Film, TV, Digital Production Tax Credits Could Be Back in Picture for NJ

John Reitmeyer | June 4, 2018 | Politics
Sponsors of bill offering incentives to entertainment industry agree to changes called for in Murphy’s conditional veto

film production
New Jersey appears to be on the verge of restoring lucrative tax incentives for the film, television, and digital-production industry just a few years after former Gov. Chris Christie cast aside a similar tax-credit program amid concerns about its effectiveness.

Gov. Phil Murphy recently sent a bill seeking to revive state tax incentives for the entertainment industry back to lawmakers with a conditional veto. The sponsors have responded by saying they are preparing to adopt his recommendations, likely before the end of this month.

“We’re going to concur,” said Senate Majority Leader Loretta Weinberg (D-Bergen). “They were changes that they worked out with us.”

The sponsors’ willingness to work with the governor almost ensures the tax credits — which will be worth up to $425 million over a five-year period — will be reinstated. Murphy’s recommendations include new language that encourages the hiring of minorities and allows reality shows that make significant investments in one of the state’s specially designated Urban Enterprise Zones to also qualify for the incentives.

“Filming movies and TV shows in New Jersey creates good-paying jobs, generates economic growth, and centers our state as a home for 21st-century growth industries,” Murphy said in a statement that was issued along with his conditional veto last week.

The film tax-credit program that used to be in place in New Jersey provided up to $10 million in tax breaks to film production companies, and another $5 million for digital-media productions. By some estimates, the state had nearly 7,000 jobs tied to the production industry before the incentive program was stopped, generating more than $500 million in wages at the time.

Christie calls ‘cut’

But Christie raised questions about the effectiveness of the program as state revenues dropped dramatically during the Great Recession, and he rejected legislative efforts to extend the tax credits during his first term. Members of his administration also disputed an analysis of the tax breaks by New Jersey Institute of Technology that found the program essentially broke even.

The legislation seeking to revive the tax-credit program was reintroduced this year in January, around the same time Murphy was sworn in to office. The bill would allow for up to $75 million in annual tax breaks to be awarded to film-production companies operating in New Jersey, and up to another $10 million annually for digital productions.

The corporate- and income-tax credits could generally be worth up to 30 percent of a film production’s costs, and up to 20 percent of a digital production’s costs. They could be slightly more valuable for productions based in several counties, generally located in South Jersey. They are Atlantic, Burlington, Camden, Cape May, Cumberland, Gloucester, Mercer, and Salem.

To claim the tax credits, at least 60 percent of a film production’s costs would generally have to be incurred in New Jersey, or its expenses in New Jersey would have to exceed $1 million. For digital productions, the expenses would have to total $2 million, with at least 50 percent of the expenses related to employee wages.

The legislation calls for the program to launch during the 2019 fiscal year, which begins on July 1, and run through the end of fiscal 2023.

That’s entertainment

Sponsors of the bill highlighted major changes that have occurred in the entertainment industry in the years since New Jersey’s credit program was allowed to expire, including the increasing popularity of programs produced by streaming services like Amazon and Netflix. They predicted a revived program would generate economic growth for the state at a time when the unemployment rate still trails the U.S. jobless average. They also highlighted the success that neighboring states like New York and Pennsylvania have had using entertainment-industry tax credits, as those places also have access to the same talent pool that New Jersey hopes to attract.

But despite that optimism, a fiscal note that was prepared earlier this year by New Jersey’s nonpartisan Office of Legislative Services suggested the bill could have the opposite impact on tax collections, at least for the state. The OLS estimated an up to $425 million cumulative hit on state collections, in part because, “the bill does not require tax-credit-receiving expenses to yield a net fiscal benefit to the State.”

The recommendations that Murphy made in the conditional veto did not address issues raised in the fiscal note. Instead, it added a requirement that applications for the tax incentives be “accompanied by a diversity plan outlining specific goals, which may include advertising and recruitment actions, for hiring minority persons and women.”

Another recommendation made by Murphy would allow for a reality show that locates in a UEZ to receive the tax credits if the show “owns, leases, or otherwise occupies a production facility of no less than 20,000 square feet of real property for a minimum term of twenty-four (24) months, and invests no less than $3,000,000 in such a facility.” That language appears to allow the Jersey City-based “Cake Boss” reality show to qualify for a tax incentive, a change that came after Mayor Steven Fulop personally lobbied the governor’s office for an amendment.

That change is also just the latest boost Murphy has provided for the UEZ program; he recently signed legislation that reinstates the UEZ status of five communities — Bridgeton, Camden, Newark, Plainfield, and Trenton — after Christie allowed it to expire during his tenure. The UEZ program seeks to provide an economic-development boost to struggling communities across the state through tax and hiring incentives that include allowing businesses to charge a discounted sales-tax rate.