(1888PressRelease)
August 20, 2007 - In order to attract film production and provide for economic development and incentives, many states and territories including Arizona, Rhode Island, Georgia, Connecticut, Illinois, New Jersey, Iowa, Pennsylvania, Louisiana, Massachusetts, Connecticut, and Puerto Rico have enacted aggressive legislation that provides for tradable Film Production Tax Credits.
Tradable tax credits have historically been part of state and federal programs aimed primary for real estate development, including historic structures rehabilitation, energy, and other activities that stimulate economic growth.
With film projects, Production companies earn a transferable tax credit on the total eligible production costs, and wage expenses. That can translate to 20% – 30 % of the total production cost for a film, in the form of a tax credit issued directly to the production company. It can be used to offset state tax liability, or sold to another taxpayer.
In Illinois, a 20% tax credit based on "Illinois Production Spending" plus an additional 15% tax credit based on Illinois labor expenditures generated by the employment of residents of geographic areas of high poverty or high unemployment is available. New Jersey offers filmmakers a 20% tax credit for productions that film at least 60% in the state, as well as a 30% loan guarantee from the New Jersey Economic Development Authority.
In Connecticut, film makers can earn a tax credit worth 30% of their eligible Connecticut production costs, and in Massachusetts, productions with a minimum expenditure of $250,000 earn 20% and 25% for production expenses and labor expenses, respectively, when at least 50% is shot within the Commonwealth. Note: in MA, pending regulations propose a flat 25% combined tax credit, a minimum spend of $50,000, and removal of per-project cap.
In CT., the 4 new bills are being debated in the legislature, and the expected result in June will be a combination bill. Rhode Island offers a 25% tax credit to productions with a minimum eligible expenditure of $350,000, when 51% of the total budget is spent within the State. For more information about qualifying for each states’ tax credit, contact Tax Credits, LLC.In Pueto Rico, A tax credit is granted to the investors in a Film Project equivalent to 40% of budget items paid to Puerto Rico residents, up to 50% of the cash invested as equity in the project. 50% of the tax credit granted to the investor may be made available to the investor upon investment if a completion bond or a letter of credit is obtained, including the Puerto Rico Secretary of the Treasury as one of the beneficiaries.
Tradable tax credits allow production companies earning credits to sell their credits to companies and/or high net worth investors who have a tax liability within the state, where the credit was earned. The tax credits are sold at a discount for cash, garnering the seller cash to lower their net production expense.
Any company may take advantage of these “Financial Assistance Programs” to reduce their state tax liability. Purchased credits can typically be used for any year in which a tax return has not been filed. In general, credits may be used to offset any, or all, of the following: Individual Income Tax, Corporate Business Tax, Franchise Tax, Premium Tax, and Utility Tax (qualified taxes allowed for offset vary by State).
Large corporations and high net worth investors with a significant state tax liability can benefit from the purchase of film production tax credits, as they are able to purchase a dollar’s worth of tax credit at a discount.
NJ, RI, CT and MA film credits provide the buyer with the right to carry the tax credits forward for at least 3 years, which protects the buyer from investing significant dollars in tax credits that they cannot immediately use. In Illinois, tax credits can be carried forward for 5 years. The tradable, and thus marketable aspect of these state-issued tax credits means that tax credit investors can also retain an equity position in a film or a slate of films.
For example, lets say that a tax credit investor has $3,000,000 in tax credits he needs to purchase. While normally the final tax credit amount is calculated after a film's production, he decides to benefit from the upside in potential profits and receive his tax credits.
So if a film has a budget of $6,000,000, 50% of the budget is equity ($3,000,000) and 25% is tax credits, an investor/tax credit buyer will receive benefits of $1,500,000 and 50% equity in the total international film profits and revenues.
But what happens to the other $1,500,000 he still needs to receive as tax credits?
Well if his or a company's film investment was part of a film package, that amount is rolled over to another film that can be shot in a state or province where there may actually be a higher tax credit incentive which would be transferable back to him and any other investors on a pari pasu basis. For multinational firms and investors, this can also be leveraged and cross-collateralized to a multple country and territory transaction where there is a significant tax credit incentives such as Manitoba, Saskatchewan, Spain, Hungary, UK, South Africa, Australia, New Zealand, and others.
Another option would be to leverage the initial tax credit investment with a direct equity co-investment and set up several additional tranches of debt for a larger film fund.
To find out how a tax credit investment can also turn into a film investment that would hedge the risk and revenues across multiple films, please contact yuri ( @ ) noci dot com
About:
Recently, CITIGROUP financed Relativity Media's global film fund in excess of $1 Billion dollars. The fund's manager, Ryan Kavanaugh, is 32 years old and has raised more than $4 Billion dollars for film finance in the last few years from other institutions such as Merril Lynch and Deutche Bank. Thomas Tull, the founder of Jackson Hewitt Tax Services recently closed a $1 billion dollar deal with Dresdner Kleinwort for his Legendary Pictures Film Fund. GE CAPITAL recently was the lead arranger for a $200 million film fund lead by production executives Mark Gill and Neil Sacker.
In the last several years, numerous other international capital markets groups including DRESDNER KLEINWORT, MERRIL LYNCH, GOLDMAN SACHS and other institutional investors and hedge funds have bankrolled both studio-co-financed films and standalone film finance and production companies.
The usual structure was to have several layers of senior and mezzanine debt and bottom position junior equity. While the structures in some cases were unique, the portfolio risk was not as many of the funds are on shaky grounds.
Further, the hedging of studio co-financed films at large budget ranges was a model that was not revolutionary and did not do its homework with other historical slate financing that was acquired outside the film business in the last 30 years. While betting on a horse or two may be the vanity more than the reality, the upside and return on investment is proving to have a much smaller premium.
Nonetheless, there is a huge opportunity for a niche structured finance fund that Noci Pictures Entertainment has developed that not only guarantees and protects capital 100% but can leverage and reduce certain international tax positions.
Noci Pictures Entertainment has identified a unique and never before structured principal protected film fund that is drawing interest from both U.S. and international capital markets groups, investment banks, large hedge funds, and families of extreme wealth.
The Company will be able to finance, co-finance, and distribute 40-100 films over the next 5-7 years, share in the revenues with principal financiers, offer certain international tax credits, and most important, protect 100% of the principal capital, exclusive of revenues.
The Company's business model is conscious of investor returns and protection of capital as it positions itself to be an industry leader in ethical film finance, production, and distribution.
The Company is reviewing several strategic partners to be involved with the structuring of the transaction and is still open to inquiries.
If you are an investment bank, capital markets professional, institutional investor, pension fund, insurance company, hedge fund, fund of fund, asset management firm, exceptionally high net worth accredited investor, private equity fund, or corporate tax buyer, and you would like a long term, principally protected investment that also offers a long term range of revenues, please contact Yuri Rutman at yuri ( @ ) noci dot com.
