Film industry plans to seek sales tax exemption today

Md. economics chief backs move, plus more aid for state film office

`Runaway productions'

Tax incentives

February 09, 2000|By June Arney | June Arney,SUN STAFF

When Baltimore's Sylvan Learning Center needed to make some commercials last summer, its advertising agency went to South Africa to film inside shots of children in classroom settings.

"The production costs across-the-board the board were significantly lower than using a production company in the States, and this was a production company that could do a good job at what we were asking them to do," said David Kiley, a spokesman for Doner, the agency that handled the project.

The phenomenon, known in the industry as "runaway production," is something that Maryland lawmakers are expected to hear about today when representatives of the state's film industry head to Annapolis to urge passage of a bill offering tax incentives for filmmakers.

They will argue that the tax breaks could boost Maryland's film business by as much as 20 percent by the third year.

Richard C. "Mike" Lewin, secretary of the state Department of Business and Economic development, is expected to talk to members of the Senate Budget and Taxation Committee regarding the legislation, which is modeled after a similar law in Texas.

The bill would exempt from Maryland's 5 percent sales and use tax everything from camera equipment to hotel rooms to rental cars and certain services used in the production of films, plus television programs and commercials for out-of-state distribution.

"When you add a competitive business element to our base infrastructure of the bay, the capital, the Atlantic Ocean, the great homes of Mount Vernon Place, Annapolis, we're going to absolutely win and be one of the dominant players on the East Coast in the film industry," Lewin said.

The net cost in lost revenue, assuming zero growth in the industry, is projected to be $225,000 in the first year. By the second year, assuming 10 percent growth, officials predict a return of $850,000.

"We think we need to do this to stay competitive," Lewin said. "We've lost a lot of business."

Twenty-six states already have adopted some form of tax incentives to help the movie industry, he said. "The bottom line is everyone in our industry has had to do cost cutting of our own to stay competitive, and it's still not enough," said Rita A. O'Brennan, president of Flite Three Recordings Ltd. of Baltimore. "We're losing out to other states and other countries because their incentives run so deep."

As the Sylvan example illustrates, even the business of making commercials is in jeopardy.

"Now we're finding the work that we didn't think was threatened -- the commercial work -- is fleeing," said O'Brennan, who said that 58 percent of her business is retail commercial work. Production companies can easily spend $1 million in just a few days of shooting a commercial, industry experts say.

On a larger scale, a recent study by the Directors Guild of America and the Screen Actors Guild reports that $2.8 billion in business was lost to other countries in 1998. With 12 pages of tax incentives, Canada has become a major player, experts say.

The economic impact of films made in Maryland has shown steady growth in recent years, from $54.5 million in fiscal 1995 to $76.2 million in 1999. For the first six months of fiscal 2000, state officials say the impact has been $53 million. Movies recently filmed at least partially in Maryland include "Runaway Bride," "The Blair Witch Project," "Beloved," "Absolute Power" and "Die Hard with a Vengeance."

"Although we've had a dramatic increase, we're still far behind many other states on the East Coast," said Michael B. Styer, director of the Maryland Film Office.

Virginia enacted tax breaks for the film business four years ago and has enjoyed 20 percent increase in revenue each year since, according to Lewin.

The economic impact of films made in Virginia was $150 million last year, according to Maryland officials.

A separate bill that legislators are expected to hear about today is being submitted by Delegate C. Richard D'Amato, an Anne Arundel County Democrat, who is calling for a similar sales tax exemption along with a state income tax credit "in an amount equal to 25 percent of the qualified Maryland film or video production wages paid," as defined in his bill.

Lewin has other ideas for stimulating Maryland's film industry. He plans to ask that the budget for the state film office be increased by $525,000 over the current $739,000. The increase would finance in part the salary of a person devoted to luring commercial business, something the film office doesn't have time for now.

The state's film office also is shopping for an entrepreneur interested in building a sound stage to increase the number of shoot days production companies spend in the state, like those in operation in North Carolina, Pennsylvania and Virginia. A 15,000-square-foot facility would cost about $2.5 million to build, he said.

Each day of shooting represents $200,000 to $500,000 in spending.

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