State lawmakers will consider legislation that would tighten up administration of Georgia’s popular $800 million-a-year film tax credit program after auditors found millions of dollars in ineligible expenditures by companies.
Rep. Matt Dollar, R-Marietta, the sponsor of House Bill 1037, said his legislation was filed in response to Department of Audits and Accounts and university reviews of the program.
“The code hasn’t been updated in 12 years,” Dollar said. “The industry has changed a lot.”
Dollar's bill, among other things, would require film productions to undergo mandatory audits of expenditures to make sure they are eligible for tax credits. That was one of the recommendations of state auditors. It also aims to stop what auditors said were tax credits granted for work outside of Georgia.
Kelsey Moore, the executive director of the Georgia Screen Entertainment Coalition, said: “The Georgia film industry is at the table working with legislators to make sure our successful tax credit program operates as intended.
“As this legislation moves through the process, our top priority is preserving the underlying policies that have a built a thriving new industry, attracted billions in investments and created thousands of high-paying Georgia jobs.”
Georgia has grown its film industry by leaps and bounds by giving the nation’s most lucrative credits for film work. The tax credits, which grew from $141 million in 2010 to an estimated $870 million in 2019, have been a policy mainstay over the course of two previous Republican administrations.
Only seven state agencies spend more tax money than the annual costs of the film tax credit. The state spends far more doling out film tax credits than it spends on its court system, driver’s license services, the state patrol, enforcement of environmental laws, housing for juvenile offenders, investigations into criminal cases or pre-kindergarten classes.
Roughly $4 billion in tax credits have been doled out in Georgia since the program’s inception. Hundreds of projects annually receive the credits: The state audit noted that 450 movies, TV shows and other projects were eligible for tax credits in fiscal 2016, for instance.
About 80% of the credits are sold by film companies that pay little in Georgia taxes to people or companies that do owe state taxes, the audit said.
State auditors released a report in January saying state agencies that administer the program have allowed some companies to receive credits they didn't earn.
Among other things, auditors found millions of dollars in ineligible expenditures by film companies that weren’t disallowed by the state for credits, including payments to workers or contractors for work performed outside Georgia. The way the state reviews such projects gives companies an incentive to pad their numbers with ineligible expenses, the report said.
Georgia’s film and TV tax credit system has two unique features. First, there is no limit to how much companies can receive. Second, the tax credits are transferable.
So, for instance, if a film company spends $3,333,333.33 in Georgia and meets all the necessary state criteria, it can earn a 30% tax credit worth $1 million.
But since many companies aren’t based in Georgia, they owe little or no money in state taxes, so they sell the credit — for cash — to any entity that owes state taxes.
Those entities — often other companies that owe state taxes — buy the credits at a discount. They may pay $800,000 for a $1 million credit. The film company receives the $800,000, and the buyer — either a person or company — sees a $1 million reduction in taxes.
Auditors also questioned the extra tax credits that companies receive for promoting Georgia by including a logo in their finished product and a link to the state film office on the project’s homepage. They said the state doesn’t verify that all the projects that receive the extra money meet those requirements, and auditors questioned the value of such promotion.
Auditors said both agencies would need more state resources — such as increased staffing — to improve controls on the tax credits.
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