How one state cheats its taxpayers to award the wealthy
Tax credits designed to lure Hollywood producers to make their films in Arizona actually lost the state $6.3 million last year, a new report states.
The study prepared by the Arizona Department of Commerce said the productions given credits generated 317 full-time jobs in the industry. And another 413 jobs were created indirectly from spending by filmmakers in the state.
All totaled, that generated about $2.3 million in additional state and local taxes.
But Arizona gave out more than $8.6 million in credits to get that gain.
The report comes as state lawmakers are debating whether to continue the program. And some in the industry are lobbying for even more generous credits, saying they are needed to lure companies to produce their feature films, commercials and music videos in Arizona.
Randy Murray, who owns his own Phoenix production company, said the Department of Commerce “miscalculated” the benefit to the state.
“It’s nonsensical,” he said. Murray said the agency is not counting all the financial benefits to the state of having an active film industry in Arizona.
But Kent Ennis, the agency’s interim director, said the study does calculate what kind of money the films and videos given special tax breaks do produce for the state. And he said care was taken to show both direct and indirect benefits.
Ennis, who is an economist by background, said the results of the study are not surprising.
A similar report for 2007 showed a $1.7 million net loss to the state. And Ennis said similar studies in other states that also are trying to lure filmmakers there through special tax breaks have come to similar conclusions.
“It seems like legislatures have passed them without doing the fiscal analysis,” Ennis said. That, he said, includes Arizona.
There actually are several tax breaks available.
Companies do not have to pay sales taxes on items they purchase here, ranging from filmmaking equipment to money spent on hotel rooms and catering. They also are exempt from paying “use” taxes on items bought in other states.
Finally, they get credits against any state income taxes they might owe. And if they don’t owe any income taxes, they can sell the credits to another company that does.
Ennis called the benefits “quite generous.” And that, he said, is what makes it “arithmetically difficult for a project to actually break even or make money for the state.”
Murray, however, said the issue is more than just dollars and cents.
“Arizona does have a history in the film industry that should not be let go,” he said. “If we don’t have a tax credit, a loss-leader if you will, we’re walking away from the industry completely and it would be a shame.”
And Murray said even if there is a loss, “we’re not talking about huge amounts of money here.”
Ennis agreed that the credits have created some new business for the state.
“But just because you’re spending money doesn’t mean you’re earning tax revenue off of it,” he said. “The question is, is it worth the fiscal loss the state seems to be taking?”
Ennis said that is a policy decision for lawmakers and not for his agency.
The report itself says even the benefits may be overstated.
For example, there is the claim of 317 full-time positions being created. The study says that includes anyone working at least four hours a day — but only during the film production at issue, meaning they may not actually be working year-round.
The study also says these credits, unlike some other economic development incentives, contain no requirements that there be ongoing employment or even that those hired actually are paid certain minimum or prevailing wages.
“As a result, it is not possible to know how many full-time equivalent (jobs) continue to exist after productions are completed,” the report says.
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