Film, Fraud, and Fixes: Choosing film production tax incentives that maximize stakeholders’ value while minimizing fraud

Abstract

The objective of this project is threefold. The first objective is to conduct an analysis of film production tax incentives (Film PTIs) available across all 50 states. Using this information, the second objective is to discern potential frauds for the various types of Film PTIs. The third objective is to then recommend a mix of Film PTIs that: Minimizes the potential for fraud; provides adequate incentives for film production companies; and allows states to promote themselves as supporters of in-state film productions, skilled job creation, and local small businesses.

This graduate research service learning project was conducted at Coastal Carolina University by students in Dr. Maguire�s Spring 2015 ACCT 631 Fraud Examination class. The clients for this project operate in multiple sectors of the film industry. They include TLC�s Trailer Park: Welcome to Myrtle Manor, A&E�s Wild Transport, Jupiter Entertainment, and The Weinstein Company (hereafter �The Clients�). Working in collaboration, this research aims to assist The Clients in their tax planning efforts when evaluating filming locations. Concurrently, this research aims to help South Carolina and other states demonstrate their film industry building efforts, while meeting the commitment to achieve best practices and act in the best interest of their constituents.

With these objectives in mind, we make the following recommendations regarding a Film PTI mix:

� Offer Film PTIs to all eligible legal production companies, regardless of the market segment (e.g., Video Games, Music Videos, etc.).

� No minimum spending cap, however pre-approval from the state is required.

� Offer film production companies sales, use, and lodging tax exemptions.

� Require project ending audits.

� Offer Film PTIs for state specific product placement (e.g., South Carolina license plates, road signs, local businesses, etc.).

� Offer Film PTIs for location filming during the off season and/or in smaller towns.

� Offer maximum �above the line� salary Film PTIs at $1 million per person (above the line salaries are for screenwriter, producer, director, and principal actors).

� Offer Film PTIs for post-production with in-state facilities.

� Refundability with a useful life/carry-forward of five years.

� State buyback of refundable credits below par or face value.

� We do not recommend brick and mortar incentives.

� We do not recommend transferability of Film PTIs.