With even Hollywood facing an economic slump, the Senate Finance Committee's $275 billion tax title of the economic stimulus package would lend a hand to movie studios that have seen outside financing dry up.
The Senate bill includes a tax break worth up to $246 million over 11 years for investors in bigger-budget movie projects that don't necessarily qualify for incentives currently. The provision is backed by firms like the Walt Disney Co., and the industry trade group the Motion Picture Association of America, according to aides and lobbyists.
Broadly speaking, the Senate bill includes a one-year extension through 2009 of a provision enabling companies to write off 50 percent of the cost of equipment placed in service during that year, same as in the House Ways and Means version. But the Senate bill amends the definition of "qualified property" to include "certain motion picture film or videotape," bringing the cost of the Senate provision to $5.32 billion, up from the House's $5.07 billion version.
Companies that use the tax break would then forfeit the right to use the existing incentive, which allows companies to deduct 100 percent of production costs up to $15 million. That provision is backed by groups such as the Directors Guild of America and is aimed at keeping smaller productions from relocating to foreign countries; it was extended as part of the $700 billion financial rescue plan in October.
But a problem arises for pictures that cost $30 million or more, which the option to instead use bonus depreciation attempts to resolve.
It probably wouldn't benefit blockbusters that take years to produce, a lobbyist said, given that, to benefit, a firm's asset must be placed in service -- hitting the theaters or video market -- during that time.
A similar provision was included in the Senate version of legislation extending pension relief to companies and suspending the minimum withdrawal requirement from seniors' retirement accounts, which stalled last year. The final bill dropped business tax breaks but preserved the pension and IRA provisions.
The lobbyist familiar with the discussions said the movie equipment has been "unfairly excluded" from bonus depreciation in the past, which has generally applied to most other equipment purchases. And with the downturn choking capital financing for film projects by companies like Disney, General Electric Corp.'s Universal Studios and Time Warner Inc., enabling investors to depreciate film equipment on bigger projects could make a difference, he said. "Anything that facilitates more outside investment will be helpful in this environment," the lobbyist said.
However, as critics scour the stimulus, the film and videotape depreciation provision has attracted notice. "It's a piece of pork inserted by Democrats in the Senate for their Hollywood friends," one GOP aide said. "President Obama said that he didn't want the stimulus bill to turn into a Christmas tree. Well, Christmas has come early for Hollywood."
This article appeared in the Saturday, January 31, 2009 edition of National Journal Daily.
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