In the aftermath of the enactment
of Act 134,
which among other things placed a limit of $180 million on the amount of Motion
Picture Investor Tax Credits that could be redeemed a year for the next three
fiscal years and limited to $30 million the amount any single production could
receive, the Louisiana Film Entertainment
Association said it expected holders
of the credits to sue the state, claiming that the restrictions violate
contractual obligations, and it will join them with one of their own.
Which, unless the group suddenly
has turned into a civil libertarian outfit that takes on laws at least somewhat
out of philosophical objections that is contrary to its history of shilling for
a law that returns anywhere from 13
to 23 cents to taxpayers for every dollar they shell out, on the surface
seems a curious thing for it to do. After all, although no central repository
identifies who holds what credits, likely only a small minority are held by
producers and other interested parties who back the group, because these are
not refundable and therefore only can be used against Louisiana tax liability.
What they owe never ends up very large and almost every production, sometimes
dramatically (one
film took away $35 million worth against a liability a fraction of that),
exceeds that, so producers take advantage of the guaranteed selling clause to
the state that currently pays out 85 cents on the buck or sell them to brokers.
This puts most of these into the hands of Louisiana citizens and businesses
(and politicians),
who have nothing to do with this group.
But understand who ends up siphoning
taxpayers as a result of this, and it becomes understandable. While laws passed
this session tighten the requirements, the very nature of the program encourages
more profligate spending by producers; in essence, giving them a quarter more
of whatever for free, because by qualifying for a 30 percent credit on an
expense that you can sell back to the state at 85 percent, that a 25.5 percent
bonus. And the aftermarket generally fetches even higher prices. So why order
hamburger when taxpayers will upgrade you for free to ground round? Buying
better or more means more of the people’s money spread around to a relatively
small number of individuals.
However, the cap discourages that
strategy because if you plan on redeeming credits sooner rather than later, if
your amount is a quarter higher, you risk not coming in under the year’s cap
(which is first come, first serve) and may have to wait at least a year for the
remainder. Producers fear the cap means no more or as much shrimp cocktails for them, and
productions will be less grandiose, meaning fewer employed and positive spillover
effects so this stokes the worries of ancillary firms that make their money off
of the industry that support the group.
The same logic applies in gauging
the desirability of the credits as an incentive. While the industry does not
hold the vast bulk of extant credits that suggests a cap on redemption should
not concern it, instead movie-makers fear that with the three-year moratorium
on unlimited redemption that holders of these may rush for redemption as soon
as possible, freezing out immediate redemption possibilities with the state and
causing their value to go down in the aftermarket as a result. In turn, as the
value of the bribe decreases, so does the volume of business, again meaning
fewer productions and less business for the ancillary concerns. (Anecdotal
evidence suggests that exactly this sentiment has entered Hollywood’s
stream of consciousness, if perhaps not yet acted upon.)
And while the organization has put
out a statement
attempting to argue the unconstitutionality of the new act, which claims the
new law constitutes a “substantial impairment” of a contract, almost the entirety
of that assertion
becomes laughable when considering that the state in no way says it will
not honor or devalue the credits, because not only does the cap eventually expire
but also if the cap is reached in a year, credits claimed past the limit then
may be carried forward to a future tax year. You still get the full benefit,
just not upon demand. This illuminates the inconsistent argument made by the
organization: why should only the holder of the cap be able to select the
timing when they may be redeemed? Why shouldn’t the state have an equal ability
to do that? And the argument that the new restriction is unconstitutional because
it is “neither reasonable and [sic] necessary, nor justified by a significant
and legitimate public purpose” is absurd on its face: balancing a budget and
the spending decisions part of that process unquestionably are duties
legitimately exercised by government as representatives of the public and its
purposes. As a result of these errors in analysis, arguments even more divorced
from reality are made in this document invoking the “takings” and “equal
protection” clauses of both the U.S. and Louisiana constitutions.
The only plausible argument made by
the group in the brief concerns the rare instance in which a redemption occurs
on the same day the cap is hit, where (the new law doesn’t actually address
this, but promulgated administrative law might choose this as an approach) a pro-rata formula is used, the possibility
of which could mean a tax return could be filed with unpaid tax liability and
invite penalties. However, administrative rule-making could prevent unfair
consequences in this unusual situation, and certainly that provides little
justification to overturn the law with such an easy administrative solution at
hand.
In short, because it feels so much
potential lucre could be cut off by the law, to tap into what it sees as a
voluminous pipeline of cash the industry is willing to try longshot lawsuits
that will cost them some money. Of course, it will cost Louisianans also to
defend them, which is the final insult the greedy of the industry and its
hangers-on heap upon the state: what’s a bit more to make the citizenry
surrender when you’ve already picked their pockets for a net over one billion
dollars? They’ve never cared for the welfare of the people, so it’s a stretch to
think they would start now by abjuring legal action, owning up to how they have
sacked the state, and being grateful and graceful in accepting their gravy
train accommodations have gone from club car to first class.
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