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As we will show, up to a 58% return on the investment can be obtained depending on the federal tax bracket. The obvious question is why aren’t all wealthy individuals and corporations utilizing this?
As we will show, up to a 58% return on the investment can be obtained depending on the federal tax bracket. The obvious question is why aren’t all wealthy individuals and corporations utilizing this?
The answer lies in the Illinois income tax rate. As will be seen in the examples provided later, a funding entity or individual must have a large Illinois tax liability to be able to take advantage of the Illinois Film Production Services Tax Credit Act of 2008. The previous 3% tax rate did not create a sufficiently large tax liability. The 67% increase to a 5% tax rate now makes many more entities and individuals able to take advantage of that state law. Corporations and partners in accounting firms are now beginning to see the advantage of the concept we are proposing.
The primary answer lies in the Illinois income tax rate. As will be seen in the examples provided later, a funding entity or individual must have a large Illinois tax liability to be able to take advantage of the Illinois Film Production Services Tax Credit Act of 2008. The previous 3% tax rate did not create a sufficiently large tax liability. The 67% increase to a 5% tax rate now makes many more entities and individuals able to take advantage of that state law. Corporations and partners in accounting firms are now beginning to see the advantage of the concept we are proposing.
The mode of funding proposed is underutilized for other reasons. First, it suffers from the belief that investment in motion pictures is extremely risky. While this is true, the mode proposed here DOES NOT depend on Never Split Tens earning a profit.
Second, large budget blockbuster movies require large up-front investors and low-budget motion pictures can not benefit from the current proposal. Only intermediate-budget motion pictures such as Never Split Tens can be funded in the manner propose. Finally, many motion pictures are shot in multiple states. The cost of production, as a result, is split among those states rather than occurring entirely in one state, for example, Illinois, and many of those states may lack the incentives provided by Illinois.
In short, the mode of funding is only viable for moderate-budget films shot entirely in Illinois since 2011.
==Funding for Never Split Tens==
==Funding for Never Split Tens==
Michele.McGee@illinois.gov
Michele.McGee@illinois.gov
As an example, say a film company spends $10 million in Illinois in 2013. They obtain a 30% or $3 million tax credit. That credit can be transferred to any entity which has an Illinois tax liability and, assuming the film production occurred in 2013, it can be broken up into credits from tax year 2013 through 2017. This is not a deduction; it is an actual tax credit.
In the usual scenario, film companies obtain payment of the tax credit from the state of Illinois after production is completed, sell those credits through a broker, and use the proceeds to cover post-production expenses such as editing, sound dubbing, and deferred A-list actor salaries (usually combined with points on the film profits). The credit is provided by the state to the producer after auditing, within 2-3 months of the termination of film shooting. As a result, if the film takes 4-5 months to shoot, the credit is provided by Illinois within 6-8 months of the beginning of shooting.
In the usual scenario, film companies obtain payment of the tax credit from the state of Illinois after production is completed, sell those credits through a broker, and use the proceeds to cover post-production expenses such as editing, sound dubbing, and deferred A-list actor salaries (usually combined with points on the film profits). The credit is provided by the state to the producer after auditing, within 2-3 months of the termination of film shooting. As a result, if the film takes 4-5 months to shoot, the credit is provided by Illinois within 6-8 months of the beginning of shooting.
The producers therefore wish to approach those with large Illinois tax liabilities. Either corporations doing business in Illinois or attorneys in large firms are appropriate fits. Some of these have large incomes, large tax liabilities, and are associated with a significantly large number of partners. The appropriate manner by which to approach these groups is through their advising accountants.
The producers therefore wish to approach those with large Illinois tax liabilities. Either corporations doing business in Illinois or attorneys in large firms are appropriate fits. Some of these have large incomes, large tax liabilities, and are associated with a significantly large number of partners. The appropriate manner by which to approach these groups is through their advising accountants.
In the above example, the producers budget spending $10 million in Illinois. The loaning entity or individuals provide a loan of $2.9 million. After six to eight months, Illinois provides our production company the $3 million tax credit which is then transferred to the loaning entity or individuals. With that $100,000 paid back in interest, the earnings on the loan is $100,000/$2,900,000 x 100 = 3.4% for eight months, equivalent to 5.2% interest annualized. (Note: The full payment comes from the Illinois tax credit, not the production company, and therefore the "interest" is not income.)
===Federal Deduction===
===Federal Deduction===