Television Commercial Makers May Reap a New Tax Credit

ALBANY – Looking to stem what legislators described as a tide of entertainment industry defections, state lawmakers are mulling a new tax credit aimed at companies that make television commercials.The bill, with sponsors in the Assembly and the Senate, follows the passage by lawmakers last year of a $100 million tax break for television and film production companies that do business in the state. That bill was not originally expected to pass but is now being cited as a reason to pass a new tax credit for another industry player.“We’re real believers in this bill because we’ve seen the movies we’ve been able to attract in only eight months,” the new bill’s sponsor in the Senate, Martin Golden, a Republican of Brooklyn, said. “It really comes down the fine line of the dollars that are available. We’re still negotiating with the governor’s people, but it’s in good shape.”According to the proposal, companies whose primary business is the production of television commercials would be eligible for a 10% tax credit against revenue above $500,000. The state would allow $5 million in credits statewide and issue them to companies on a first-come, first-served basis. The revenue threshold is meant to discourage companies from exploiting the credit by setting up shop in the state only temporarily.“What we are saying to these companies is come to New York and make it a part of your operation, and once you’ve made a significant investment, we will start giving you credits,” the chairman of the Assembly Committee on Tourism, Arts and Sports Development, Joseph Morelle, said. “You have to do half a million in production before the tax credit kicks in.” Mr. Morelle, a Binghamton Democrat, is sponsor of the Assembly’s version of the tax credit bill.Both the tax credit for film industry companies and the proposed tax break for television advertising companies fall under the category of targeted tax credits, tax breaks aimed at either specific commercial enterprises or specific personal expenses. New York has added dozens of those breaks to individuals and businesses over the years, creating a tax code that many economists have said is both cumbersome and inefficient. Lawmakers defend the credits on the ground that some businesses are more mobile than others.“I think true conservatives and liberals agree that whatever revenue you need to raise should be raised with as low a rate as possible,” the executive director of the left-leaning Fiscal Policy Institute, Frank Mauro, said. “They may disagree as to the amount of revenue, but once you’ve set that rate, it is going to do less interference in the economy if the base is as broad as possible and as low as possible. Government shouldn’t be attempting to pick winners and losers, because the tax system is not a tool of social policy.”Mr. Golden said he expects the bill has a good chance of making it through the upper chamber this session. And Mr. Morelle, citing what he described as the success of last year’s film industry credit in retaining business, said his version of the bill has a solid chance of passing the Democrat-led Assembly this session. Both versions of the bill are currently in committee.A spokesman for Governor Pataki, Kevin Quinn, said Mr. Pataki would have to review the proposal before pledging support but suggested that the principle is favorable to the administration.“We have to review that bill,” Mr. Quinn said. “But clearly Governor Pataki has a tremendous track record on enacting tax cuts in New York, and specifically tax cuts that would encourage new business and new investment in New York, and we certainly will take a look at that bill.”Yet a member of a tax commission that Mr. Pataki established in January to devise an overhaul of the state’s tax code, Stephen Entin, said the elimination of targeted tax credits could be a focus of his recommendations.“They would be better off, I think, if they were more evenhanded,” Mr. Entin, president of the Washington based Institute for Research on the Economics of Taxation, said. “I think there is a possibility of streamlining it and making it more efficient. Having said that, I haven’t settled on any recommendations.”According to a memo included with the proposed legislation, New York’s share of payroll in the commercial industry fell to 20% in 2002 from 44% in 1990.The drop has followed the defection of companies to other states and to Europe, Canada, and elsewhere. Los Angeles recently passed legislation that essentially eliminates business and corporate taxes for small and medium-sized production companies. The memo said the loss in business has taken an economic toll in New York of $1.4 billion.Production companies won a major concession from the Legislature in this year’s budget with the adoption of a new tax system that allows them to be taxed only on in-state sales.Previously, those companies were taxed on sales, payroll, and assets. The change reflects a fierce competition among states for entertainment dollars.Many of the companies operate in New York City. The chief spokesman for the Bloomberg administration, Edward Skyler, said: “The administration supports the principle. It would like to encourage the shooting of more commercials in the city, but it thinks the legislation can be improved.” Mr. Skyler did not elaborate on how Mayor Bloomberg would like to see the proposal improved.Mr. Entin, one of six economists chosen to lead Mr. Pataki’s new Commission on Tax Reform and Simplification, said targeted tax credits are often popular among lawmakers – although not among most of the economists who advise them.“A relatively small percentage of economists run for office, and an even smaller percentage get elected,” Mr. Entin said. “Legislators don’t think in economic terms. Someone comes to them and says we have a thousand places we can go to make commercials. Very often they misjudge who can move and who can’t.”

Television Commercial Makers May Reap a New Tax Credit

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