Legislature(2007 - 2008)SENATE FINANCE 532
02/22/2008 09:00 AM FINANCE
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* first hearing in first committee of referral
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SENATE BILL NO. 230 "An Act establishing the division of film in the Department of Commerce, Community, and Economic Development; and creating a transferable tax credit applicable to certain film production expenditures incurred in the state." SENATOR JOHNNY ELLIS, SPONSOR, gave an overview of SB 230. He described the need to diversify Alaska's economy and thought SB 230 would make Alaska competitive by creating the Alaska Film Incentive Program and re-establishing the Alaska Film Office. Forty-five other states have active film offices. Senate Bill 230 proposes transferrable tax credits. The plan is built on the successes of other states. For example, New Mexico had $1.5 million in film spending in 2001, the year they enacted tax incentives. In 2007, the film industry spent $476 million in the New Mexico economy. Senator Ellis listed films Alaska has lost in recent years that were set in Alaska but filmed in other countries and states. MAX HENSLEY, STAFF, SENATOR JOHNNY ELLIS, summarized the sections of the bill. · Sec. 1 authorizes the Department of Revenue and the Department of Commerce, Community and Economic Development to give tax credits to film producers for qualified spending on qualified projects. · Sec. 2 establishes an Alaskan Film Office and the administration of a film production incentive program. Subsections direct how the Department will proceed with the film industry in relation to tax credits. 10:44:35 AM Senator Ellis has been encouraged by the amount of business support the proposal has received. Senator Elton referred to page 3, line 5, regarding productions that are now eligible. He wondered what the bill meant by "current events programming." Senator Ellis said he would get a specific definition. Sports broadcasts would not be covered for the incentive, but a show like "The Deadliest Catch" would be. Senator Elton wanted more information regarding another type of non-eligible production, "sexually explicit conduct" as defined in federal law (page 3, line 16). Senator Elton had the impression that the federal definition was so broad that it would disqualify many projects. Senator Ellis explained that all states use the same standard and it has worked well. Senator Elton said he was satisfied with that. Co-Chair Stedman referred to page 3, line 11, regarding non- eligible sports events or programs, and wondered if dog- mushing races would be excluded. Mr. Hensley replied that the definition is meant to exclude live broadcasts of sporting events such as ESPN at the Great Alaska Shootout. ESPN already has to come to Alaska to cover that event; there is no reason to give them additional incentives to come. Mr. Ellis added that the bill would allow a special project relating to sled-dog racing, which would promote Alaska, create jobs and bring money into the state. 10:51:00 AM BOB CROCKETT, BOARD MEMBER, ALASKA FILM GROUP (AFG); DEBRA SCHILDT, FOUNDING MEMBER, BOARD MEMBER, AFG; and KATE TESAR, PRO BONO LOBBYIST, AFG, spoke in support of SB 230. They gave a PowerPoint presentation (Copy on File). Mr. Crockett pointed out that a film production can have broad economic impact in Alaska. He explained how tax credit incentives work: · The production company applies for a credit. · The film office approves production, issues a preliminary certificate with estimated credit amount which the company can use as collateral for loans, financing, etc. · The movie gets made. · The production company submits a spending report verified by Department of Commerce, Community and Economic Development and an independent CPA. · The film office issues a transferrable tax credit. · The producer sells the credit to an Alaska corporate tax payer, generally through a broker. · The taxpayer redeems the transferrable credit to offset tax liability any time in the future. Ms. Schildt explained that Canada has been Alaska's biggest competitor. From 2001-2005, 142 features were produced in Canada. Canada built an infrastructure around the film industry. She described films that were set in Alaska and shot in other states because those states had incentive programs. Mr. Crockett discussed a chart showing examples of how much money can be spent on location by television shows and films. These projects create high paying jobs that can compare to North Slope jobs. Feature films pay high union rates; commercials pay even higher. Ms. Tesar described the film dynamic: Incentives attract films, which in turn affect markets, which help build infrastructure, that employs a larger labor force, and so on. 10:58:39 AM Senator Thomas asked what the amount of tax credit would be if there were $10 million spent in Alaska, of which $1 million was wages. Ms. Tesar answered the tax credit would be approximately 30% of that. 10:59:45 AM DAN STICKLE, ECONOMIST, DEPARTMENT OF REVENUE, stated that the Department does not have an official position on SB 230. He outlined the rates of the tax credit: · 30% of eligible production expenditures; · an additional 10% of Alaska wages; · an additional 2% for off-season filming; and · an additional 2% for rural spending. Mr. Stickle explained that the tax credit would be available to film production companies. He said that most production companies are limited liability corporations which under State law are not subject to corporate income taxation. The Department sees that the tax credit will be a subsidy of the film industry. If Alaska is able to attract dozens of feature films, the impact could be quite large. 11:02:10 AM Co-Chair Stedman wondered what a $100 credit, just as an example, would go against. Mr. Stickler answered that the credit would be applicable to the corporate income tax. The company that incurs the production expenses, assuming it was a limited liability corporation and did not have the corporate income tax liability, would sell the credit to a company that does have a corporate income tax liability in the State. Co-Chair Stedman asked if there were limits on the credits. Mr. Stickler said there are no limits on the credits in SB 230. 11:03:11 AM Senator Olson asked if there were any way to evaluate the impact the investment would have on the State. Mr. Stickler said he could not predict that. Senator Olson wondered if tax credits in general have been successful in the state. Mr. Stickler said he would look into any specific credits. 11:04:17 AM Co-Chair Stedman asked Mr. Stickler to clarify the difference between a credit and an expense, using $100 as an example. Mr. Stickler explained that a credit is going to have a much larger effect on revenues than an expense. A $100 expense against an income tax would reduce net income by $100. A credit applies directly to tax liability. A $100 credit will reduce state revenue collections on the corporate income tax by $100, while an expense would reduce net income that gets apportioned to Alaska by $100. Co-Chair Stedman added that a credit is more powerful by over ten times with a 9.4% corporate income tax. There is a substantial difference between the ability to deduct an amount or take it as a credit. 11:06:08 AM SB 230 was HEARD and HELD in Committee for further consideration.