Massachusetts currently offers 14 different tax credits available to qualifying entities. Each incentive is subject to different awards and issuance processes based on the discretion of the state agency that oversees issuance. A tax credit is refundable for an entity who earns more in tax credits than it owes in taxes, which means that Massachusetts will pay back the difference with a refund check. It is transferable for an entity whose credits are valued higher than its tax liabilities, meaning that it can sell any surplus credits to another taxpayer that owes taxes.
These tax credits are given to privately owned businesses and individuals who have either tangibly created new job opportunities for Massachusetts residents, or have had other positive economic, environmental, or infrastructural impacts on the state.
The credits, in order of money spent on each in the last full calendar year report available, include:
Film tax credits (refundable and transferable), historic rehabilitation tax credits (transferable), brownfields tax credits (transferable), low-income housing tax credits (transferable), life sciences-jobs tax credits (refundable), life sciences-research tax credits (refundable), dairy farmer tax credits (refundable), economic development incentive program credits (refundable), life sciences-investment tax credits (refundable), community investment tax credits (refundable), conservation land tax credits (refundable), housing development tax credits (transferable), medical device tax credits (transferable), and life sciences-user Fees tax credits (refundable).
2014 Summary Table for Transferable or Refundable Tax Credits:
|Tax Credit Program||Tax Credit Awarded||Tax Credit Issued|
|Film Tax Credit||N/A||N/A||113||$57,938,121.00|
|Historic Rehabilitation Tax Credit||294||$48,920,000.00||52||$32,757,322.60|
|Low-Income Housing Tax Credit||24||$27,113,656.00||12||$20,293,599.00|
|Brownfields Tax Credit||N/A||N/A||36||$22,077,908.00|
|Medical Device Tax Credit||N/A||N/A||4||$98,962.00|
|Dairy Farmer Tax Credit||203||$4,000,000.00||N/A||N/A|
|Life Sciences – Investment Tax Credit||9||$2,773,925.00||N/A||N/A|
|Life Sciences – User Fees Credit||0||$0.00||N/A||N/A|
|Life Sciences – Research Credit||18||$6,376,825.00||N/A||N/A|
|Life Sciences – Jobs Credit||8||$14,974,037.00||N/A||N/A|
|Economic Development Incentive Program Credit||6||$3,625,000.00||N/A||N/A|
|Housing Development Tax Credit||3||$2,243,303.00||2||$1,167,825.00|
|Conservation Land Tax Credit||68||$1,990,770.00||N/A||N/A|
|Community Investment Tax Credit||N/A||N/A||1,099||$2,355,121.00|
Notably, the film, brownfields and medical device tax credits do not have an annual cap, and thus do not require an awards process. They are simply issued by the Department of Revenue and then claimed by the qualifying entities. The historic rehabilitation, low-income housing, and housing Development tax credits on the other hand, have both a competitive awards process, and require a formal issuance of the credit.
At the beginning of 2006, Governor Romney signed a new law permitting motion picture production companies to receive tax credits on sales and income. Since then, the film tax credits issued by the Department of Revenue have consistently been the highest annual state expenditure out of the available credits. The benefits of the film credits are also the most likely to be forfeited to out-of-state interests, since they are both transferable and refundable. Governor Baker recently moved to cap spending on them at $40 million annually, but was blocked by the state legislature. The Governor has asserted that, although motion picture production companies create jobs and bring economic stimulus to the locales that they film in, they do not generate enough revenue to justify their cost. In 2014, $57 million was spent on film tax credits-this is almost twice the amount of next highest credit given out, $32 million to historic rehabilitation tax credits.
Under the current statutes in place, film companies that spend at least $50,000 in a year in-state are eligible for a sales & use tax exemption and can apply for a credit equal to 25% of their in-state employee salary costs, as well as a 25% credit on all Massachusetts production costs incurred. These deductions are by far the most substantial discount offered of any of the credits.
Data from the Department of Revenue also suggests that out-of-state entities such as highly paid movie stars, directors, and producers are receiving a disproportionate share of these credits. On the other hand, some local residents working in the industry claim that the incentives attract production companies that might otherwise go elsewhere, and argue that they bring economic stimulus to the areas where they film.
The Department of Revenue’s most recent report from April 20th, 2016 details film tax credit incentives from 2006-2013. This report, validates many of the concerns mentioned above as it found that out of a total of $260 million in 2013 spending by the film companies, more than half went out-of-state. Furthermore, $62 million out of a total of $170 million in wage spending was paid to individuals who made at least $1 million, all of whom lived out of state. Now, critically acclaimed blockbusters like the Departed (2006) and the Social Network (2010) have more than just an aesthetic incentive to bring their camera crews to Massachusetts.
This begs the question: does the film tax credit serve Massachusetts enough to justify continuing the incentive? The data shows that the economic benefits of the film tax credit do not appear to outweigh with the incentive’s cost to the commonwealth. In comparison to the historical rehabilitation credit (also established in 2006) and the brownfields credit (established in 1998), the 2nd and 3rd most costly credits respectively, there is considerably less tangible benefit to the taxpayer, and at a much higher price.
Over just the last 10 years, the amount of money Massachusetts has spent on the film tax credit is enormous. During the period from 2006-2013 alone, approximately $483 million was issued in film tax credits. This investment resulted in a net total of about 4,400 new in-state, full time employees. While that number sounds impressive, the cost per each job created is a whopping $109,000.
Is the celebrity buzz and the relatively questionable economic impact worth the lost revenue? Perhaps it’s time to roll up the red carpet.