When looking at state production tax credits, it is easy to get lulled into a false sense of security by looking at the gross percentage offered. You see 20%, 25%, or even up to 40%.
Wow! I can decrease my budget by that amount.
If you do that you could be making a serious financial error, particularly if you decide not to bring in financial specialists and accountants from the beginning to help guide you through the process. Unlike many problems in production, you can’t fix this one in post.
To start, you have to understand what each state covers and does not cover. For example, Texas does not cover any payroll for non-Texas residents; most states do not cover payroll, if you are paying them as independent contractor since you are not deducted payroll taxes. Some states, such as New York, offer less incentives depending on the county the expenses are incurred in. In New Mexico eligible expenses must be made through a New Mexico company. The list is extensive and varies from state to state.
There is also the process itself. Is pre-approval necessary? When is the filing required? What is the difference between a tax credit and tax rebate? How can the production monetize the incentive?
Mistakes are costly. In one case I ran into involved a production company that paid payroll on a 1099 basis. The state rejected all these expenses as ineligible, reducing the allowable expenses to below the state minimum. This cost the project over a budgeted $300,000. One of the reasons cited for the error was the production felt it was too costly to bring in tax incentive specialists before principal photography started.
Not only do the specialists maximize your return, but will also make sure your budget is accurate. Hitting your targets not only satisfy investors, they will dramatically increase the chances of the investor funding your next project.