Mofo New York Tax Insights - Winter 2012

Edited by Timothy A. Gustafson and Nicole L. Johnson,

Inside This Month

Should Filmmakers Be Content to Have Taxing Authorities Judge Their Content? By Hollis L. Hyans and Open Weaver Banks Individual Liability for Company Taxes By Mitchell A. Newmark and Richard C. Call Potential Unity and Business Income in California By Eric J. Coffill and Timothy A. Gustafson Managing Withholding for a Mobile Workforce: Special Treatment of Deferred Compensation and Stock Options By Paul H. Frankel and Debra S. Herman California's Property Tax Exclusion for Solar Energy Power Plants: Waiting to Sell Until New Year's Day Might Produce a Huge Hangover By Peter B. Kanter SHOULD FILMMAKERS BE CONTENT TO HAVE TAXING AUTHORITIES JUDGE THEIR CONTENT?

By Hollis L. Hyans and Open Weaver Banks

The vast majority of states have enacted tax incentive programs for qualifying motion picture and television productions. These tax incentives are available in many forms, including income tax credits (typically transferable), sales tax exemptions, hotel tax exemptions and cash rebates of qualified expenditures. Although the features of each state's program vary, the common purpose of these programs is to spur local economic growth by incentivizing the motion picture and television industries to locate their productions in the state offering an incentive program.

So what happens when a production company meets all the eligibility requirements for a tax credit, but cannot get past the state's censors? As we learned recently in New Jersey, the shooting location of the reality television series Jersey Shore, tax credits might be revoked if the state decides that the television program makes the state look bad.1 On September 26, 2011, Governor Christie informed the New Jersey Economic Development Authority that he vetoed its award of $420,000 in tax credits to the producers of Jersey Shore.2 Governor Christie explained: "I have no interest in policing the content of such projects; however, as Chief Executive I am duty bound to ensure that taxpayers are not footing a $420,000 bill for a project which does nothing more than perpetuate misconceptions about the State and its citizens."3

State Review of Motion Picture and Television Production Content

While Governor Christie's veto of the Jersey Shore tax credits made national news, New Jersey is not the only state that reviews the content of productions before granting tax incentives. In 2010, the New York Times reported the statements of Michigan's Film Commissioner in connection with the denial of tax incentives for the motion picture, The Woman. Noting the film's subject matter, "namely realistic cannibalism; the gruesome and graphically violent depictions described in the screenplay; and the explicit nature of the script," the Michigan Film Commissioner stated, "[t]his film is unlikely to promote tourism in Michigan or to present or reflect Michigan in a positive light."4 Similarly, the Texas Film Commission refused to pay $1.75 million in tax incentives to the producers of the motion picture Machete, citing a state law that allows the state to refuse to pay incentives for content that portrays Texas or Texans in a negative fashion.5

The producers of Jersey Shore could not have anticipated that their tax credits would be revoked because New Jersey's incentive program, like the programs in most states, does not disqualify productions that make the state look bad. However, a handful of states, like Texas, have enacted such criteria into their laws or created similar standards in their application review guidelines.6 Utah's Motion Picture Incentive Fund application instructions provide that the state is not required to grant incentives to projects that include "inappropriate content" or "content that portrays Utah or Residents of Utah in a negative way."7

In Wisconsin, a production will not qualify if it will hurt the reputation of the state.8 A production with content that portrays West Virginia in a "significantly derogatory manner" is ineligible for West Virginia film credits.9 Wyoming limits the definition of a "qualified production" to filmed entertainment that would likely encourage members of the public to visit the state of Wyoming.10 Similarly, Kentucky's program requires a determination that the production will not negatively impact the tourism industry of the Commonwealth and Pennsylvania's application guidelines indicate that the Pennsylvania Film Office may consider whether the project will tend to foster a positive image of Pennsylvania.11

The majority of state motion picture and television production incentive programs have not openly expressed a similar concern about productions that may portray a state in a negative fashion. However, states normally carve out broad categories of productions that do not qualify for tax incentives, such as news, sports events, award programs and even documentaries and reality television shows.12 It is also typical for incentive programs to contain some manner of prohibition on productions that contain sexually explicit or obscene material.13 By requiring tax incentive applicants to submit a script, screenplay or synopsis of the production, state film commissions charged with administering incentive programs are also able to review the content of proposed motion picture and television productions. Some state incentive programs actually require production companies to submit a copy of the final version of the production to qualify for tax incentives.14

First Amendment Principles

Although the producers of Jersey Shore may have more than one avenue for challenging Governor Christie's veto of their tax credits, the interesting question with multistate ramifications is whether Governor Christie crossed a First Amendment line when he denied tax credits to Jersey Shore based upon the content of the production.15 The First Amendment provides that Congress shall make no law...

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT