Georgia’s film tax credit is massive. How big? What Hollywood got in tax credits in 2019 was more than what the state spent on the Department of Public Health, and the combined budgets for State Troopers and the Georgia Bureau of Investigation.

No other state, including California and New York, spends as much as Georgia on incentives for the entertainment industry. 

Surpassing $850 million credits issued in 2019, the most recent fiscal year with complete data, the film tax credit is larger than many essential government programs. 

It’s a booming program that lets most film companies pay off their state taxes with tax credits up to 30% of the value of their in-state expenses. To understand how the credit got so big, it’s important to know how it works and what options states have to incentivize the film industry.

Georgia has issued billions of dollars in tax credits for film productions since 2005 when the incentive began. (Credit: Brittney Phan for State Affairs)

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Credits vs. Rebates or Grants

Many states offer a grant or a tax rebate for film productions. A grant is a lump sum that a state awards to productions. A rebate is tax money the state pays back to a production after the fact, like a refund for doing business in the state.

Then there’s the tax credit (this is what Georgia does). Unlike the first two options, a credit does not involve the state writing a check to a film company. Instead, a credit is issued — like a redeemable voucher — that can be used to satisfy state taxes owed by a company. 

Most states with a significant film industry offer credits and also cap them: 

• California $330 million cap
• New York: $420 million cap
• Louisiana: $180 million cap

Georgia has no cap and in 2019 issued $850 million in credits, spending more on credits than New York and California combined.

A cap means there’s a limit to how much the state forgoes in revenue, but opponents of a cap say it may also create a first-come, first-serve competition that could unfairly disadvantage certain productions. 

But in Georgia the tax credit is also like a gift card that companies can sell on the free market for cash, meaning that a production in Georgia can practically get a 30% subsidy on their expenses. 

This aspect, the so-called “transferability” of the tax credits, is what critics say is most wrong with the program — while proponents say that’s what makes it work, and without it, Hollywood might not have come as often to Georgia. 

Some policy experts argue Georgia’s tax credits are too generous, and state audits have questioned how beneficial they really are to the local economy. Reform advocates favor a cap and limiting the ability to transfer credits. 

• Read about the policy debate over Georgia’s film tax credits in our story, “Lights, Camera, Tax Credits: A Peachy Deal for Hollywood, but What About Georgia Taxpayers?”

A graphic showing film incentive types by state in 2020. (Source: Georgia Department of Audits and Accounts)

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How Do Film Credits Work?

Georgia’s film tax credits function much like a voucher with a dollar-value that can be used to pay state taxes. For instance, a film company that spends $100 million in qualified expenses in Georgia can get up to 30% of that expense, or $30 million in credits, to pay their state income taxes. Any credits left unused can carry over for up to three years or also be sold to anyone. 

“You can almost think of it as intangible property that I’m going to use to satisfy my taxes as a purchaser versus using cash,” said Peter Stathopoulos, a tax consultant and partner at Atlanta-based firm Bennett Thrasher and a strong proponent of the tax credit program. 

“Basically, I buy this and then, instead of using dollars to pay my tax liability, I’m going to use this voucher or this credit, this intangible property that I bought.”

See the flow of film tax credits in a given fiscal year. (Credit: Brittney Phan for State Affairs)

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Amid strong support for the credits, local critics have cast the program as more of a state subsidy than a tax benefit, arguing the credits in recent years have amounted to a tax-revenue loss that rounds out to about 3% of the state’s budget.

Even though these tax credits are issued to film companies, they are far from the sole beneficiaries. 

“Most film companies don’t owe any taxes in Georgia, so that tax credit itself is useless to them,” said J.C. Bradbury, an economics professor at Kennesaw State University who authored a study criticizing the state’s estimates of film-related economic impacts for 2018.  

“Where it becomes valuable is that it is a transferable tax credit, they can sell it to someone else.”

Georgia Department of Revenue data shows that hundreds of millions of dollars in credits are transferred each year, which suggests film companies often do not use all the credits they receive.

A state audit found that in 2016 as much as 80% of credits given to film companies were sold as transfers to other taxpayers, while less than 1% were actually used by production companies and the 20% remainder went unused.  

Data about who exactly gets the credits, and to whom they’re transferred, is shielded from public view due to the state’s confidentiality laws for taxes. However, state data shows that more than $1.3 billion in unused credits were carried over into 2020, while film companies have sold nearly $2.9 billion-worth of credits between 2016 and June 2021.

Covington, where the hit TV show The Vampire Diaries was filmed, is one of many places in Georgia that hosts the film industry. (Credit: Beau Evans for State Affairs)

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Who’s Buying Tax Credits? 

According to Stathopoulos, whose firm is also involved in buying and selling credits, while major motion pictures account for the bulk of credits issued, and therefore transferred, he sees productions of all sizes making use of the transferability. 

When it comes to buyers, he says that large non-film corporations were initially approaching the credits with caution but are now moving into the space. Early buyers were for the most part smaller businesses or individuals, he said.

 “I think the primary means by which these have been introduced to buyers were through accounting firms,” he said. “Obviously, there are credit brokers out there … but I think their primary customer base has been accounting firms.”

Most tax credits are used to help reduce individual income taxes, according to state data from 2012 to 2016. (Source: Georgia Department of Audits and Accounts)

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According to a state audit report, data from 2012 through 2016 indicated that most purchased credits were primarily used to offset individual income tax liability (59%), followed by corporate income tax (38%).

The tax credit market in Georgia is huge, estimated by Stathopoulos at somewhere between $300 to $500 million in tax credits sold each year. These are amounts comparable to even what is newly issued.

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What questions do you have about Georgia’s film tax credits? Share your thoughts/tips by emailing [email protected].