by Jon Sanders
Director of the Center for Food, Power, and Life, Research Editor | John Locke Foundation
One of the many problems with the state film tax incentives is that they are refundable. As I wrote in my report N.C.’s Film Tax Incentives: Good Old-Fashioned Corporate Welfare:
Furthermore, in North Carolina, the film tax credits could exceed a film production company’s total tax liability, in which case the state would issue a “refund”; i.e., the state would end up cutting a check to the production company to film in North Carolina. Such a case is far from unusual — in fact, North Carolina often ends up giving money directly to film production companies. In 2008–10, North Carolina wrote refund checks to film productions worth over $21 million.
North Carolina’s film tax credit is a refundable tax credit like the Earned Income Tax Credit for the working poor, except that the EITC is to help “low-and moderate-income working families.” It is a classic example of corporate welfare, a wealth transfer program from state taxpayers to, in this case, film production companies. Brian Balfour of Civitas Institute called it “Choosing Movie Stars Over Teachers.”
Jeanette Doran of the North Carolina Institute for Constitutional Law found direct payments to film production companies troubling for a bigger reason: they may be unconstitutional. The state law concerning the film tax credits “clearly and unambiguously authorizes the payment of public money to private film production companies as part of a so-called ‘refund’ of taxes reduced by tax credits,” while the North Carolina Constitution is ‘equally clear and unambiguous: no money may be drawn from the treasury except by appropriation,” which is an act of legislature and requires a specific amount.
A bill in the House would tweak the incentives somewhat by making the film tax credit nonrefundable and instead allow unused portions of the credit to carry over for as much as five years.
What effect, if any, would such a change have? It would be apocalyptic, that’s what!
Johnny Griffin, Director of the Wilmington Regional Film Commission, says the bill came as a shock to him. Griffin says none of the bill’s sponsors mentioned it to him before he was told of its introduction by our own Jon Evans. Griffin says the bill will do a lot of damage to film production in North Carolina, if it passes in its current form.
“This will basically offer an empty incentive,” Griffin said. “Yes, we’d have a film incentive, but no one will be able to use it. Maybe you can find a couple local companies that could benefit from this, but it’s more important to focus on the majority of production companies that do not have tax liability. They come down, spend and leave. Even though they are giving this incentive, they still are taxed through sales tax on things they purchase, and payroll tax for paying local workers.”
Rep. Susi Hamilton (D-New Hanover) calls the bill a “jobs killer” for the film industry. “All this bill does is eliminate jobs,” Hamilton said. “No incentives, no film industry. This bill kills jobs in North Carolina.”
I guess the NC film industry is just as fragile as the solar industry. It’s amazing how these Incredible Success Stories would crumble into dry dust if any portion of forced state support went away.
The state film industry is so fragile, in fact, that it has been harmed just by the bill having been drafted:
“Just the fact that this bill has been introduced, regardless of changes, is enough of a sign to production companies to possibly not come here,” Griffin said.