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Where the #%@! is my tax credit?

Netflix's House of Cards is pocketing $25 million in tax credits from Maryland, and threatening to pull out of state if it doesn't get more for season three. Why aren't other online originals riding the tax credit gravy train?
February 24, 2014

congressThe Netflix original series House of Cards may have routinely exceeded its $4.5 million-per-episode budget, but the sticker shock was eased by a 27% tax credit from the state of Maryland, which amounted to $11.6 million for the show’s first season and could reach $15 million for its second.

Now, the Washington Post is reporting that Charlie Goldstein, SVP of television production for House of Cards’ production company Media Rights Capital, has sent a letter to Maryland Gov. Martin O’Malley threatening to “break down our stage, sets and offices and set up in another state” for season three if legislation is not passed increasing funding for the tax credit.

At this point, producers of online originals are probably asking themselves where the #%@! is my tax credit?

Some states have a lower threshold of entry, such as Massachusetts, which only requires an in-state spend of $50,000 to qualify for its 25% tax credit.

Today, 37 U.S. states and numerous international locales offer film and TV production incentives like the one in Maryland, but they all come with pages of fine print. The biggest impediment for the typical web-first production is the minimum spend required by most locales. In Maryland, for example, productions must spend at least $500,000 in-state, while Louisiana, the most consistently popular “runaway production” destination of the last decade, has a minimum spend of $300,000 for its 30% tax credit.

oitnb_pds_033_hThose are doable for premium streaming outlets like Netflix and its shows House of Cards and Orange is the New Black (the latter is reported to cost just under $4 million per episode), but it prices out most ad-supported online video channels, in spite of the fact that minimum spends for series are typically based on the budget for an entire season.

The three-to-five-minute videos for Whatthefunny.com typically cost $5,000-$10,000, according to WTF Studios CEO and co-founder Randy Adams, which is probably less than the craft services bill for a single day of shooting on a Netflix show.

Chasing a tax credit would make sense “if we were committing to do long-form production, whether it’s a TV show where we’re shooting a number of episodes or maybe even something for film,” Adams says, “but these short-form things, it’s a one-day shoot and we’re in and out.”

Some states have a lower threshold of entry, such as Massachusetts, which only requires an in-state spend of $50,000 to qualify for its 25% tax credit. Others offer separate incentives for “nontraditional” projects  including interactive media/video games, reality shows, documentaries, commercials, industrials, music videos and webisodes. For example, Florida’s 25% to 30% tax credit for independent and emerging media productions only requires a $100,000 spend, but it has a maximum payout of $125,000. Then why not just set up shop in New Mexico — host of the recent films Lone Survivor and The Lone Ranger, as well as the TV series Breaking Bad — which has a 25% tax credit with no per production payout cap or minimum spend requirement?

It’s getting harder and harder to get a greenlight for a film or TV show if it doesn’t have a tax credit component, and the trend is spilling over onto the web.

Producers can also take advantage of tax credits not specifically related to media, such as “enterprise zone” programs.

“They’re usually set up in lower socioeconomic areas where they’re trying to promote business,” explains Joseph D. Chianese, EVP for EP Financial Solutions, a leading provider of payroll and production management services. “For example, years ago, Paramount was promoting that if you shot on their lot, you could take advantage of those credits because parts of the studio were in those regions.”

There has been less and less shooting on those lots over the last decade, as Hollywood has hemorrhaged productions to regions offering film and TV production incentives. According to a study by the L.A. Times, states paid out or approved $1.5 billion in tax breaks in 2012, compared to $2 million in 2002, the year Louisiana kicked off the domestic incentive race.

It’s getting harder and harder to get a greenlight for a film or TV show if it doesn’t have a tax credit component, and the trend is spilling over onto the web.

HemlockGrove-11-300x201“[The Netflix series] Hemlock Grove moved from Pennsylvania to Toronto when the incentive in PA was in question,” points out Adrian McDonald, research analyst for FilmL.A., who’s authored several studies on runaway production, including a comprehensive examination of production patterns in 2013 set to be released on March 3.  “In Toronto, they get the incentive,” McDonald says, of the series that’s produced by Gaumont International Television.

California offers a 20% to 25% tax credit, but it is highly restrictive. Series that spend $1 million or more, and movies of the week and miniseries spending upwards of $500,000 qualify for a 20% credit, but network and pay TV series are ineligible unless they are relocating from another locale — as ABC’s “Body of Proof” did when it moved from Rhode Island to L.A. for its second season — then they qualify for a 25% credit.

That’s a mere 2% less than what they’re offering in Maryland. Does this mean House of Cards could be headed to the Golden State?

“It’s hypothetically possible,” allows McDonald.

About The Author
Todd is StreamDaily's U.S. West Coast Correspondent. He has written for a wide range of publications, including The Hollywood Reporter, Variety, the Los Angeles Times, the New York Post, NylonGuys and, yes, even the Weekly World News. Earlier in his career, he served as senior editor for the pioneering alternative movie magazine Film Threat. You can reach him at toddrlongwell[at]gmail.com or on twitter @toddlongwell1

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