Cut! Michigan’s Film and Video Game Startups Fear Loss of Popular Tax Credits

3/2/11Follow @xconomy

[Corrected, 3/4/11, 3:44 p.m.]When Republican Gov. Rick Snyder recently proposed eliminating generous tax breaks that have made Michigan a top destination for Hollywood-produced film and TV shows, heads started to roll. Pity the poor politician who would deny voters the chance to see George Clooney in the flesh!

But beyond robbing screaming fans of the chance to encounter handsome movie stars, some say Snyder’s plan risks upending a promising segment of Michigan’s high tech economy that attracts young talent to fast growing fields like digital media, visual effects, and video games.

Michigan offers a refundable tax credit that covers up to 42 percent of expenditures accrued by “eligible production companies…in the business of producing qualified productions” in the state.

The credit does not only apply to movies. Last November, Michigan awarded a 40 percent tax credit to BH Golfing Game Productions LLC, which hired PixoFactor Entertainment in Royal Oak, MI to develop a  Ben Hogan video game for the Nintendo Wii, mobile application, and DVD.[An earlier version implied PixoFactor applied for the tax credit.]

While films attract the most attention, video games could offer a more lasting economic impact on the state, which is struggling to develop high tech industries beyond the automobile industry, some say.

“That’s the future,” says Janet Lockwood, who led the Michigan Film Office for 19 years before retiring last summer. “There’s more money spent on games than the movies. We also didn’t want our young [talent] to leave Michigan.”

PixoFactor CEO Sean Hurwitz says the tax credits really jump-started the gaming industry in Michigan.

Though PixoFactor is the only gaming firm so far to receive the credit, the program really put Michigan “on everyone’s radar,” Hurwitz says. “I doubt [the gaming community] would give Michigan a shot if there were no incentives.”

Last month, Snyder, who formerly worked as a venture capitalist in Ann Arbor, unveiled a plan to close the state’s nearly $2 billion budget gap while finding ways to lower Michigan’s stubbornly high unemployment rate, currently around 11 percent.

Key to Snyder’s budget is a plan to establish a flat corporate tax rate and eliminate the state’s hodgepodge of tax credits targeting specific industries like medical devices, clean energy, and computers. In its place, Snyder proposes adding $50 million to the state’s $75 million 21st Century Jobs Fund and cap film incentives at $25 million.

Under current law, there’s no cap on how much film companies can claim through the 42 percent tax credit. Last year, Michigan spent $60 million on incentives to lure filmmakers.

Supporters of Snyder say the state shouldn’t pick winners and losers but rather promote a friendly tax climate for all companies. Many of those credits, they argue, waste taxpayers’ money.

But in many ways the film credit has already brought tangible economic benefits to the state, long after studios … Next Page »

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