The main group representing the Louisiana film industry has decided not to carry out a threat to challenge the legality of recent legislation aimed at paring back the state’s generous film tax credit program.
Instead, the Louisiana Film Entertainment Association will concentrate on proposing reforms to the new law — which the group and some of its opponents agree was poorly drafted — and persuading candidates for governor to support them, according to LFEA President Will French.
If the group succeeds, French said Thursday, the new $180 million cap on film tax credits, which is supposed to save the state about $70 million this year, may never come into play. Instead, the law could be amended before the cap is reached.
In a statement explaining its decision not to sue, the LFEA said it has been encouraged by the way state officials at the Department of Revenue and Louisiana Economic Development have interpreted the new law so far. The group also said its board “has turned its attention toward working with LDR and LED to find the most constructive path forward.”
In the short run, French said, the Jindal administration has interpreted the new law in industry-friendly terms.
For instance, one new provision in the film law says that only the first $3 million worth of salary tied to one person in a particular film — such as a celebrity actor — can be eligible for the state’s 30 percent subsidy. But French said state regulators have agreed to apply the provision only to people who are paid directly and receive a W-2 tax form. Nearly all actors are paid through so-called “loan-out corporations” that they control, and the $3 million cap will not apply to those who use loan-outs, French said.
The new legislation, which passed in the closing hours of the session that ended last month, says a maximum of $180 million in film tax credits can be cashed in during each of the next three fiscal years, starting with the one that began July 1. Given that the state has been issuing as many as $250 million in credits in recent years, the new limit — the first one adopted — is supposed to save the state an estimated $70 million in the current fiscal year. It was a small part of closing a $1.6 billion budget shortfall.
But it worried people in the local film industry.
For one thing, they feared the limit would drive filmmakers away to competing states, such as Georgia, that have no limits. They also fretted that it could hurt people and businesses holding film credits they have yet to redeem. Roughly $400 million in film tax credits issued by the state have not yet been cashed in, according to Tim Barfield, secretary of the Department of Revenue.
Barfield said in an interview Thursday that state records show that an average of $184 million in tax credits were cashed in during the past five completed fiscal years — suggesting that a $180 million cap “is not the end of the world for the film industry,” he said. “I’m not going to say it’s not going to have an impact, because I think it will have an impact. But it’s not the end of the world.”
The data from previous years “leads us to believe we can get into the first quarter of 2016 without hitting the cap,” French said. “If we can do that, and the next governor makes tweaks to the law in a special session, maybe the cap won’t even be a factor.”
If the state were to hit the new cap, things could get complicated. That’s because Louisiana now has a limit on the number of credits that can be cashed in during a given year but no limit on the number of credits that can be given out.
Barfield said his department will redeem the credits on a first-come, first-served basis. So the first tax filer to try to redeem credits after the cap is hit would be first in line for a payout the following year.
In the immediate wake of the new law, there were rumors that some major Hollywood players — such as Disney — had decided to quit making films in Louisiana.
French said he believes the industry mostly has been waiting to see how the laws would be interpreted by state bureaucrats. The worst thing for the film industry is a lack of clarity, he said.
Ultimately,the LFEA decided not to file a lawsuit because it didn’t make sense to get into an adversarial stance with the state and the Legislature.
“Does it make sense to spend our manpower and resources on a lawsuit?” he asked. “Or should we try to come up with a political fix for this law in the next cycle? … That seems to be a much more reasonable and intelligent way to go forward.”
In Barfield’s view, the suit was a legal long shot anyhow.
“Certainly, reasonable minds can differ, but the state has a very strong argument that these changes are constitutional,” Barfield said. “It would be a tough one for them to win.”
Follow Gordon Russell on Twitter, @gordonrussell1.