Maryland Bar Bulletin
Publications : Bar Bulletin : September 2005

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Entertainment /Sports Law    

MD Legislature in Step with Film-Incentive Trends
By Cheryl L. Slay

California and New York top the list of states perceived as primary entertainment markets in enacting legislation favorable to entertainment industries. This perception may be attributed to the level of entertainment activity within the two states and the impact of entertainment-related transactions on their economies. Yet within the context of film production, the national landscape is changing, with more and more states recognizing the potential for state revenues via home-grown film production. Maryland is a part of that changing landscape.

Because movie producers can not accurately predict either box office success or a corresponding return on the substantial investment required for success, producers’ strategies for controlling production costs have come to routinely include the careful selection of filming locations which impose few restrictions while offering monetary incentives. As a result, economic and public policy infrastructures have developed to support the industry’s requirements.

Other countries have long been willing to lure film production within their borders with financial incentives. For example, Canada stands out because of its convenient proximity and uncapped refundable tax credit of 16 percent on labor costs for U.S. movies with budgets of at least $678,000, plus additional incentives in specific provinces, according to the Los Angeles Lawyer. Canada is joined by other countries that offer attractive incentives and compete with California’s film industry.

Within the U.S., several states have also enacted financial incentives, with New Mexico, Louisiana and Hawaii as leaders. Most such inducements take the form of sales tax exemptions for production costs (e.g., for script, talent, construction, wardrobe, sound and lighting, and location fees). Some states also provide wage tax incentives, and New Mexico makes loans with favorable terms available to producers in addition to its tax incentives.

Maryland has likewise increased its market participation. In an effort to expand economic activity within the state by encouraging film production within its borders, the General Assembly enacted sales tax incentives for film production activity in the 2000 legislative session.

The Maryland sales tax exemption is specifically limited to film production activity which fits within the statute’s definition, to include “feature films, television projects, commercials, corporate films, infomercials, music videos, or other projects for which the producer or production company will be compensated, and which are intended for nationwide commercial distribution.”. The definition excludes “student films or non-commercial personal videos, or any activity not necessary to and undertaken directly and exclusively for the making of a master film, tape, or image.”

For activity meeting statutory and regulatory requirements, the statute exempts from sales tax “tangible personal property” or “taxable service used directly in connection with a film production activity.” This includes, for example, camera equipment and supplies, film and tape, lighting and stage equipment, sound equipment and supplies, recording equipment and supplies, costumes, props, and other personal property and services.

Certification by the Department of Business and Economic Development is an additional requirement for the exemption. Regulations promulgated by the Department of Business and Economic Development further elucidate the statutory requirements.

The General Assembly further expanded the realm of incentives available for film production in Maryland by enacting an employer wage rebate earlier this year. Under the enactment, “a qualified film production employer may receive a rebate in the amount of 50 percent of the amount of qualified employee wages that the qualified film production employer has paid, up to a maximum rebate amount of $2,000,000 for any particular film production activity.”

As with the sales tax exemption, the Maryland wage rebate limits the type of production activity to which the benefit applies. For example, the rebate does not apply to student films, non-commercial personal videos, sports broadcasts, broadcasts of live events or talk shows. The statute also requires film production employers to notify the Department of Business and Economic Development of its intent to seek a rebate prior to engaging in production activity, and then they must apply for the rebate.

Maryland’s recent legislation (effective July 1, 2005) and that of other states with similar policies is poised not only to impact the state’s economy, but also those of the once-primary California and New York markets. New York City has responded by amending its legislation in 2004 to include a 5 percent takx credit on production costs spent in New York City for eligible films (New York state also offers incentives). California has reportedly seen as much as a 37 percent decline in feature-film activity, according to a recent New York Times article citing statistics from the Los Angeles Entertainment Industry Development Corporation. California is currently floating incentive bills in an attempt to counter the competition that now emanates not only from outside U.S. borders, but from states within them as well.

The potential impact of such state legislation is noteworthy:

  • For independent filmmakers (i.e., small producers with small budgets), the trend is a positive one. Many of these market participants cannot afford to relocate to enjoy incentives, and in-state incentives will be both helpful and welcome (to the extent a film project qualifies).

  • For the general motion picture industry, the trend is clearly a positive one. Financial incentives for film are becoming increasingly prevalent on the state level. State legislation is generally crafted to impact broad industries, rather than specific participants strictly within the motion picture industry. Nonetheless, the benefit is felt within that industry.

  • For Maryland – feeling the recent loss of the Disney film Annapolis, which elected Philadelphia for filming rather than in Maryland reportedly because of Pennsylvania film incentives – the General Assembly’s actions are preemptive. The legislative intent in enacting the recent wage rebate (and the prior sales tax incentive) is to increase “film production activity carried out in the State, [bring] economic benefits to the citizens of the State, and [generate] increased employment opportunities for the citizens of the State.”

The future impact? Perhaps Maryland is poised to take its place as a primary film market, which is also good news for the entertainment legal community.


Cheryl L. Slay is Chair of the MSBA Entertainment & Sports Law Committee.

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Publications : Bar Bulletin: September 2005

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