Georgia Film Tax Credit Program is “Ideal for Fraud”, Report Finds

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Georgia film tax credits program lacks oversight and creates fewer jobs than originally reported, a new state audit finds.

A Georgia state audit found the lack of oversight into Georgia’s tax credit for movie and TV productions filming makes the film tax credit perfect environment for fraud. Georgia’s film tax credit is popular among those working in the film industry but, it comes with a considerable cost, according to the AJC report. The tax credit had grown from $141 million in 2010 to an estimated $870 million in 2019.

However, companies received film tax credits they did not qualify, auditors claim.

According to auditors, millions of dollars in inappropriate expenses by film businesses, including wages to workers or contractors for work companies completed outside Georgia.

“Deficiencies in the credit’s administrative controls and the significant financial benefit provided by the credit create an environment ideal for fraud,” auditors wrote.

“Deficiencies in the credit’s administrative controls and the significant financial benefit provided by the credit create an environment ideal for fraud,” auditors wrote.

Fewer jobs were actually created thanks to Georgia’s film tax credits

“The impact of the film tax credit on the state’s economy has been significantly overstated, leaving decision-makers without accurate information necessary to assess the credit,” the State Georgia Film Tax Credit audit report says.

The audit claims the film industry’s actual impact in 2016 was $4.6 billion and not the original report of $9.5 billion. The initial report reported the film industry created 92,000 jobs in 2016. But, auditors said after considering the economic cost of the credit, the net impact of the film tax credit was only $2.8 billion, which is a 70% difference from the original report.

The audit also claims the film industry produced 29,006 jobs but, the film tax credits also cost the state 19,876 jobs due to decreased government spending, leaving a net creation of jobs at 9,130.

The Georgia Department of Economic Development calls out the auditors. “The mere fact the film tax credit isn’t fiscally positive to the state can’t be used to determine the credit isn’t beneficial,” the department writes in a response added to the audit report.

Lack of oversight

The audit also found the lack of satisfactory operation to check inappropriate awarding of film tax credits added to the problem. The state audit concludes the state’s expense per job generated was $65,950. The Department of Economic Development disputes the cost per job is $19,517.

In comparison to any of the 31 other states with film tax credits, Georgia currently requires companies to fill out less documentation, auditors claim. Hundreds of projects receive film tax credits every year.

Georgia State officials claim the industry has created thousands of jobs in Georgia. However, researchers say sponsors overstate the impact of the film tax credit.

Massive budget cuts

This news comes after lawmakers are considering changes to the film tax credit due to the rising costs and Gov. Brian Kemp’s call for budget cuts.

One of the representatives arguing for a change is State Sen. Lindsey Tippins, R-Marrietta. Tippins is looking to reduce the film tax credits to avoid massive budget cuts in other areas. Tippins says he is worried that each TV show or movie production receives a tax credit without any guarantee of any long-term job opportunities.

“There’s no expectation of continued employment in the state’s economy,” Tippins said. “There needs to be much more analysis on the return on investment that any successful business would have.”

Supporters of the film tax credit say the system has boosted the movie industry in the Peach State. The number of TV shows and movies has grown since Georgia representatives created the program. The auditors say 450 movies, TV shows, and other projects were eligible for tax credits in 2016.

“The tax credit has been a huge success,” said Republican state Sen. Frank Ginn, the chairman of the Economic Development and Tourism Committee. “What we need to do is evaluate where we go moving forward.”

Georgia’s Film Tax Credits History:

Georgia Go. Nathan Deal, recently traveled to Los Angeles to pitch movie and TV show producers the benefits of filming in Georgia. As the southern film industry continues to crumble, Georgia is positioning itself as not only the King of filmmaking in the south but, the film industry capital of the world.

North Carolina cut back on its filmmaking tax incentives program. Meanwhile, Louisiana’s film industry is under great scrutiny with reports of an utter collapse in the next few months.

But, Gov. Nathan Deal is using North Carolina and Louisiana’s failures to his advantage. With Marvel calling Atlanta their unofficial filming location for all of their projects, to the multi-billion dollar movie franchise, Deal is building Atlanta to become the future home of the film industry. “If you get caught in the trap of having to defend tax credits to the entertainment industry vs. having to not use that money for things like education, then sometimes it is hard to defend,” he says. “We have avoided being caught in that trap.”

How does Georgia’s Film Tax Credit System Work

Georgia’s 30% credit is not only more generous than that of most states, including California’s; it also allows producers to count salaries of directors and actors in addition to below-the-line crew as part of their qualified expenses, as long as the payment is for work performed within the state.

Moreover, while California is hoping for a big boost in production since it more than tripled the size of its incentives program to $330 million annually, Georgia has no cap on the amount it is prepared to dole out in credits — which also happen to be transferable, i.e., they can be sold to other entities that may have a greater tax liability. [Variety]

Therefore, a movie studio can pay Will Smith or Tom Cruise $100,000,000  for a movie and then receive $30,000,000 in tax credits. Therefore, saving $70,000,000. In fact, with transferrable tax credits, film producers can save even more money.

According to PewTrusts.org, transferrable film tax credits can be ruining our schools, or not helping small businesses.

Critics on the left argue that states commit too much money to incentives, money that could go to schools or health care. Critics on the right say that states could eliminate incentives and use the savings to lower tax rates for everyone. Many businesses and policymakers argue, however, that they’re an indispensable part of states’ economic development strategies and that growing the economy will ultimately help a state’s citizens and its bottom line. [Variety]

According to the state Dept. of Economic Development, $1.4 billion was spent on production in fiscal 2014. In 2007, it had been $132.5 million. Louisiana and North Carolina’s film industries continued to crumble, which allowed for Georgia to become a leader in the film industry.

But, outside of tax incentives. Gov. Nathan Deal created programs to educate a workforce to handle the growing film industry called the Georgia Film Academy – “a partnership of universities and technical colleges — as well as an expansion of a grant program to include more recipients who are studying to be part of the film and TV workforce. The idea, he says, is to address a shortage of skilled crew members.”

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