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Hollywood's new financiers make deals with state tax credits

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Hollywood's new financiers make deals with state tax credits

Post by watching on Fri Dec 27 2013, 11:55

I just found this interesting - looking behind the film making and how productions come to fruition. I assumed the State or the county would get a benefit when filming came to town but I had no idea that individuals could reduce their tax bill by buying in.

Hollywood's new financiers make deals with state tax credits

Brokers take the credits given to studios for location filming and sell them to wealthy people and companies looking to shave their state tax bills.
By Richard Verrier
December 26, 2013, 5:30 a.m.

ATLANTA — Ric Reitz makes movies. He helped bankroll the Matt Damon thriller "Contagion," Clint Eastwood's "Trouble With the Curve" and the Robert Downey comedy "Due Date." Reitz, an energetic 58-year-old, doesn't hang out at the Polo Lounge, red-carpet premieres or swank offices in Century City. Instead, he works out of a former cotton mill near Martin Luther King Jr.'s boyhood home, hustling for business at Chamber of Commerce dinners and Rotary Club lunches. Recently, he was looking forward to attending a meeting of prosperous chicken farmers.

Reitz is one of Hollywood's new financiers. Just about every major movie filmed on location gets a tax incentive, and Reitz is part of an expanding web of brokers, tax attorneys, financial planners and consultants who help filmmakers exploit the patchwork of state programs to attract film and TV production.In his case, he takes the tax credits given to Hollywood studios for location filming and sells them to wealthy Georgians looking to shave their tax bills — doctors, pro athletes, seafood suppliers, beer distributors and the like.

"I've got a giant state of people who are potential buyers," he said. "It's the funniest people who are hiding under stones."

The trade benefits both sides. The studios get their money more quickly than if they had to wait for a tax refund from the state, and the buyers get a certificate that enables them to cut their state tax bills as much 15%. About $1.5 billion in film-related tax breaks, rebates and grants were paid out or approved by nearly 40 states last year, according to Times research. That's up from $2 million a decade ago, when just five states offered incentives, according to the nonprofit Tax Foundation.

Film tax credits have become so integral to the filmmaking process that they often determine not only where but if a movie gets made. Studios factor them into film budgets, and producers use the promise of credits to secure bank loans or private investment capital to hire crews and build sets.

"You just follow the money," said Ben Affleck, the actor-director who said he would shoot part of his upcoming film "Live by Night" in Georgia. "What happens is that you're faced with a situation of shooting somewhere you want to shoot, versus shooting somewhere you'd less rather shoot — and you get an extra three weeks of filming. It comes down to the fact that you have X amount of money to make your movie in a business where the margins are really thin."

The credits and incentives can cover nearly one-third of production costs. In 14 states, there is an added benefit: They can be sold, typically enabling the filmmakers to get their money months sooner than if they had to wait for refunds. States that permit the sale of tax credits, including Georgia and Louisiana, are now among the most popular for location shooting.

Tax credit brokers like Reitz, although little-known outside the industry, play a key role in greasing the skids of location shooting. Reitz and his partner sold $1 million in credits in 2009, their first year in business. Their company, Georgia Entertainment Credits, did $15 million last year, and they expect to hit $30 million in 2014. Most referrals come from entertainment industry attorney Stephen Weizenecker, whose clients include Viacom Inc. and Comcast Corp.

"He has been a great advocate for the industry," Weizenecker said of Reitz. "He gets buyers in the door."

Not everyone is such a fan. Hollywood's trade workers — the electricians, carpenters, caterers and others who work behind the scenes — have long complained that they've lost their livelihood as states vie for film business with ever-richer incentives. The number of top-grossing films shot in California has plummeted 60% in the last 15 years, according to a Times review of public records, industry reports and box-office tracking data.

Some economists question whether these programs create long-term benefits to the local communities they are supposed to help. The sale of tax credits, meanwhile, has triggered criticism that companies and people with no connection to the film industry are benefiting from film credits.

Selling tax credits is "a particularly bad public policy because they allow purchasing corporations to shelter income from something unrelated to their activities," said Lenny Goldberg, executive director of the California Tax Reform Assn.

Most states won't say who is buying and selling tax credits, considering it to be confidential. Illinois and Pennsylvania are exceptions, and disclosed complete lists of buyers and sellers in response to public records requests from The Times. In Illinois, location tax credit buyers included retailers Kohl's and Macy's, ketchup maker H.J. Heinz and Bank of America. About $40 million in credits were sold last year from producers and studios including Fox and NBCUniversal.

"There's value in these programs in that some film companies, particularly smaller ones, may qualify for a tax credit but may not be able to use it," said Nicole Garrison-Sprenger of U.S. Bank, U.S. Bank, which last year bought more than $11 million in Illinois state tax credits. "Rather than let those dollars go to waste, they sell the tax credit to a third-party purchaser such as U.S. Bank. As a result, the film company has the financing that they might not otherwise have for their production."

In Pennsylvania, energy company Exelon Corp. helped underwrite the Jason Statham thriller "Safe" by buying a $4.3-million tax credit (for the discounted price of $3.7 million). Other recent buyers in Pennsylvania included Apple Inc. and Richard Mellon Scaife, heir to the vast Mellon banking fortune. Scaife bought a $1-million tax credit for the Denzel Washington film "Unstoppable" for $900,000, cutting his taxes by $100,000, records show.

Pennsylvania's maximum 30% tax credit was a chief draw for producers of the 2012 drama "Promised Land." The film's creative team — producer Chris Moore, director Gus Van Sant and actor-producer Matt Damon — chose the state in part because it allowed them to sell a 30% tax credit.

Moore said he spent six weeks in meetings at his Los Angeles office and Universal Studios' Focus Features unit, where accountants laid out competing offers from New York, Massachusetts, Georgia, Oregon and Pennsylvania.

"It's like the wild, wild West with so many people promising you money," said Moore, who also produced "Good Will Hunting" and "The Adjustment Bureau." "If you have a $100-million Brad Pitt movie, you just call 15 different film offices, and you're going to have the governor calling you at home saying, 'Hey, man, here's why you should do it in Iowa.'"

Georgia was appealing because its credit covered actors' salaries, but the "look" wasn't right for the story. The filmmakers considered Oregon, but the state's 20% cash rebate wasn't competitive. New York had a stronger credit, but skilled workers were not available upstate, where the producers wanted to film. That would mean importing a crew and paying their housing and transportation costs. Ultimately, Moore and his partners chose a town near Pittsburgh. They could hire local crews and get $3.3 million in state tax credits. The credits were transferred in May to Comcast, owner of Focus Features.

Companies and wealthy individuals typically learn about the credits from their tax attorneys, accountants or financial advisors. Along with cutting taxes, buyers say it's also a chance to promote economic growth in their own states. Bryan Marshall, who owns an industrial equipment distribution company in Lawrenceville, Ga., said he saved $18,000 in taxes by buying a $150,000 Georgia film tax credit.

"It was a no-brainer in my situation," Marshall said, adding: "It's been great for Georgia to get some of that California money."

Reitz and partner Wilbur Fitzgerald began selling tax credits shortly after Georgia sweetened its tax incentives in 2008. The men got to know each other working as character actors on TV shows filmed in Georgia, including "In the Heat of the Night." They saw their livelihood threatened by other states offering richer deals to Hollywood and joined a coalition of state film industry advocates campaigning for more attractive incentives. The expertise they gained researching incentive programs turned into a business.

"We'd get phone calls from practically every studio in America asking us about the tax plan and how it would work," Reitz recalled. "We said: 'Maybe we should become consultants and get paid for this.'"

State tax incentive programs vary, but most are structured knowing that film and TV companies based in California or New York don't have significant tax liabilities in other states. So they either pay a rebate after production is wrapped or allow the credits to be sold. In Georgia, the tax credit is up to 30% of the money spent on production in the state (20% plus a 10% bonus for promoting the state). That includes not just location filming costs, but money spent on salaries for actors and crews and any costs for building sets. On a movie with a $100-million production budget, the state tax credit could be up to $30 million.

Georgia doesn't pay a rebate, so if studios don't have a tax liability there they must sell the state tax credit to gets its benefit. That reduces the value of the credit to the studio, because it must give a slice of the credit to the buyer and pay a commission to brokers like Reitz. So in the case of a $30-million credit, a studio that decides to sell it would net about $26 million, after broker fees and other costs.

Spending an afternoon with Reitz in his Atlanta office gives an insight into how the process works.  On this day, Reitz was working to sell off a $147,000 chunk of a multimillion-dollar tax credit Viacom was getting for filming a variety of movies and TV shows in Georgia. Viacom owns the BET, MTV and Nickelodeon cable channels as well as Paramount Pictures, which shot the movies "Footloose" and "Flight" in Georgia. He had jotted down a list of half a dozen potential buyers on a yellow notepad, including an NFL player, a Middle Eastern investor, a Florida-based retailer and an oncologist, who had been referred to him by an accountant friend. Reitz, wearing bluejeans and resting on a leather sofa next to an antique movie light, called the doctor first.

"Let me tell you what you're going to save," Reitz said, pausing to punch some numbers into his laptop. "I can get you 88 cents on the dollar," he said moments later. "We can knock this down by $11,000."

The oncologist didn't take long to give his answer. He agreed to wire Reitz $81,699. In return, the doctor will get a tax credit voucher with a face value of $92,840, which he can apply toward his 2013 Georgia state income tax bill. Reitz, meanwhile, will earn a commission of 2%, or $1,857, for his short phone call with the oncologist. As is often the case, he'll split the commission with another broker who worked on the deal. After the commission and other fees, Viacom will end up with $79,842 from the transaction.

"In the early days, people were very skeptical," said Fitzgerald, Reitz's partner. "Now it's an easy sell."

Big deals can be lucrative. The going rate for, say, a $20-million credit would be $17.6 million before fees. Reitz and Fitzgerald would pocket a $200,000 commission, or 1% of the credit amount, and probably share some of that with others who worked on the deal. Such large paydays are rare, however. A few minutes after his call with the doctor, Reitz got an urgent email from Weizenecker, the entertainment industry attorney. Viacom and TV One, a cable network co-owned by Comcast, had sold off more than $6 million in film tax credits to various investors but had $325,000 remaining. Did he have any buyers? Reitz scanned his list of buyers and quickly called Weizenecker.

"I can commit them to a contract by tomorrow," said Reitz, whose authoritative voice has led to his being cast as TV judges, policemen and lawyers. "If you can scare up another $400,000 to $500,000 from Viacom, I can sell that just as quickly."

Although tax credits have been blamed for loss of production in California, they have been a boon for Hollywood's financial consultants. Burbank-based Entertainment Partners, a big payroll-services provider, says it has handled the transfer of more than $200 million in tax credits for 100-plus projects since 2011. Most of the buyers are Fortune 100 companies. Entertainment Partners has doubled to more than 800 employees in the last eight years, opening offices in Georgia, Louisiana, North Carolina, Utah and Alabama. Most of the employees work in Burbank, where a team of 18 workers advises companies on how to apply for, sell or monetize their credits. The company employed just one person to do that in 2006.

"We get 2,000 to 3,000 phone calls a year from clients," said Senior Vice President Joe Chianese, who launched the tax credit department.

The team draws up budgets and summaries of each state's incentives — eight budgets for a single film is not uncommon — while keeping tabs on any legislative changes that could affect film funding. Entertainment Partners keeps a list of 25 companies that regularly purchase credits and has three full-time brokers who handle the sales.

"It's not just a phone call and handshake. There's a lot of work and discussion involved," Chianese said. "It can take weeks, it can take days."

Chianese also makes cold calls to prospective buyers and relies on leads from his staff, many of whom worked for major accounting firms with clients searching for tax breaks.

"Eight or 10 years ago it was, 'I want a beautiful mountain, should I go to Montana or Colorado?'" said Mark Goldstein, chief executive of Entertainment Partners. "Now it's, 'I can re-create anything. Just tell me where the money is.'"

richard.verrier@latimes.com

Times researcher Scott Wilson contributed to this report.

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watching
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Re: Hollywood's new financiers make deals with state tax credits

Post by it's me on Fri Dec 27 2013, 12:06

too long and specific to me
as words

can you tell me
make long story short
good or bad?

it's me
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Re: Hollywood's new financiers make deals with state tax credits

Post by LornaDoone on Fri Dec 27 2013, 14:54

It's good for the people buying the credits and it's good for the productions with the credits to sell because they could finance a film with credits they might not be able to use.

It's bad for Hollywood crew who lose work because the productions go to other states instead of staying in California.

It's also bad for California based business because of the residual business that it brings.  For instance if they film in a location outside of the studios in a town within 20 miles, for instance, the cast and crew might spend money in that town.  The production also would pay for the use of any locations. So if a person has a house they want to use, that person would get paid to rent the house.

Or say they decide to stay in a hotel during the shoot instead of driving back to Hollywood or Bev Hills every night where they might live.  That's revenue for the hotel, probably food service purchases etc.  Same as if they go to Georgia or other states. So by going out of state California / Hollywood loses those type of incomes.

So it has good and bad aspects, depending on what side of the money you're on.

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Re: Hollywood's new financiers make deals with state tax credits

Post by it's me on Fri Dec 27 2013, 14:56

ok, thanks!

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Re: Hollywood's new financiers make deals with state tax credits

Post by LornaDoone on Fri Dec 27 2013, 15:52

Yer welcome!

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Re: Hollywood's new financiers make deals with state tax credits

Post by Nicky80 on Fri Dec 27 2013, 18:18

Thanks Lorna for the short version    Very Happy  

Isn't California one of the poorest states in the US or better the one state with the most depth? For sure they need more business.

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Re: Hollywood's new financiers make deals with state tax credits

Post by Katiedot on Sat Dec 28 2013, 03:26

Not sure I understand your question Nicky. California has a nightmare balancing their books every year but in terms of money generated, if it were a country (instead of a state) it would feature in the list of top countries in terms of GDP.

Something like that anyway. I need coffee.

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Re: Hollywood's new financiers make deals with state tax credits

Post by LornaDoone on Sat Dec 28 2013, 04:18

http://en.wikipedia.org/wiki/Comparison_between_U.S._states_and_countries_by_GDP_%28nominal%29

If the chart is correct then California would come in right under Canada in GDP.

It's number one for all states again based on the chart. Based on 2011 numbers as noted at the top of the chart.

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Re: Hollywood's new financiers make deals with state tax credits

Post by Nicky80 on Sat Dec 28 2013, 11:34

Ok thanks, I didn't know that. Very interesting. 

I think I got confused with the total dept California has. I remember people saying years ago that the total dept hitting the roof when Arnold Schwarzenegger was Governor. But that is something complete different.

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Re: Hollywood's new financiers make deals with state tax credits

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