Five of the six New England states now provide tax credits or other financial incentives to attract producers to film on location. This policy brief discusses whether these incentives attract more production, and whether they are cost-effective in creating jobs. It focuses on the use of one major incentive: film tax credits.Tax credits - New England ; Motion picture industry - New England

Darcy Rollins Saas

English

Research Papers in Economics

New England’s villages and seacoast, its
character and characters, attract producers
of movies, television shows, commercials,
and other film and video projects. But such
work is not just about lovely scenery—it is
also about business. Because production
costs help determine where such projects
are made, five of the six New England
states now provide tax credits or other
financial incentives to attract producers to
film on location. This policy brief discuss-
es whether these incentives attract more
production, and whether they are cost-
effective in creating jobs. It focuses on the
use of one major incentive: film tax credits.
The little evidence available suggests
that film tax credits do attract film produc-
tion and create jobs in states that have lit-
tle or no film industry.  However, they also
cost states considerable foregone tax rev-
enue. The film production stimulates lit-
tle additional economic activity in other
industries.  Consequently, film tax credits
do not “pay for themselves” by indirectly
generating additional corporate income,
sales, and property tax revenues. Evidence
on the benefits of film tax credits to states
with a large film industry already in place,
such as New York, is too scant to enable
analysts to draw firm conclusion.
As more evidence becomes available,
policy analysts and policymakers should
evaluate the cost-effectiveness of film tax
credits relative to alternative policies
designed to promote job creation and eco-
nomic growth. They should also take into
account the economic effects of measures
needed to offset the revenue losses
incurred by film tax credits in order to
maintain balanced budgets.  
The cast: film tax credits and 
incentives in New England
Regional incentives for the film production
industry vary widely. (See Table 1)
Qualified productions are eligible for tax
credits in Connecticut, Massachusetts,
and Rhode Island; for tax credits and wage
reimbursements in Maine; and for produc-
tion grants in Vermont. New Hampshire
offers no additional incentives, claiming its
positive business climate alone is suffi-
cient enticement.
In general, tax credits relieve taxpayers
of the obligation to pay all or part of a tax
liability. Typically, state film tax credits
are applied toward the individual or corpo-
rate tax liability of qualified producers,
investors, or—in states where the credits
are transferable—the purchaser of earned,
unused credits. The credit is usually a per-
centage of the total costs (wages and other
expenditures) of producing a qualified
project, such as a feature-length film,
video, video game, television series, or
commercial. Eligibility also depends on
how much production and related spend-
ing occurs locally. What expenses and what
percent of them qualify for tax credits and
how long each credit remains valid after it
is earned are among the most important
determinants of these credits’ fiscal impli-
cations. 
Five of the six New England
states now provide financial
incentives to encourage 
local film production.
Policy
Brief
06-3
New England Public Policy Center
at the Federal Reserve Bank of Boston
New England Public Policy Center
at the Federal Reserve Bank of Boston October 2006
Hollywood East?  
Film Tax Credits in New England
by Darcy Rollins Saas, Policy Analyst
federal reserve 
bank of boston
TM
New England Public 
Policy Center
Director
Robert Tannenwald
Deputy Director
Carrie Conaway
Staff
Heather Brome
Tom DeCoff
Brad Hershbein
Matthew Nagowski
Antoniya Owens
Darcy Rollins Saas
Alicia Sasser
Bo Zhao
The New England Public Policy
Center is dedicated to enhancing
access to high-quality analysis on
economic and public policy issues
that affect the region.
For more information about the
New England Policy Center,
please visit:
www.bos.frb.org/economic/neppc/
The views expressed are the
author’s and not necessarily those
of the Federal Reserve Bank of
Boston or the Federal Reserve
System.
 2
The plot: are film tax credits 
cost-effective in creating jobs? 
This question is more complicated than gen-
erally realized. In order to answer it, 
one must estimate the fiscal impact of film
tax credits and the amount of employment
that they generate.  Another important ques-
tion, asked too infrequently, is: are there
alternative public policies that might be
more cost-effective in creating jobs than film
tax credits? 
Fiscal impact.
One of the key issues in evaluating the 
fiscal impact of these tax credits is whether
or not they meet their mark: do the credits
subsidize desired economic activity or do
they confer what tax experts refer to as “tax
windfalls”?  There are two possible forms of
tax windfalls. First, some credits can end up
going to film and television production that
would have happened locally without added
financial incentives. Second, even though
tax credits can lead to more local production
work, the financial incentives may be larger
than needed to attract producers.
“They would have come anyway.” Film,
television, and other producers came to or
were established in the region before credits
and other incentives were offered. As of
2002, the Economic Census reported that
the New England region supported 766
motion picture and video industry establish-
ments, employing over 8,000 people. Major
film and television productions shot at least
in part on location in the pre-credit era
include  The Stepford Wives (Connecticut),
Empire Falls (Maine),  Mystic River
(Massachusetts), and There’s Something About
Mary (Rhode Island). The Film Division of
the Connecticut Commission on Culture
and Tourism estimated that about $23 mil-
lion was spent on productions in the
Nutmeg State between 1997 and 2005. 
The Massachusetts Film Bureau lists over 40
film and television productions shot on loca-
tion between 1999 and 2003, before the
state enacted its film tax credit in 2005. 
To be eligible for the tax credits offered in
New England, productions need not be new
to the state. Presumably, producers already
filming in New England and planning to con-
tinue to do so will be able to avail themselves
of film tax credits without having to expand
their activity.
“They get more than needed to entice
them to come.” Connecticut offers tax 
credits of up to 30 percent of qualified 
production expenses. That amounts to $3
million of tax relief on a $10 million film
budget, probably more than the taxes gener-
ated by a typical project of this magnitude.
Both types of tax windfalls are especially
large in states where unused tax credits can
be sold, as is the case in, Connecticut
Massachusetts, and Rhode Island.  Film 
producers and investors sell these tax 
credits because they have already reduced
their tax liability to zero without them.
Purchasers of the credits use them to reduce
their tax liability, increasing revenue losses of
the issuing government. And, while the cash
raised from the sale of tax credits could offset
some of that revenue loss by increasing eco-
nomic activity, there is no guarantee that it
will be local economic activity. Film produc-
tion companies could fund a film in another
location or increase the salaries of employees
headquartered out of state. 
The revenues generated by what is often
referred to as the “multiplier effects” can
partially reduce this loss. Film producers
earn profits, pay wages, and purchase 
goods and services from suppliers. This 
economic activity, in turn, leads to more eco-
nomic activity, and so forth. In turn, this
activity generates revenues from a wide vari-
ety of sources, such as the personal income
tax, the general sales tax, and the property
tax. In analyzing the costs and benefits 
of providing film tax credits, however, 
governments must weigh these gains against
additional demands on public services that
are generated by the new economic activity.
Impact on employment. 
Proponents of film tax credits argue that,
because film producers are so footloose, their
location is especially responsive to site-spe-
cific financial incentives.  As a director film-
ing in Rhode Island put it in a 2006 article
posted on Backstage.com, film executives
“would shoot a movie on Mars if they could
Film tax credits also benefit firms not
engaged in production or that would
have filmed locally anyway.3
get a 25 percent tax break.”  Furthermore, it
is argued, additional exposure through film
and television can generate long-term eco-
nomic dividends for a state by boosting its
image as a desirable place in which to live
and work.
Gauging the net impact of film tax cred-
its on employment is fraught with difficul-
ties. First, one can not be sure how many
people the film industry would employ in
the absence of the tax credits.  This is the
same obstacle inherent in estimating tax
windfalls.  Second, the multiplier effects of
film tax credits, like those of all economic
activity, are hard to track in a complex, devel-
oped economy like that of the United States.
The long term impact resulting from
increased exposure and improved image is
especially difficult to isolate and measure.
Third, the additional jobs attributed to the
tax credit may go to individuals hired away
from existing firms, not to people who are
unemployed or attracted from other states.
Existing firms may find it difficult to retain
existing employees or grow if the film pro-
ducers bid up wages and increase labor costs.
This is especially likely in a state or region
where growth in the labor force is chronical-
ly slow, the situation in many New England
states. Fourth, because employment in the
film industry consists mostly of a series of
short-term discrete projects, analysts have
difficulty determining the extent to which
each part-time job is filled by a different per-
son, or the same worker moves from project
to project (a distinct possibility in film and
television production). 
Other considerations.
With the exception of Vermont, all states
have balanced budget requirements.
Consequently, if film tax credits do not “pay
for themselves,” state spending has to be
reduced or other taxes must be increased to
keep the books in balance.  Film tax credits
should also be evaluated relative to other
policies designed to stimulate job creation
over the long run, such as across-the-board
tax cuts, investment in education and infra-
structure, or tax incentives targeted to other
industries.
In choosing which industries to subsi-
dize, state governments should consider job
quality as well as quantity.  The film indus-
try pays good wages, at least for its unionized
workers.  Members of Motion Picture Studio
Mechanics Local 52, which establishes pay
rates for film work in the Middle Atlantic
States, including Connecticut, earn $22 to
$30 per hour, not including benefits, for
work in major film productions.  By compari-
son, the median hourly wage for full-time,
unionized manufacturing workers in the
Northeast was $14 an hour in 2005, and
$16.05 an hour in Connecticut.  According to
a 2006 Massachusetts study done for the
Alliance for Independent Motion Media, the
average annual pay for regular employees in
Massachusetts motion picture production
was $52,000 in 2004.  In that year, the aver-
age annual pay of all workers in the
Commonwealth was $48,916.   Yet, many
jobs in the film industry are temporary and
sporadic.  Production of Mystic River, for
example, lasted just eight weeks on location
in Massachusetts. While people in places
such as New York and Hollywood may be
able to combine enough multiple, temporary
positions into full-time-equivalent employ-
ment, New England generally does not cur-
rently support year-round film or television
work.  Still, supporters of film tax credits
hope that these incentives will encourage
development of a stronger—and more per-
manent—film and television production
industry within the region.  
Finally, film and television production is
a “clean” or “environmentally friendly”
industry, an attribute touted by proponents
of film tax credits and that many states are
interested in encouraging.
Evidence of cost effectiveness.
To our knowledge, the most thorough empir-
ical investigation to date of the cost effec-
tiveness of a state film tax credit was per-
formed by Louisiana’s Legislative Fiscal
Office (2005).   The Office reported a quan-
tum jump in film production in Louisiana
after the state enacted its film tax credit in
2002.  According to the Office, prior to that
year, investment in film production in the
state was sporadic and “may have averaged”
between $10 million and $30 million per
year. In 2004, investment by producers
claiming the tax credit totaled $354.7 mil-
lion.  While this sharp rise in filming activity
may partially have reflected improving eco-
nomic conditions, the tax credit probably
was a significant contributing factor.However, the Office also presented 
evidence that the tax credit has generated
the substantial tax windfalls discussed previ-
ously in this paper.  In 2004, the state had
granted $59 million in tax credits. Most of
these credits were claimed by purchasers of
unused tax credits who were not involved in
production. 
Using a model of Louisiana’s economy,
the Office estimated that between 2002 and
2011, the film’s tax credit would generate, at
most, approximately 3,000 additional jobs at
a cost, at best, of approximately $16,000 per
job in foregone tax revenue. The simulations
revealed that the economic and fiscal impact
of the tax credit outside of the film industry
was likely to be modest. In the simulations,
every additional 5 jobs in the film industry
would create about 2 jobs elsewhere. And,
analysts estimate that for every dollar of 
revenue lost to film tax credits, between 15
cents and 20 cents of revenue would be
recovered from tax receipts generated by
stimulated economic activity.  
Anecdotal evidence on the effectiveness
of film tax credits as job creators is mixed.
Rhode Island’s Film and Television Office
reports that, after a long dry spell, the state
attracted $100 million in new film produc-
tion after the state enacted a film tax credit
in 2005.  However, the state has not yet esti-
mated the value of film tax credits claimed.
New Mexico’s film office also reports a sharp
post-tax-credit increase in the value of film
production in the state. However, in New
York, a major center of film and TV 
production, a March 2006 New York Times
article reported that most of the film tax
credits claimed subsidized filming activity
that would have taken place anyway.
Roll Credits?
In conclusion, the evidence available 
suggests that, while in some instances film
tax credits have succeeded in attracting
large increases in film production, they 
have also cost sponsoring states a good deal
of foregone revenue. As Mel Brooks once
said about one of his movies, “It will make
millions. Unfortunately, it cost millions.”
Revenue losses are exacerbated by the 
tendency of these tax credits, like almost 
all tax credits,  to subsidize activity not orig-
inally targeted and to provide more incentive
than needed to induce the desired response.
And, when film tax credits do hit their mark
and induce more local film production, the
resulting stimulus to overall economic activ-
ity appears to be rather modest. 
Further Reading:
Albrecht, Greg. “Film and Video Tax Incentives:
Estimated Economic and Fiscal Impacts.” State of
Louisiana Legislative Fiscal Office, March 2005.
Cobb, Kathy. “Roll the Credits…and the Tax
Incentives.” Fedgazette, Federal Reserve Bank of
Minneapolis. September 2005. 
Laubacher, Robert. Lens on the Bay State: Motion
Picture Production in Massachusetts. Alliance for
Independent Motion Media, 2006.
Simulations reveal that the economic
impact of film tax credits outside of the
film industry is likely to be modest.Are the Can the tax Are tax credit
tax credits credit be allocations
Available incentives* Tax credit eligibility requirements Tax liability credited transferable? carried forward? limited?
Production expenses credit
30 percent for production
expenditures, including
wages.
Wage reimbursement
12 percent of wages paid
to Maine employees.
10 percent of wages paid
to out of state employees.
In both cases, does not
include salaries over $1
million.
Investment tax credit
Equal to the amount paid
on profits by the media
production.
Payroll tax credit
20 percent of aggregate
payroll to residents; does
not include salaries paid in
excess of $1 million.
Production expense credit
25 percent of production
expense; includes salaries
paid in excess of $1 million.
Motion picture production credit
25percentofcertified
productioncosts.
Film production incentive
program
Grant reimburses 10 percent
of local spending; does not
include salaries in excess
of $1 million.
Connecticut (2006)
1
Maine (2006)
2
Massachusetts (2005)
3
Rhode Island (2005)
4
Vermont (2006)
5
At least $50,000 in production
expenses in 12 consecutive
months. A portion of all
qualified expenditures must
occur in-state.
At least $250,000 in local
production expenses in 12
consecutive months.
Investment in Maine-based
film production company that
paid corporate income taxes
in the prior year.
At least $250,000 in local
production expenses in state
in 12 consecutive months.
At least 50 percent of total
production expenses or film-
ing days must be state-based.
A minimum production
budget of $300K; must film
51 percent of production at a
primary state location.
At least $1 million in local
production expenses.
Producer’s corporate
taxes.
Reimbursement of a
percentage of wages
paid.
Corporate income tax.
Company’s personal
income or corporate
excise tax liability.
Company’s personal
income or corporate
excise tax liability.
Personal income or
corporate taxes.
Reimbursment of local
production expenses.
Yes
No
No
Yes
Yes
Yes
No
Yes, 3 years
No
Unclear
Yes, 5 years
Yes, 5 years
Yes, 3 years
No
No annual state
limit.
No annual state
limit.
No annual state
limit.
No annual
state limit;
$7 million per
production limit.
No annual
state limit;
$7 million per
production limit.
No annual state
limit.
Total state
grants limited
to $1 million
per fiscal year.
1As codified in PA 06-83 (SB 702), section 20, AAC Jobs for the Twenty-First Century, as amended by PA
06-186 (HB 5845), Section 83, An Act Making Adjustments to State Expenditures and Revenues for the
Biennium Ending June 30, 2003.
2Passed through Maine’s 2006 Supplemental State Budget, Section GG-1, 5 MSRA S13090-L
3St. 2005, C. 158, amended St. 2005, c. 167: An Act Providing Incentives to the Motion Picture Industry
42006 HB 7839 Substitute A: An Act Relating to Motion Picture Production Credits
5S. 165: Vermont Film Production Grant Program.
Table 1: New England film and television production incentives
*In addition to the incentives listed above,
several New England states provide sales
tax exemptions on items purchased for film
production purposes.

Hollywood east?: film tax credits in New England

http://www.bostonfed.org/economic/neppc/briefs/2006/briefs063.pdf

Hollywood east?: film tax credits in New England

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