All About Film Incentives with CEO of 502 Film Soozie Eastman
Posted on: Nov 26, 2024
Photo Credit: Soozie EastmanSoozie Eastman is the president and CEO of 502 Film and film commissioner for the city of Louisville. I asked her to explain what producers and filmmakers should know about film incentives, since much of her time is spent helping filmmakers navigate the incentives package in Kentucky.
States create film incentives to entice filmmakers to come and spend their production budgets within a certain state or region. There are different incentives all across the country, and some may be more or less attractive to different productions depending on their specific needs. When a production is looking for an incentive, it’s important that they look at key factors within the different state incentive programs to see what can be of most benefit to them. These are the top elements she recommended to consider in an incentives package:
Types of Incentives
Incentives come in two varieties: refundable or transferable. Soozie said refundable is usually the best bet and cleanest tax incentive, because you’re going to get a check back for the incentive amount you spent within a state.
When you are in a transferable situation, you will often need to hire a broker, and then you will be selling your tax liability to someone else in the state. The state may seem to offer a high percentage tax incentive, but you’re losing some of that to your broker, and whether or not you benefit at all depends on someone buying your tax credit from you. What could be $300,000 cash back on a $1 million film in a refundable state could drop to $240,000 or less.
“Let’s say you are in a state with a 30% transferable tax credit and have zero tax liability because you spent your entire budget on expenses. You won’t really get 30%. You’ll have a broker’s fee and only get 80 to 90 cents on the dollar from someone buying the credit. When you have a refundable tax credit for 30% and zero tax liability, the company that applied for the incentive receives a check for that full 30%. On a $1 million film, that’s $300,000 back in your bank.”
Qualifications
It’s important to really understand which expenditures qualify for the incentives, and which do not. Different state packages have different requirements for eligible spends. Most states have a minimum threshold you must spend within the state. Some state that only in-state cast or crew hires are eligible, while others allow you to bring crew in. Kentucky allows out-of-state crew at 30%, but local hires are eligible for 35%.
Another fallacy some filmmakers hold is that they will apply for incentives mid-project after raising more funding. For example, getting halfway through a documentary and realizing you will actually spend enough to qualify for incentives based on what you’ve already spent with what you will need to spend after. You can still apply for future spends, but the incentives are only good for spending and costs incurred after the state has approved your spending. That means you can’t have sub-contractors before the approval and pay them after. Only work and costs after the approval will be eligible.
Application Turnaround
Some filmmakers think they can just go apply for incentives any time and use them. That’s not how it works, and there is always a process. It’s important to be aware of the turnaround time for your application to be approved. Some states look at applications monthly, while others look at them quarterly. The applications must be voted on at the next meeting after submission.
Some states have total funding caps that disappear quickly as applications are approved, which means a slate of films with higher spends may usurp all the incentives. Soozie said she’s received calls many times from people who thought they would get incentives they applied for in other states only to find out they were declined close to their planned shoot dates.
“I can only speak for Kentucky, but I know our process is about six weeks. Once approved, the incentives are good immediately. Before you can apply, you have to meet the minimum production budget and have 50% of it in your bank account or promissory notes and submit your planned in-state expenditures for review. Once that is approved, you can receive an application.”
She went on to say it’s equally important to look on the back end for the financial benefit turnaround, getting that cash back, because a lot of people want to cash flow their post production with their incentive. In Kentucky, it’s three to six months. Some states can take as long as two or three years to get the money back to you, which could be a prohibitive amount of time to wait for money to come back for your investors and for cash to bankroll your post production.
Application and Legal Fees
Applying for film incentives costs money. States have various rates for their administration and legal fees, but it’s important to consider the cost of applying versus the benefit received. For example, the minimum spend for documentaries in Kentucky is $10,000, but Soozie said it’s really only worth it after about $15,000 because there is a .05% admin fee and a variable legal fee that could be as high as $3,000. Those costs are paid up front, plus there is sometimes the requirement that part of your budget already be raised.
“These fees and requirements make sense, because some filmmakers will go around shopping incentives and apply in multiple states. When approved, it eats up some of the state’s available cap amount, and when the filmmakers don’t use them, it impacts other filmmakers’ approvals.”
Incentives may seem to be complicated for some filmmakers, but your investors will thank you for exploring the best ways to save money on your production. If you’re shopping incentives, Soozie encourages you to reach out to state or city film commissioners to gather the details and create a presentation you can present to your executive producers to show what each option looks like in terms of money back. You’ll not only earn money back, you’ll earn their respect for your business acumen.
Jessica Mathis (AKA Divinity Rose) is an award winning screenwriter/performer/producer from Louisville, Kentucky. She is the CEO of She Dreams Content Development and Production, which focuses on female forward projects in comedy, docustyle and genre entertainment.
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