Film Tax Credit
In 2013, lawmakers created a new, transferable tax credit for film production in Nevada. The credit is worth up to 19% of total production costs and can be applied against most state taxes.1 In 2021, lawmakers expanded this program by making not only feature films eligible, but also commercials and other short-form content.2
A unique characteristic of the credit is its transferability, meaning that film producers who qualify for the credit can sell it on a secondary market to speculators or to Nevada-based firms that can use the credit. Other states have created similar transferable tax credits in recent years and an online exchange has emerged to facilitate trading of these credits. Typically, the final recipient who intends to use the credit will acquire it for 70 to 85 cents on the dollar, while film producers can gain up-front liquidity to finance a film through sale of the asset.3
The state Office of Economic Development, which administers the new tax credit program, was authorized to award as much as $20 million annually in transferrable film tax credits through the end of calendar year 2017. After that authorization was temporarily diverted to provide transferable tax credits to Tesla Motors, the 2015 legislature made the film tax credit permanent with annual funding subject to legislative appropriations.4 In 2023, lawmakers proposed to expand this tax credit to as much as $190 million annually for 25 years (roughly $4 billion in total) to lure film studios to Nevada.5
Key Points
The value of the credit far exceeds film producers’ actual tax liability. The Office of Economic Development is instructed to reward qualified applicants a tax credit equaling 15% of total production costs at minimum. Proposed legislation in 2023 would expand this up to 30%. The value of the credit far exceeds any Modified Business Tax or sales tax liability that film producers are likely to accrue during the course of shooting a film. That means the credit is essentially a direct subsidy from state taxpayers for film production.
Film tax credits have been a net loser in other states. Advocates of tax credits for film production like to cite Louisiana’s program as a model of success. In 1992, Louisiana began to offer a film tax credit for “investment losses in films with substantial Louisiana content.”
In 2005, nonpartisan legislative staff reviewed the impact of the credit and determined that it resulted in major losses for the state’s general fund even after accounting for any boost in employment or tourism that could be attributed to the credit. For each of the years 2006 through 2011, the Legislative Fiscal Office estimated that the credit would result in a net loss to the general fund of at least $48 million.6
In North Carolina, as well, legislative fiscal staff reviewed the impact of $30.3 million in film tax credits awarded in 2011. “Under the most plausible assumptions,” report staff, “the Film Credit likely attracted 55 to 70 new jobs to North Carolina in 2011… The Film Credit created 290 to 350 fewer jobs than would have been created through an across-the-board tax reduction of the same magnitude.”7
Similarly, in Ohio, an analysis of that state’s film tax credit performed at Cleveland State University reached similar conclusions: Only $5.9 million of the $28.3 million awarded in tax credits has returned to the state in the form of additional revenue. In other words, Ohio loses 79 cents on the dollar.8
After flailing performance, other states are now eliminating film tax credits. Nevada chose to enact its film tax credits at a time when other states are scaling back or ending them. Since 2009, at least eight states have either eliminated their film tax credits or stopped appropriating money for them. Nine other states have scaled back the value of the credits offered or the total amounts available for the credit.9
Recommendations
Eliminate the film tax credit. Nevada has much greater needs for tax dollars than to subsidize film producers.
1 Nevada Legislature, 77th Session, Senate Bill 165.
2 Nevada Legislature, 81st Session, Assembly Bill 69.
3 Geoffrey Lawrence, “Can Hollywood be ‘Caged’ in Nevada?” NPRI commentary, October 2, 2013.
4 Nevada Legislature, 78th Session, Senate Bill 94.
5 Nevada Legislature, 82nd Session, Senate Bill 496.
6 State of Louisiana, Legislative Fiscal Office, “Film and Video Tax Incentives: Estimated Economic and Fiscal Impacts,” March 2005.
7 North Carolina General Assembly, Legislative Services Office, Fiscal Research Division, “Memorandum: Film Tax Credits,” April 9, 2013.
8 Candi Clouse, “Analysis and Economic Impact of the Film Industry in Northeast Ohio & Ohio,” Cleveland State University, Center for Economic Development, March 2012.
9 Joseph Henchman, “More States Abandon Film Tax Incentives as Programs’ Ineffectiveness Becomes More Apparent,” Tax Foundation Fiscal Fact No. 272, June 2011.