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Movie Industry Incentives Challenged
ALLENDALE — The sudden appearance of the movie business in Michigan, the state currently with the highest incentives in the country for film productions as of April, is not without sudden controversy.
One complaint involves the amount of the rebates being offered to the movie industry. Another issue is the exclusion of television commercial productions from qualifying for the incentives.
There is a little controversy in the business community that the Michigan Legislature is singling out a particular industry for tax breaks while other industries are faced with the burden of the Michigan Business Tax, said State Rep. Bill Huizenga, R-Zeeland, one of the main proponents of the legislation.
Huizenga said the movie industry incentives have already attracted business to Michigan comparable to a Herman Miller, Haworth and Steelcase.
At least two major feature films will now be shot in southeast Michigan this year, due to the incentives, and Huizenga said last week other productions "coming in" bring the total to almost $200 million that will be spent on movie productions in Michigan this year. He said that could potentially mean rebates to film companies totaling up to $80 million.
The Michigan incentive package provides a refundable or transferable tax credit equal to 40 percent of the cost of production (42 percent if the movie is shot in a Michigan "core community"). After a pre-approved movie production is complete, the money the producer spent in Michigan is audited. Then any amount owed under the MBT is deducted from the 40 percent credit, and the remainder is paid to the movie company "in the form of a check," said Huizenga.
As an example, Huizenga said if $5 million was spent, the credit would equal $2 million. If the Michigan tax liability was $500,000 and it was paid, the movie producer would then receive $1.5 million from the state of Michigan, he said.
One state lawmaker, House Appropriations Committee Chairman George Cushingberry Jr., D-Detroit, said last week the state should limit the total value of the credits to $50 million a year.
Terry Stanton of the Michigan Treasury Department said he believes Treasury analysts have estimated that about $100 million in rebates may be paid by Michigan to the film industry in fiscal year 2009 (starting in October).
Huizenga also told the Business Journal that "there has been some grumbling from Treasury, saying that this (film incentives package) is not a good idea; it's too much."
"What has not been calculated by Treasury is, what is the ancillary income that is going to come (from) that $200 million — in other words, the Enterprise Rent-A-Cars, the caterers, the hotel rooms?"
Huizenga said the movie industry will generate additional tax revenues to Michigan through the additional MBT paid by its suppliers, plus sales taxes and income taxes of people employed by movie productions.
"If you look at what's happened in other states (with movie industry incentives), the additional revenues have been able to fill in any of that incentive that has been going out, to get those companies to come here," said Huizenga.
Joe Voss, an attorney who supports the movie industry incentives, said the law should also include production of commercials shot in Michigan, but the Treasury Department says the law specifically excludes television commercials unless that commercial is advertising a feature film that qualified for the Michigan incentives.
He noted that southeast Michigan had a long history of companies that worked in production of television commercials for the Big Three automakers. GM, Ford and Chrysler had major sound stages, film equipment and production crews, "second only to Hollywood," and that is why some movie producers have already opted to make films in the Detroit area.
Curtis Cunningham of Lawrence Productions, a Grand Rapids advertising agency that produces television commercials and corporate marketing videos, said the incentives would be huge for companies that produce commercials.
"I understand the intent is to bring new production companies into Michigan, but it would be nice to help the folks that are here, as well," said Cunningham.
But Stanton said "the statute expressly says a qualified production (for film incentives) does not include … a production that primarily markets a product or service other than a state-certified, qualified (film) production," said Stanton.
The Business Journal asked Edward S. Kisscorni, director of state and local taxation at the CPA firm of Echelbarger, Himebaugh, Tamm & Co., how much the Michigan Business Tax would eat up of the 40 percent refundable credit offered to the movie industry. As noted, the excess beyond the MBT liability would eventually be paid to the film company as the incentive to work in Michigan.
"We don’t know what their tax would be," said Kisscorni, because "the MBT is so complicated."
Kisscorni added that one complication is the profit calculation that is part of the MBT, and "we don’t know what the profit on the film is."