Legislature(2007 - 2008)SENATE FINANCE 532

02/22/2008 09:00 AM FINANCE

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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                                                                   
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                                                                   
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                                                                   
    · 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                                                                              

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