MD Legislature in Step with Film-Incentive
By Cheryl L. Slay
California and New York top the
list of states perceived as primary entertainment markets in enacting legislation
favorable to entertainment industries. This perception may be attributed to
the level of entertainment activity within the two states and the impact of
entertainment-related transactions on their economies. Yet within the context
of film production, the national landscape is changing, with more and more
states recognizing the potential for state revenues via home-grown film production.
Maryland is a part of that changing landscape.
Because movie producers can not accurately predict either
box office success or a corresponding return on the substantial investment
required for success, producers’ strategies for controlling production
costs have come to routinely include the careful selection of filming locations
which impose few restrictions while offering monetary incentives. As a result,
economic and public policy infrastructures have developed to support the industry’s
Other countries have long been willing to lure film production
within their borders with financial incentives. For example, Canada stands
out because of its convenient proximity and uncapped refundable tax credit
of 16 percent on labor costs for U.S. movies with budgets of at least $678,000,
plus additional incentives in specific provinces, according to the Los Angeles
Lawyer. Canada is joined by other countries that offer attractive incentives
and compete with California’s film industry.
Within the U.S., several states have also enacted financial
incentives, with New Mexico, Louisiana and Hawaii as leaders. Most such inducements
take the form of sales tax exemptions for production costs (e.g., for
script, talent, construction, wardrobe, sound and lighting, and location fees).
Some states also provide wage tax incentives, and New Mexico makes loans with
favorable terms available to producers in addition to its tax incentives.
Maryland has likewise increased its market participation.
In an effort to expand economic activity within the state by encouraging film
production within its borders, the General Assembly enacted sales tax incentives
for film production activity in the 2000 legislative session.
The Maryland sales tax exemption is specifically limited
to film production activity which fits within the statute’s definition,
to include “feature films, television projects, commercials, corporate
films, infomercials, music videos, or other projects for which the producer
or production company will be compensated, and which are intended for nationwide
commercial distribution.”. The definition excludes
“student films or non-commercial personal videos, or any activity not
necessary to and undertaken directly and exclusively for the making of a master
film, tape, or image.”
For activity meeting statutory and regulatory requirements,
the statute exempts from sales tax “tangible personal property” or “taxable
service used directly in connection with a film production activity.” This
includes, for example, camera equipment and supplies, film and tape, lighting
and stage equipment, sound equipment and supplies, recording equipment and
supplies, costumes, props, and other personal property and services.
Certification by the Department of Business and Economic
Development is an additional requirement for the exemption. Regulations promulgated
by the Department of Business and Economic Development further elucidate the
The General Assembly further expanded the realm of incentives
available for film production in Maryland by enacting an employer wage rebate
earlier this year. Under the enactment, “a qualified film production
employer may receive a rebate in the amount of 50 percent of the amount of
qualified employee wages that the qualified film production employer has paid,
up to a maximum rebate amount of $2,000,000 for any particular film production
As with the sales tax exemption, the Maryland wage rebate
limits the type of production activity to which the benefit applies. For example,
the rebate does not apply to student films, non-commercial personal videos,
sports broadcasts, broadcasts of live events or talk shows. The statute also
requires film production employers to notify the Department of Business and
Economic Development of its intent to seek a rebate prior to engaging in production
activity, and then they must apply for the rebate.
Maryland’s recent legislation (effective July 1, 2005)
and that of other states with similar policies is poised not only to impact
the state’s economy, but also those of the once-primary California and
New York markets. New York City has responded by amending its legislation in
2004 to include a 5 percent takx credit on production costs spent in New York
City for eligible films (New York state also offers incentives). California
has reportedly seen as much as a 37 percent decline in feature-film activity,
according to a recent New York Times article citing statistics from
the Los Angeles Entertainment Industry Development Corporation. California
is currently floating incentive bills in an attempt to counter the competition
that now emanates not only from outside U.S. borders, but from states within
them as well.
The potential impact of such state legislation
For independent filmmakers (i.e.,
small producers with small budgets), the trend is a positive one. Many
of these market participants cannot afford to relocate to enjoy incentives,
and in-state incentives will be both helpful and welcome (to the extent
a film project qualifies).
For the general motion picture industry,
the trend is clearly a positive one. Financial incentives for film are
becoming increasingly prevalent on the state level. State legislation
is generally crafted to impact broad industries, rather than specific
participants strictly within the motion picture industry. Nonetheless,
the benefit is felt within that industry.
For Maryland – feeling the recent loss
of the Disney film Annapolis, which elected Philadelphia for
filming rather than in Maryland reportedly because of Pennsylvania film
incentives – the General Assembly’s actions are preemptive.
The legislative intent in enacting the recent wage rebate (and the prior
sales tax incentive) is to increase “film production activity carried
out in the State, [bring] economic benefits to the citizens of the State,
and [generate] increased employment opportunities for the citizens of
The future impact? Perhaps Maryland is poised
to take its place as a primary film market, which is also good news for the
entertainment legal community.
Cheryl L. Slay is Chair of the MSBA Entertainment & Sports