7 Ways To Screw Up Your Film Budget-Reason #4: Incentives

Films get made with Incentives in today’s financing structure – plain and simple.  Whether you are shooting in the United States in Georgia or another incentive state or the United Kingdom or France, then incentive financing structures have become not only the norm but a critical component for the successful financing of your project.

U.S. Incentive Map for Film Production with Tax Credits and Rebates

Incentives – Essential Film Finance

I recently spoke with an International Sales Agent.  In her world, a sales agent or distributor will put together a potential sales list for films with two columns.   “Ask” and “Take” for each territory.   She spoke with numerous agents and distributors at major sales markets at Cannes and Toronto.

By example, one film had Germany listed for an “Ask” of $1,000,000 and a “Take” of $700,000.  The film had fairly good interest at Cannes with hopeful “Takes” at Toronto.  But it was not to be.  The offers for the Takes had dropped in half to $350,000 or less.  Not good. 

The Incentive has become more critical to fill the widening gap between Sales and Budget.  By simply shooting the film in a specific location usually in a State, Province or Country, the production company will either recoup costs of 20 to 40% or monetize the incentive for their actual production budget.  Unfortunately, people assume without the research. But once again, as the old saying goes, ‘when you assume, you make an ‘ass’ out of ‘u’ and ‘me’.  Nifty little line that has always been – ‘ass’ – ‘u’ – ‘me’.   So the idea is not to assume but calculate.

Mistake:   I have found that filmmakers over estimate the Incentive and then have to deal with a shortfall of funding. 

So what do you do?

First Point of Your Action Plan

You have your script.  You break it down into a Schedule.  And then make a Budget.  But then you have to review the budget to consider the incentive?

Rhode Island’s Summary of Incentives

Why review the Budget?

Certain costs are approved to apply against the Incentives and certain ones are not.  They include an array of criteria.  Remember the reason for an incentive:  To bring film production and its money to a specific locale to benefit local workers, vendors and support facilities – and to expand the local film production industry.

But we get ahead of ourselves. 

First, you needs to familiarize with Production Incentives Terms.  Giving full credit where it is due, I got these terms from a prominent Los Angeles payroll company website, Media Services.  

Check out the Glossary at Media Services Here.


Production Incentives Glossary

What’s the difference between a credit and a rebate? What is refundable vs transferable? Find out in our handy glossary below.

Certified Tax Credit: A credit that has been approved by the state for transfer or sale to investors. Often requires a local CPA audit.

Film Commission: Quasi-governmental, non-profit, public organizations that attract motion media production crews (for movies, TV, commercials, web series, etc.) to shoot on location in their respective localities, and offer support so that productions can accomplish their work smoothly.

Grant: A direct payment to a production company by the government of a particular locale, for a specific project. Unlike tax credits, grants require no tax liability, so they are easy to use for productions coming from outside the state to shoot on a temporary basis.

Loan-Out Company (or just Loan-Out): A personal service company that provides or “loans” the services of an actor or key crew person, usually set up by the actor or crew member.

Minimum Spend: Amount that must be spent in the locality by the production in order to qualify for the incentive. These can vary greatly from state to state.

Rebate: A check issued to the production company by the state, city or local government. Grants are a kind of rebate, but not all rebates are grants.

Refundable: Applies only to tax credits. If a tax credit is refundable, it means the production does not need to have actual state tax liability for the “credit” to be issued. When a tax credit is refundable, it acts more like a rebate, although a state tax return must be filed before the refund is issued.

Resident Buyer: For states with transferable tax credits, resident buyers are local taxpayers who purchase tax credits from producers and brokers to use against their own state tax liability.

Transferable Credit: A tax credit that can be sold or brokered to another company that has tax liability in the given state. Can be used by out-of-town production companies that have no tax liability, and thus no use for the tax credit. If a credit is transferred, it is usually sold at a discount to a resident buyer.


Focus on the Incentive Process

Got all that?  After reading the Glossary above, you will see that there is a process/qualifications for getting this Incentive. Understanding the terms is crucial to understanding the process. 

You can find information on Incentives in these two links:

Entertainment Partners  – Production Incentives

Media Services – Production Incentives

One examples is the Colombia Film Incentive

Let’s say that you are shooting a film in a U.S. Incentive State.  

  1. Production – must be certain Minimum Spending requirements.  For many incentives, the minimum spend is $500k and shooting in the proper jurisdiction.
  2. Audit – A CPA audit is required after the production is shot. This audit is meant to insure that an Incentive Tax credit is only issued for costs spent in the State or Territory or with special circumstances.  For example, when I was line producing “Taken 3” and planning to shoot in Georgia, we could either get a Travel Agent in Georgia or use Delta airlines.  Delta airlines headquarters is in Atlanta,GA.  So if you book through Delta, you’re good because it benefits this major Georgia company.
  3. Tax Credit – Your CPA audit approved production costs are calculated at the correct percentage (e.g., 30%) and the production company is issued a Tax Credit.
  4. Resident Buyer – A local individual or business will the Tax Credit – at a discount. A number of companies or brokers will buy the Production Company tax credit at maybe eighty-eight cents on the dollar.  So for every dollar of the tax credit, the production company will receive 88 cents.  

The equation goes likes this:

A production spends $10 Million in Georgia which issues a full 30% tax credit because all the money (not usually the case but this is an example) was spent in Georgia.  That’s $3 million U.S.  in a tax credit.  That Tax Credit is now discounted by 12% (that’s .88 cents on the $1.00 dollar) for a total film incentive of $2,640,000.

Film Incentive Mistake:  The production company overestimates the amount based upon a Tax Credit percentage rather than a more accurate projected amount.  

Fortunately, you can accurize your projections with a nifty calculator at Media Services. 

Check out the media Services calculator here. It’s a great addition to the budgeting process. 

Production Incentive Calculator to determine more accurate projections.

Research The Incentive Criteria


The incentive for California (https://www.epfinancialsolutions.com/home/production-incentives/jurisdiction-details/?jurisdictions=CA)  is neatly laid out, explaining the following criteria:

  • Incentive
  • Subjurisdictions – by category in this case
  • Project Criteria
  • Qualified Spend/Bonus
  • Program Guidelines
  • Additional Considerations
  • Production Resources

One of the first items to look for under Program Guidelines is an Annual Cap.  This limit (if there is one) tells you if this particular incentive program has a legislative budget limit.  In the case of California, yes it does.  That Annual Cap is $330 Million.  If it has been reached this fiscal year, then you should probably apply next year.  But send an email – not a phone call – to get the specific information in writing from a reliable source within the specific government agency.

The second item is the Sunset Clause.  If the incentive expires in the future, then make sure it’s not while you are in production or post-production.  Or that, once qualified, that the funds are going to be there.  Filmmaking is a process between development, pre-production, production, post-production, delivery and distribution which can take years for just a single project. 

Under the item “Subjurisdictions – California – Independent” we find the following criteria for independent films:

  • Independent production: Minimum production of $1M produced by company that is not publicly traded and that publicly traded companies do not own more than 25% of producing company.
  • Principal photography in California must commence no later than 180 days after the Credit Allocation Letter is issued.
  • Applications are ranked within categories (TV project vs. other TV projects, indie project vs. other indie projects, etc.) based upon their “jobs ratio” score. 
  • $16.5M (5% of annual budget) will be allocated for independent projects each fiscal year.

Note that the “California – Independent” has unique qualifiers about funding by publicly traded companies.  Perhaps your distribution and sales company is owned by Lionsgate which is a publicly traded company.  How much of your sales company does Lionsgate own?  Does that disqualify you from applying?  In addition, applications are based upon their “jobs ratio” score.   You can go to the CFC Guidelines 2.0 on page 10 to decipher the exact requirements. 

The “Jobs Ratio” scores is one of the more challenging ways to keep or expand the film industry in California.   The reason is that the bigger corporate entities with TV like the networks, etc., will have an edge because they will create more jobs. 

That means that Independent films get only a small percentage of the total $300 million California.

The point is that there are a lot of “devils in the details.”  I’ve never quite understood the jobs ratio criteria because Independent films by their very nature are low-budget affairs where the crew is minimized in many ways.  Locations are condensed to reduce transportation.  Staffing is picked for its efficient structure and more.  I spoke with Mark Gordon who was leading the Producers Guild of America in a town hall meeting.  Of all the producers there, he and a MOW producer were the only ones who seemed to understand that a better broader incentive in California can only grow the MOW’s and Indie films which can grow the apprentice and journeyman middle class workers in the industry’s historical center.


All States Are Not Equal – Fiscal Health

States, Territories and Countries have differences in their Incentives.  Some incentives differentiate between Residents and Non-Residents.  For example, your production might be based in New York or California – and going to shoot in another state.  Your Producer, Director, Director of Photography and Production Designer are residents of New York – but not your production state. The tax credit for residents in that state might be 35% but for non-residents that incentive rate could 30%.  It’s only 5% but it matters to the math.

Example:  Illinois

Illinois is another state with a film incentive, but if you look closely at the site, you will see that its Project Criteria has the definition “Resident ATL”.   What does that mean?  The producer(s), director, writer and acting Talent have to be residents of Illinois.  You would certainly get some actors from the state with its acting base in Chicago, but all of them?  Very, very doubtful.  That means that your highest paid Above-The-Line costs will probably (depending on residency) not qualify for a 30% Incentive.  

An incentive comes from some entity – Local, State or Federal.  In this case of filming in Savannah, Georgia, your production could benefit from the local Savannah city incentive and also benefit from the Georgia state incentive. 

Take into consideration the Fiscal Health of each location.   Is the state, country or province that you want to shoot in doing well financially?  Not the case in Illinois for example.  Illinois has a film incentive – but is defaulting on Billions – that’s a “B” with billions – of dollars worth of ordinary bills. 

If I google the following item – “Illinois has not passed a state budget” – then I get a whole litany of economic woes coming out of Illinois:

  • Lottery Winners not paid without a passed state budget
  • $30 Billion in outstanding bonds
  • Budget woes trickle down to municipalities” – Chicago Tribune – January 13, 2017

If you are filming in the city of Chicago, then the city’s Junk Bond rating by major ratings agency Moody’s might figure into any future incentive payment.

“Budget Watchdog: City’s Junk Bond Status Could Cost Up To $300 Million”

Budget Watchdog: City’s Junk Bond Status Could Cost Up To $300 Million

Illinois and Chicago’s financial insolvency and woes should  figure into your incentive equation.  At the end of twelve or eighteen months, will you get your incentive back or not?


Film Mistake:  Not Checking out the Stability and Payments from that Entity. 



To avoid underestimating your incentive – and therefore endanger your finance structure, you should spend time researching the Incentive, its qualities and limitations.  In addition, check out the State or Territory’s financial solvency to make sure that you can get your incentive back.  A number of states and territories that were robust film production centers are now in severe financial straits.  Puerto Rico is in terrible financial shape  with massive public overspending and debt which makes their incentive program highly speculative.  Illinois with its lack of budgetary discipline is a financial disaster with lowered Bond ratings.   

Do your research.  Learn about the Incentive.  Project accurately and responsibly.  Good hunting.