By Marc Jacobson, Esq.
When Governor Cuomo signed into law the budget for New York State on April 3, 2020, not only did New York become the first state to address federal legislation regarding the CARES Act, which provides financial relief to businesses and others as a result of the Covid-19 pandemic, but the State amended the film tax credit program in several important ways.
These changes became effective on April 1, 2020. Applications filed prior to that date will be governed under the old law.
First, the amount of the benefit to be received by the production company, for production costs, is reduced from 30% of qualifying below the line expenses to 25% of qualifying below the line expenses. Only those films which shoot within New York at a proper facility or otherwise shoot in the State in a manner to qualify for the credit are eligible. This reduces the amount of the benefit by about 17% as compared to what was available prior to these changes. As a practical matter, the rule of thumb that some producers use that the New York State credit is worth about 18% of the total budget of the picture, now makes the credit worth about 15% of the total budget of the picture, in round numbers.
Second, the post-production credit is also reduced from 30% to 25% of qualifying expenses. If the film will qualify for both production and postproduction credits, the eligible expenses for the tax benefit are different from those eligible based on an application for only postproduction credits. For example, when applying for tax benefits for a production credit, including postproduction work to be done in New York State, the postproduction expenses against which the credit may be applied do not include the cost of music. However, if the film shoots outside New York State, and comes to the State for postproduction work, and applies for the tax credit, music costs may be included in the costs against which the tax credit may apply. Careful attention must still be paid in calculating the benefit with regard to what is eligible and what is not eligible, and how that might benefit the film.
Third, for films shot in the five boroughs of New York City, Westchester, Rockland, Nassau, and Suffolk counties (the "New York City Metropolitan Area"), in order to qualify for the production credit, the film must have a budget of at least $1 million. This means the films shot in the New York City Metropolitan Area with a budget under the SAG-AFTRA ultra-low budget agreement (under $300,000) and the Modified Low Budget Agreement (generally up to $700,000 and with diversity qualification, up to $965,000) will not be eligible for the tax benefit. However, if those productions occur outside the New York City Metropolitan Area, they may be eligible for the tax credit as discussed below.
Fourth, for films shot outside the New York City Metropolitan Area, the minimum budget must be $250,000. These minimums were not part of the law before this month.
Fifth, the life of the program was extended from 2024 to 2025, at the lower rate but with the same $420 million annual fund. Payouts of the larger amounts will still be made over 3 years.
While New York still welcomes the production of films, in important ways it has reduced what was a significant benefit and big draw for productions. Those smaller independent films may well be driven out of the New York City Metropolitan Area and upstate to more favorable areas, or even to other states.
Shooting within the State but outside the New York City Metropolitan Area still carries with it an additional 10% credit for certain labor costs. This alone attracts productions to areas like Buffalo and Rochester, where skilled crews already live.
This new law may also push more productions to neighboring states, such as New Jersey, where there is a 30-35% credit for qualifying expenses, both above and below the line, through a transferable tax credit but subject to certain minimums. Pennsylvania's credit is between 25-30%, also with certain restrictions and requirements. In Connecticut, a qualified spend of over $1 million may also allow the production to secure 30% benefit on qualifying expenses.
Monetizing New York's credits for use in defraying production costs are still fraught with challenges if any of the members of the partnership or LLC are liable to New York State for taxes or other liabilities. For more on that visit: https://www.marcjacobson.com/film/how-to-monetize-the-new-york-state-film-tax-credit-program-for-production
The website for the New York State Film tax credit may be found here: https://esd.ny.gov/new-york-state-film-tax-credit-program-production