it might be easier to get production incentives in the Bay State.
Another common qualification for production incentives is that a minimum percentage of a film that must be produced within the state or local area. This is usually referred to as the percentage of film shot in state. The exact amount, as well as how the amount is measured, varies from state to state.
For example, California stipulates that production must spend 75% of a production’s budget be spent within its borders. Other states might use other metrics, like the number of days spent in the area in proportion to the total number of days in a shoot’s schedule.
A refundable tax credit is any tax credit that may be directly exchanged for a cash rebate.
If a production company does not have a need for the credit itself, a tax credit cannot be redeemed by reducing the amount of taxes a production company owes. However, some tax credits may be redeemed through the alternative method of accepting a refund from the state.
Note that the existence of refundable tax credits also implies the existence of non-refundable tax credits. As the name suggests, they are not eligible for a refund. The ultimate value of any non-refundable tax credit must eventually be redeemed through the reduction of the owner’s tax liability.
A resident buyer is a local taxpayer who purchases a tax credit from a production company.
If a production company has no tax liability, they may be able to sell their tax credit to a resident buyer. The resident buyer would then use the credit to reduce their own tax liability. Because the credit must be sold at a discount, the resident buyer effectively pays a lower amount to cover a larger portion of their tax liability.
The term “resident labor” refers to crew members who are local to the state and working in the state.. The term “nonresident labor” refers to all personnel hired from outside the state and working in that state.
Some states require that productions hire a certain percentage of their crew as resident labor to qualify for their production incentives. The ratio of resident and nonresident labor may also impact the amount of payroll costs that count as “qualified expenses.”
A transferable tax credit is any tax credit that can be transferred from one owner to another. Critically, a tax credit must be transferable to make a cash value.
If a production company with no in-state tax liability has earned a tax credit, they’ll have to use an alternative method to redeem its value.
If the credit is refundable, the company can exchange it with the state for a direct rebate. If the credit is transferable, the company can choose to sell it to a third-party at a discount. If the credit is refundable and transferable, the company is free to pursue either method.
Note that some tax credits are both non-transferable and non-refundable. The value of such credits can only be redeemed by reducing the initial recipient’s tax liability.
When researching production incentives for your next project, pay careful attention to the classifications and regulations of any tax credits you might seek. Small incentive details can wield major influence over a production’s long-term financial options.
With a little strategy and a lot of research, production incentives can be a powerful resource for savvy producers. An understanding of key terms and concepts will help you get started on the right foot.
Don’t forget that Wrapbook’s free Production Incentive Center can upgrade your experience even further. It offers unique tools for streamlining research and leveraging incentives to optimize your film finance strategy.
At Wrapbook, we pride ourselves on providing outstanding free resources to producers and their crews, but this post is for informational purposes only as of the date above. The content on our website is not intended to provide and should not be relied on for legal, accounting, or tax advice. You should consult with your own legal, accounting, or tax advisors to determine how this general information may apply to your specific circumstances.