Movie producers like new Arkansas film incentive law, but say more is needed

The Arkansas Cinema Society may have celebrated Act 517, which went into effect Aug. 1, but many filmmakers in Arkansas are wondering just how it is going to help the film industry in the state.

The new legislation increases the base incentive for qualified productions and production costs from 20% to 25% and adds additional uplift incentives to help productions get to the maximum incentive available of 30%. These added uplifts apply to both the tax rebate and tax credits on qualified productions.

While a film tax rebate has long existed, a tax credit was codified in 2021 as an available option with the tax rebate. Other than adding these increases, Act 517 has no impact on either the rebate or the credit.

“Arkansas needs to be competitive with our neighboring states, and this bill is a step in the right direction,” said Sen. Jonathon Dismang, R-Beebe. “The proof is in the numbers, and we’ve seen the economic development data from other states on how impactful the film and television industry can be to local economies. It’s important to now gather the necessary data in Arkansas and work with AEDC and ACS to continue to make progress for our state.”

COMPETING WITH OKLAHOMA
Zac Heald with Northwest Arkansas’ Farm Studios said it is very true that Arkansas needs incentives to compete against other states for film industry business, but wonders if the new legislation actually helps.

“It’s not particularly a beneficial thing. It doesn’t help us. We’re not competitive with our neighbors, especially Oklahoma,” Heald said.

The Filmed in Oklahoma Act passed in 2021 created “one of the most competitive film incentives in the nation,” according to the Oklahoma Department of Commerce website. Productions can receive a cash rebate of up to a 38%, which includes a 20% base with uplifts for increasing the amount of work done in the state. Incentive uplifts include operating in a rural community; operating in a small municipality; using an Oklahoma soundstage; TV production and multi-film deals; and post-production work done in Oklahoma, including the use of Oklahoma music.

Arkansas’ original film incentive legislation was passed in 2009, enhanced in 2013 and followed by an update in 2021. Act 797 of 2021 preserved the tax rebate for qualified productions while adding a baseline transferable tax credit of 20%. The 2021 law also created additional uplifts, or add-ons, that could enable filmmakers to boost the incentive, either rebate or credit, up to 30%. Act 797 of 2021 also streamlined the auditing process for productions submitting paperwork for the incentive.

“Don’t get me wrong,” Heald said. “The 25% rebate is very competitive. Everything you spend for goods and services, for payroll, you can request a rebate.”

BETTER FUNDING SOURCE NEEDED
Taking that further, if a production company spends that payroll on an Arkansas crew, they can apply for a 30% rebate, meaning if they spent $10,000 paying an Arkansas film crew, they could get back $3,000 in rebates. The problem, those working in the Arkansas film industry say, is that the money for those rebates is funded retroactively by governors, typically through their Quick Action Closing Funds, which means they are not funded as part of the annual state budget.

“The rebates are coming out of Arkansas’ rainy day fund,” said Dan Robinson, executive producer and owner of Fayetteville-based New Harvest Creative. “What happens if the governor decides to spend that fund on something else? … The rebates need to be funded differently. Film industry rebates shouldn’t be eating up the governor’s time.”

Rebates in many other states are funded through the parks and tourism departments, Heald said.

“That makes sense if you think about it. Movies filmed in a state are going to bring attention to parks and rivers and areas that people will want to see. And the goods the companies use – catering, restaurants, hotels, renting cars and RVs – are bringing in tourism dollars because of the tourism tax,” he said.

By creating funding for the rebates outside of the governor’s discretionary, those working to bring more film industry productions into Arkansas would be able to guarantee companies that the rebates were there, which would go a long way in getting multi-year deals for filming in the state.

“Right now, we can get an episode or a one-time movie. Something that is here for a few days or weeks. But we could get bigger deals. If we want to talk to Lifetime or Hallmark about filming in Arkansas, they need to know that they can set something up once and film project after project here, knowing the rebates will be there. There’s no guarantee now,” Heald said.

But Heald did acknowledge that securing a separate source for the rebates is trickier than just deciding it needs to happen.

So what about the tax credits? The primary difference between tax rebates and tax credits is how they are funded. Because of the way rebates in Arkansas are funded, they are not funded as part of the annual state budget. Tax credits, on the other hand, are funded prospectively. The 2021 law set aside $4 million annually in tax credits for qualified productions.

“Tax credits don’t really help the grass-roots productions we are trying to build. It doesn’t help independent filmmakers,” Robinson said.

The ability to transfer the tax credit, even with the extra 5%, doesn’t help much because production companies like his have to give more than 5% to bring in a film.

NEW LAW BENEFITS
A news release from the Arkansas Cinema Society said Act 517 of 2023 has zero fiscal impact and builds upon the previous legislation by doing the following:
• Capitalizes on the growing success of the film industry in Arkansas, with an emphasis on promoting projects in economically distressed areas of the state and multi-series productions to create consistent jobs for Arkansans;
• Raises the base film incentive for qualified production costs from 20% to 25%, making Arkansas more competitive with similar states who have demonstrated success in promoting the film industry through economic development incentives – specifically neighboring states of Oklahoma, Alabama and Mississippi;
• Establishes an additional 5% incentive for hiring employees or making qualified expenditures within a Tier 3 or Tier 4 economically distressed county as established by the Arkansas Economic Development Commission; and
• Allows for an additional 5% incentive for multi-project productions, such as television series or multi-film projects.

Film incentives in Arkansas have played a part in recruiting films like “Pursuit,” starring John Cusack and Emile Hirsch; “House of Darkness,” starring Justin Long and Kate Bosworth; “Hellfire,” starring Harvey Keitel and Stephen Lang; and “Mindcage,” starring Martin Lawrence and John Malkovich, along with TV shows like “Saved by Grace,” the news release said.

“Film and television productions have had a positive impact on the Arkansas economy over the years,” said Clint O’Neal, executive director of the Arkansas Economic Development Commission. “Producers and directors are drawn to Arkansas for the beautiful scenery, diverse topography and our experienced and hard-working crew base. We look forward to working with more productions and encouraging the growth of the film and television industry in Arkansas.”

Filmmaking is a major industry in which Arkansans can find a multitude of high-paying jobs, according to the Arkansas Cinema Society press release.

“Along with the more well-known positions on a crew like director, producer, or actor, Arkansans can create a career in film as makeup artists, caterers, lawyers, electricians, drivers, carpenters, accountants, and more,” the news release said. “HBO’s True Detective Season 3 shot in the state in 2018, and an economic impact study showed a $100 million dollar economic impact on Northwest Arkansas in addition to the creation of over 1,000 jobs.”

KEEPING A TALENT POOL
Robinson said the industry is “recession-proof,” meaning films will be made – with the exception of the stop for the ongoing SAG-AFTRA strike – during times when many other areas of the economy cannot produce. The film industry in the state brings business to local businesses, especially small businesses, and uses the local workforce, Robinson said. Heald said the industry brings focus and jobs to many of the state’s smaller communities.

“People think it’s just Little Rock or Bentonville or something, but it’s Gravette and Pea Ridge and small towns throughout the state. Films might need downtown in Little Rock for a few scenes, but they need the rivers and the highways and the small town. They are bringing money to those small towns and businesses,” Heald said.

And those working with the film industry in the state want to see that continue, flourish and grow. Better incentives could allow the state to keep the talent the junior highs, high schools and colleges are educating in filmmaking, technology and more, Heald said.

“We spend five or so years building up our talent pool, but then they move to where the industry is filming – Atlanta, Oklahoma. If we had more usable incentives, we could keep them here because we would have the work to keep them employed. These people have families, they have mortgages,” Heald said.

Keeping the talent pool large and in-state would then lead to more projects because the film industry would know they had a large pool of talent to use. Having more reliable projects would also allow Arkansas production companies to offer things like internships and job shadowing, which would enhance education opportunities and grow the talent pool more, Heald said.

The need comes back to more attractive incentives, industry representatives in the state said.
And in order to get those, those in the industry need to have a seat at the table when it comes to forming the incentives, they added.

“I don’t understand why the group lobbying for the changes didn’t contact any of us in the business,” Robinson said. “We’re eager to be involved. We want to be involved in the discussion. We would be if they asked. There wasn’t one producer talked to about this. We need to be in the discussion.”