by Jon Styf
A new Tennessee film tax credit program will change the way that entertainment companies receive subsidies from the state, but it won’t reduce the amount that those companies receive.
In fact, it is expected to increase the incentives in a program that has paid out $88.6 million since the Visual Content Act of 2006 created the subsidies. An additional $6.5 million in subsidies had already been committed as of the most recently released report on the Tennessee Film, Entertainment and Music Commission Production Grant Program at the end of 2021.
Rather than being a first dollar program, the new entertainment tax credit expands the eligible businesses that can receive a reimbursement on sales and payroll taxes for money spent in Tennessee.
While Tennessee paid out $11.9 million in film and television production incentives in fiscal 2021, the new program is set to cost the state an estimated $15.75 million annually starting in fiscal 2027-28.
The plan creates a payroll tax credit up to 40%, with a 10% incentive for economically distressed areas, along with a 9.25% to 9.75% sales tax break for goods and services used for production.
“The nature of this revenue is foregone revenue,” Rep. Ryan Williams, R-Cookeville, said in explaining the bill that created the incentive during committee. “The definition of foregone revenue means that, if these industries didn’t come here then their sales tax wouldn’t be generated, which is why they would receive a tax credit if the Department of Revenue recognized this as an acceptable entity for that reimbursement.”
Tennessee’s film and television incentives have gone to everything from the TV show Nashville, which the Beacon Center pointed out in a 2018 report that $45.2 million in incentives were paid for six seasons of a show that spent $251.7 million on production in the state.
Other multi-million-dollar grants included: $3.5 million for “Women of the Movement: Emmett Till,” $2.5 million for Season 1 of “Bluff City Law,” $6.5 million for Season 2 of “Tell Me A Story” and $3 million for the TV series “Million Dollar Quartet.” The state posts reports on who receives the credits two times each year, with the next report due in June.
“Virtually all research, whether independent analysis by state governments to Beacon’s own research, show that film incentives of any kind, including cash grants or tax incentives, are a bad deal for taxpayers,” said Beacon Center Director of Policy and Research Ron Shultis. “Too often we see states give out cash grants to Hollywood only to quickly quit production, like we saw with ‘Bluff City Law’ after one season. While reimbursable tax credits still are not a net positive return on investment, they at least protect taxpayers from being taken advantage of.”
The new entertainment tax credit expands eligibility for franchise and excise tax credits to include scripted and unscripted television shows, feature films, video game development, animation, commercials and audio/visual postproduction.
The Department of Revenue estimates that the state will approve an average of two new productions per year for an average $7.2 million tax credit per production with 20 percent of the tax credit, or $1.44 million, eligible to be used each year.
So the fiscal note estimated the tax credit would be worth $2.88 million amongst two productions its first year, $5.76 million amongst four productions its second year until an average 10 productions are receiving the benefit worth approximately $14.4 million from fiscal 2027-28 forward.
During discussion of the bill creating the incentive, Rep. Jerry Sexton, R-Bean Station, objected, saying that it opens the door for the film industry to hold Tennessee hostage like it has other states like Georgia. He also felt the foregone tax argument could be used for any new business.
“If mom and pop comes here and brings a furniture store, or convenience stores, we’re not going to give them the sales tax back,” Sexton said. “And I think it’s a double standard when we try to bring in these companies like this.”
House Majority Leader William Lamberth, R-Portland, argued that it was a conservative approach to make the entertainment companies prove they will spend money in the state instead of providing incentives up front. He said he met with producers of the Christian cartoon VeggieTales before voting on the bill.
“These are smaller grants and smaller opportunities, so it’s actually the opposite of Hollywood,” Lamberth said. “It’s designed specifically for those folks who do shows like VeggieTales that are not very costly.”
Despite the explanations, Sexton remained opposed to the incentives.
“I also like VeggieTales and I also like Mr. Potato Head, but he’s dead,” Sexton said. “It’s a change of culture that we’re inviting in.”
Later, Sexton added “We need Mr. Potato Head back.”
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Jon Styf is an award-winning editor and reporter who has worked in Illinois, Texas, Wisconsin, Florida and Michigan in local newsrooms over the past 20 years, working for Shaw Media, Hearst and several other companies.