Washington, DC – The comprehensive tax extension package approved by the Senate includes legislation introduced by U.S. Senators Dianne Feinstein (D-Calif.) and Gordon Smith (R-Ore.) designed to encourage domestic film production and keep jobs in the United States.

The bill approved by the Senate Tuesday would need to be approved by the House and sent to the President’s desk for his signature by the end of the week in order to become law.

The bill would allow film and television producers to get the same tax deduction other American manufacturers receive for making their products in the United States. Scores of American film and television projects have gone abroad in recent years because of tax breaks offered by host countries and U.S. tax laws that work against American film production companies.

“The Senate’s action marks an important step forward for the American film industry, which is an important part of the California economy,” Senator Feinstein said.

“Our tax laws have helped push American film production abroad. But this legislation will level the playing field – and encourage American producers to make more films, and employ more Americans, right here at home.

“But time is running out. I urge the House to act quickly and send this bill to the President’s desk.”

The movement of American film production abroad costs the United States up to 50,000 jobs annually, according to one study. Productions that have been located abroad include TV hits like “X-Files” – which featured FBI agent characters but was filmed in Vancouver. Other recent runaway productions include feature films like “Good Will Hunting,” set in Boston but filmed partly in Toronto, and “Capote,” set in Kansas but filmed in Manitoba.

Background:

The American film industry employs more than 1.3 million Americans and is a vital part of the California economy. In 2005, for example, California was the primary location for 365 film productions, which generated $42.2 billion in economic activity in the state.

But the industry faces pressure to move production to other countries, because of restrictions in U.S. tax laws and tax incentives provided by other countries.

The economic costs are high:

• These so-called “runaway productions” cost the United States as many as 50,000 jobs and at least $10 billion annually, according to the Directors Guild of America. 
  
• In 2001, then-Commerce Secretary Norman Mineta warned that “runaway productions” create a ripple effect on the economy, costing jobs in multiple American industries -- from computer graphics to construction to catering.

Bill Summary:

The legislation would expand the Section 199 Production Incentive, which currently allows other American industries to claim tax deductions for domestic production. The amount of this deduction is calculated based on wages paid to full-time, permanent employees.

Currently, the film industry can receive only a limited deduction because much of its workforce consists of short-term employees. The legislation fixes this discrepancy and would allow production companies seeking this deduction to include wages paid to writers, directors, and production personnel.
 
And to modernize the incentive, the legislation would also allow companies to deduct income from films and TV programs broadcast over the Internet, and income from licensing of film copyrights and trademarks.

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