States bait Hollywood but create a trap for taxpayers

Scot Mussi, executive director of Arizona’s Free Enterprise Club, doesn’t want the Lone Ranger to get tax breaks. Ever since Arizona dropped its subsidy for filmmakers in 2010, Mussi has fought new state bills that would reinstate the program, providing incentives for films like The Lone Ranger to film in the state.

“If you really get past the sizzle, they do not produce money for the state or for taxpayers,” Mussi said.

Across the nation, 39 states offer tax incentives or subsidies to filmmakers who shoot within their borders. While subsidies may provide jobs, they don’t always help state economies.

Arizona dropped its subsidy after a Department of Commerce report said the tax incentive cost the government millions of dollars more than it provided. Filmmakers benefitting from the tax breaks live out of state, so any boost to local business is often temporary. Even though lawmakers are trying to bring the program back, taxpayers like Mussi are lobbying against it.

State film subsidies can boost tourism—as with the Hunger Games tours in Asheville, N.C.—and others say it helps the economy. Proponents hold up Louisiana as a success story. Production crews will shoot four big-budget films and two television shows there this summer, and entrepreneurs build studios and trailers to cater to Hollywood producers. The state-run film office says production companies spent $810 million on 123 projects in 2013 and that the state issued $251 million in tax credits.

But film subsidies also cost the state government money. According to a 2013 audit by Louisiana’s Department of Economic Development, the state granted almost $200 million to film companies in 2010 but only earned $27 million in state tax revenue—a loss of nearly $170 million.

Joe Henchman, an attorney with the Tax Foundation, said states should think twice before giving taxpayer money to filmmakers: “The industry is eagerly playing all the states against each other.” Henchman downplays the importance of temporary economic boosts and says we should view giving money to moviemakers as artistic grants, not business incentives.

States rushed into film subsidies in the 2000s as filmmakers left California. While only a few states offered subsidies 15 years ago, 40 did so by 2010. Production companies often treat the tax incentive like grants, pitting states against each other so they can get the most money.

Arizona lawmakers are out of session for the season, so Mussi isn’t fighting against film subsidies right now. He welcomes filmmakers to come to Arizona but doesn’t want his state to give moviemakers preferential treatment: “There’s no reason that the movie industry needs to have a tax credit that benefits them and nobody else.”

The Associated Press contributed to this report.