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City OKs plan to reduce production taxes for filmmakers

October 19, 2010 | 11:50 am

Taxes Tired of being spurned by more appealing suitors, the city of Los Angeles is hoping new tax breaks will catch the wandering eye of Hollywood’s filmmakers.

On Tuesday, the City Council asked the city attorney to draft an ordinance that would reduce by up to $3,250 the entertainment production tax paid by companies that shoot TV shows, feature films and commercials in L.A. The city also is exploring the idea of offering production companies a rebate on the 1% portion of the state sales tax that it receives.

The moves, along with offering free parking on city-owned lots and expediting the permitting process, are just the latest steps by the city to make itself more film friendly at a time when it is struggling to keep entertainment jobs from fleeing the state. 

L.A. faces growing competition not only from foreign cities such as Vancouver and Toronto in Canada and London, but increasingly other U.S. cities and states, dozens of which offer tax credits and rebates to filmmakers. Locally, other neighboring municipalities such as Culver City also are exploring ways of reducing the tax load for entertainment companies.

While California’s new film tax credit has slowed some of the production migration, tax credit funds are limited and have already been exhausted for the current year. The state program also exempts commercial producers, who account for a major share of local production.

Not surprisingly, commercial producers have spearheaded the push to lower the cap on the entertainment production tax. Southern California remains the largest center for commercial production in the country, but its share of the pie has been shrinking, falling to 48% in 2009 from 54% in 2007, according to a recent survey by the Assn. of Independent Commercial Producers.

“The city cannot wait for the state to act," the group’s director of external relations David Phelps wrote in a recent letter to the city. “We must stem the tide of runaway production to states like New Mexico, Illinois, New York and Pennsylvania and balance the scales of the economy.”

Currently, the city assesses a flat fee of $145 on production activity up to $2.5 million and $1.30 for each additional $1,000 in production costs over $2.5 million. The proposed change would raise the minimum tax threshold from $2.5 million to $5 million, and reduce the maximum tax a production company would pay from $12,495 to $9,245.

The AICP argues that the change would provide significant tax relief to many of the 355 production companies in L.A., most of which spend between $2.5 million and $5 million in production costs annually.

City staff are still studying what the proposed sales tax rebate would cost, but the change in the production tax credit would result in about $1 million in lost tax revenue, city's chief legislative analyst Gerry Miller estimated in a recent report. L.A. currently collects $3 million annually from the production tax.

But Miller added that the change in the tax code could eventually generate additional tax revenue by making it more attractive for companies to do business here. The AICP contends that the change in the tax code would have a “negligible impact” on the city's tax base, citing how production tax revenues initially dipped but then grew steadily after the city previously lowered taxes for production companies in 2005.

The idea of giving Hollywood producers tax breaks would seem to be a tough sell in the current climate, given that the city is facing a projected deficit of $318 million in the fiscal year that begins July 1. 

Nonetheless, the idea has garnered strong support in City Hall, where council members face heavy pressure to do more to halt the migration of film and TV jobs.

“One of the first things that production companies look at is the tax situation," said council member Richard Alarcon, who has backed the tax cuts and other initiatives aimed at helping the film industry. “Frankly, we need to be more competitive.”

Various labor groups including the Screen Actors Guild, Teamsters and the Directors Guild of America also support lowering the production tax cap, as does the Motion Picture Assn. of America.
“There is so much competition for film production," said Melissa Patack, MPAA’s vice president of state government affairs. “This sends a message that L.A. aggressively wants the business and the jobs that are sustained by it.”

-- Richard Verrier

 

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