March 10, 2020

The following is republished with the permission of the Association of National Advertisers. Find this and similar articles on ANA Newsstand.

By Michael J. McDermott

If marketers increasingly suffer from insomnia these days, who can blame them? As if new problems like Google's decision to eliminate third-party cookies on Chrome, the tracking challenges presented by increasingly aggressive iterations of Apple's Safari ITP, and the tsunami of consumer privacy concerns unleashed by CCPA aren't enough, marketers are still tasked with the perennial mandate to find ways to maximize their budgets.

While there may be no quick fix for the first three challenges, help is readily available for the last one. Many state programs offer marketers significant tax benefits and other incentives to shoot and produce commercials within their locale.

A growing number of states provide these benefits, and they've become more competitive in their offerings. At least 32 states plus Puerto Rico and the District of Columbia now have programs in place, according to Film Production Capital (FPC), a tax credit brokerage specializing in state tax incentives. It's little wonder; as far back as 2012, when EY studied the issue, it found the primary objective of these programs was "to provide state residents with increased employment and higher incomes in the film and related industries," and to benefit from a statewide multiplier effect associated with production in those industries.

When a brand chooses to shoot a commercial in a particular state, it spends money on hotels, restaurants, equipment rental, transportation, and more. It also hires local crews and talent. States that are most successful in attracting these clients can build a permanent base in the industry. They can also add much-needed funding for their coffers, as promoting filmmaking and commercial shooting bolsters revenue streams without boosting taxes on residents.

Not All Incentives Are Created Equal

Connecticut, Illinois, Louisiana, Georgia, Massachusetts, New Mexico, and Pennsylvania are some of the states with longstanding programs for brands shooting commercials within their borders. They offer attractive incentives and have strong local production resources, says Alan Sadler, SVP, managing director, and director of production at Advertising Production Resources (APR), a content production consultancy. (See "Leading State Incentive Programs," below.)

"There are more states with programs, but not all have an incentive program that qualifies commercials," Sadler says. "It is important to understand what types of projects will qualify before beginning production in the state." In addition, some states may offer enhanced incentives for labor hired and production filmed in underutilized or economically distressed locations, while others may offer a sales tax exemption, he says.

The top-ranked states are voluble in touting the advantages their programs have to offer. "Louisiana was one of the first states to offer financial incentives [for brand marketers] in the United States, in 2002," says Christopher J. Stelly, executive group director at Louisiana Entertainment, a division of Louisiana Economic Development. "Not only does Louisiana have the most reliable and stable incentive program, we also have a very deep and skilled crew base, state-of-the-art facilities, and diverse locations." Popeyes Louisiana Kitchen (Restaurant Brands International), for example, is currently filming commercials in Louisiana.

A bit to the east, Lee Thomas, deputy commissioner at the Georgia Film, Music, and Digital Entertainment Office (GFMDE), is equally vocal in singing the praises of the Peach State's program. "Georgia has the complete package. We have a great international airport and a temperate climate, so you can shoot year-round," she says. "We have diverse locations — mountains and coast lines and big cities and small towns. And, of course, we have a great tax incentive."

Thomas says that Georgia's tax incentive, which launched in 2008, is very competitive. "As a result of that, we have a lot of crew and a lot of infrastructure, which makes it cheaper and easier for people to shoot here," she says. Georgia sweetens the pot with additional benefits, including free location scouting for green-lit projects. "For commercials, music videos, and indie films, we can put together location packages for you and point out the best things around that meet your needs," Thomas says.

A unique aspect of Georgia's effort to court commercial shooters and filmmakers is a program called Camera Ready Communities, which GFMDE oversees. "Georgia has 159 counties, and in each one we have a designee who's there on the ground to help with anything you might need," Thomas says. "So if you're in a remote part of the state and you need road closures, there is somebody right there to help you." More than 600 communities participate in the program.

Thomas says that Georgia's incentive program has been the primary driver of increased commercial shooting, filmmaking, and production activities in the state. "In 2007 (the year before the program kicked off) we were at $67 million of direct spend in the state, and this past year (2019) we were at $2.9 billion," she says. "There's no sunset on our incentives, so they're in perpetuity until someone introduces legislation to kill it. That's part of the reason we've seen such an investment in the state of Georgia — so many soundstages that have been built and so many companies that have located here — because we don't have any kind of cap or sunset on our incentives."

Sadler points to several factors marketers should consider when evaluating state tax incentive opportunities:

  •     Does the area have the depth of production infrastructure needed to support the project?
  •     Is the pool of production vendors, crew, and talent sufficient for the production needs?
  •     Incentive programs can vary dramatically from state to state, so marketers should consider minimum spending required, qualification rules for the spending, percentage of return, type of return (tax credit, rebate, or refund), conversion and/or processing costs for the return, limitations on availability of reimbursement funds, timing of the overall payout process, and timeframe for the payout.

But first, Sadler says, "It is important to evaluate the creative and ensure that it can be executed well in the selected state."
An Integrated Approach

Constellation Brands, whose portfolio includes Corona and Modelo beers and several wine and spirits brands, has become proficient at navigating the waters of state tax incentive programs. Charlie Shikany, VP of corporate indirect procurement at Constellation Brands, credits this success to a close working relationship between the procurement team he heads up and the marketing department internally; the two teams also work closely with the brand's ad production consultants, APR, externally.

"For the last 10 years, we've had the same CMO (Jim Sabia), and he values and has embedded this function into his larger team," says Shikany, whom Sabia hired three months after he was named. "This has allowed for a much easier transition into becoming a trusted adviser with the team on all areas of the business."

Both Shikany and Sabia had worked with APR in previous roles, and they brought the consulting firm into the mix within their first year at Constellation Brands. During the early years, when both the marketing and procurement teams were smaller, they focused on basic ad production efficiency tactics. "As our organization became more sophisticated and complex, we started to introduce more industry best practices, things like offshore production, music licensing controls, combined agency shoots, and the Illinois Film Incentive," Shikany says.

Illinois has one of the most marketer-friendly tax incentive programs. As Peter Hawley, deputy director at the Illinois Film Office, says, "For productions under 30 minutes, the minimum Illinois spend to take advantage of the 30 percent tax credit is $50,000. By contrast, Georgia has a $500,000 minimum spend."

The state also has an excellent and diverse crew base, outstanding film production infrastructure, and a strong pool of actors, Hawley adds. In response to growing commercial shooting and filmmaking activities, Illinois will begin a training program to expand the crew base and open it to more women and minorities. "We are certainly letting the world know Illinois is film friendly and open for business," he says.

Constellation Brands took the time to educate both its brand teams and its agency partners about state tax incentives to make sure it had the buy-in needed not only to test the idea, but to make it a sustainable process. "We started small with product shots that had the required video component and have continued to progress ever since," Shikany says.

Available tax incentives are factored into the mix from the get-go. "We have a slight advantage with the beer team, which is our largest division and biggest production spend, being located in Illinois," Shikany says. "While we have taken advantage of the incentive in Puerto Rico (for creative involving beach shots), we've found it easiest to utilize what's right here in our backyard in Chicago."

Constellation Brands' use of tax incentives has grown steadily. It currently has 13 shoots being produced under state incentive programs, while its wine division is also getting into the mix. "I think smaller-budget brands love taking advantage of the incentive to save dollars," Shikany says. "However, since the returns sometimes aren't realized for 18 months, I'd say dollars-and-cents is not the biggest determining factor on where we'll produce a commercial — but it's a great tie breaker."
Who Gets Paid?

An issue around state tax incentives that often crops up when brands are using outside agency or production partners is the question of who is entitled to the financial benefit. Shikany has faced this challenge at Constellation Brands, and he believes the payoff justifies the effort involved.

"To make this work, the procurement team worked with finance to ensure that we could give the money back to the brand team responsible for the incentive," he says. "There is a bit of incremental work involved in making this happen, and we feel strongly about rewarding the teams. So far, all the money has been returned for reinvestment into the marketing budgets."

Leading State Incentive Programs

More than two dozen states offer companies various financial incentives to generate new revenue for their locales. Below, a sample of states that try to appeal to brand marketers.

source: Film Production Capital


Type: Transferable tax credit, can be sold to Connecticut taxpayers

Rates: Ten percent with minimum spend of $100,000, 15 percent with $500,000, 30 percent with $1 million on qualified production expenditures, including nonresident compensation.

Caps: $20 million aggregate cap on talent compensation, including payments to loan-outs (companies set up as separate legal entities to pay actors, singers, and other talent).

Minimum spending: $100,000

Contact: Connecticut Office of Film, Television & Digital Media


Type: Transferable tax credit, can be sold to Georgia taxpayers

Rates: Twenty percent on qualifying expenditures, including nonresident compensation; additional 10 percent if the production includes end credit or alternative Georgia promotional material.

Caps: $500,000 individual compensation cap; cap does not apply to payments made to loan-outs.

Minimum spending: $500,000

Contact: Georgia Film and TV Production


Type: Transferable tax credit, can be sold to Illinois taxpayers

Rates: Thirty percent on qualified production expenditures, does not include nonresident compensation; additional 15 percent on payroll to crew members who are residents of certain economically distressed areas.

Caps: Roughly $100,000 individual compensation cap.

Minimum spending: $100,000; $50,000 for projects that are 30 minutes or less.

Contact: Illinois Department of Commerce & Economic Opportunity


Type: Redeemable tax credit; production can redeem tax credit with the state for cash at an effective rate of 88 percent of the tax credits earned after payment of transfer fees.

Rates: Twenty-five percent on qualifying expenditures, including nonresident compensation; additional 5 percent to the base rate if 60 percent or more of production takes place outside metro New Orleans; additional 15 percent on payroll expenditures to residents; additional 5 percent on certain visual effects expenditures; total credits awarded cannot exceed 40 percent of all qualified expenditures made.

Caps: Roughly $150 million annual reservation cap (may allocate from future years if exhausted); $180 million annual cap on tax credits claimed with the state (can delay monetization of credits); $20 million in tax credits per production; $3 million individual compensation cap, including payments to loan-outs.

Minimum spending: Roughly $300,000; $50,000 for certain local productions.

Contact: Louisiana Entertainment


Type: Transferable and redeemable tax credit; can sell tax credit to Massachusetts taxpayers or redeem credit with state for cash at rate of 90 percent of credits earned.

Rates: Twenty-five percent on qualifying expenditures, including nonresident compensation.

Caps: Individual compensation cap of $1 million, but no cap if 50 percent or more of principal photography days or 50 percent of total production expenditures occur in Massachusetts.

Minimum spending: $50,000

Contact: MA Film Office

New Mexico

Type: Refundable tax credit; production obtains a cash refund after filing tax return.

Rates: Twenty-five percent to 30 percent on qualified production expenditures, generally excludes nonresident compensation; 30 percent on resident crew members if shooting in a qualified production facility; 15 percent on nonresident crew members (conditions apply).

Caps: Roughly $50 million annual claims cap (not reserved, rolling cap allocated in order of refund claims).

Minimum spending: $500,000 for features/TV; $50,000 for music videos, soundtracks, and commercials.

Contact: New Mexico Film Office


Type: Transferable tax credit, can be sold to Pennsylvania taxpayers

Rates: Twenty-five percent on qualified production expenditures, including nonresident compensation; 5 percent credit in addition to base credit if using qualified production facility and meeting certain requirements.

Caps: Roughly $65 million/year program cap, reserved by application; $15 million aggregate above-the-line (pre-filming) compensation cap.

Minimum spending: Sixty percent of budget must be Pennsylvania expenditures.

Contact: Pennsylvania Film Office

Puerto Rico

Type: Transferable tax credit, can be sold to Puerto Rico taxpayers

Rates: Forty percent on qualified production expenditures, including resident compensation; 20 percent tax credit for payments to nonresident compensation.

Caps: Roughly $50 million/year program cap, reserved by application.

Minimum spending: $100,000

Contact: Film in Puerto Rico
— M.J.M.


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