State helping pay for TV ads

Issues $2.1m in tax credits; Part of effort to woo film sector

By Todd Wallack, Globe Staff  |  May 27, 2008

Boston Beer Co. has long made television commercials in Boston to promote its Samuel Adams ales and lagers. But when a production company finishes a new round of Sam Adams advertisements this year, Massachusetts taxpayers could wind up paying as much as 25 percent of the tab.

In its high-profile bid to compete with Hollywood and New York as a film production hub, the state is doing more than subsidizing TV series and feature movies through tax credits and sales tax exemptions. It is also underwriting the cost of producing TV commercials in Massachusetts. The Department of Revenue said it has issued more than $2.1 million of tax credits for 37 ad-related productions - with eight more applications pending - since the state started offering incentives two years ago.

Though the state would not reveal recipients' names, local ad production companies say they have received or will seek funding for commercials promoting Intel computer chips, Head and Shoulders shampoo, and other major corporate brands.

Some public policy watchdogs say the incentives go too far.

"We certainly should not be subsidizing large corporations whose advertising dollars and budgets stretch into the millions," said Liam Day, a spokesman for the Pioneer Institute for Public Policy Research in Boston, which generally opposes aid to specific companies or industries.

But supporters say tax credits could help Massachusetts become a prime locale for advertising productions, creating jobs and pumping millions of dollars into the economy. "We're building a whole new industry," said William Earon, managing director of Coastal Capital Advisors LLC, a Boston private equity and consulting firm that serves the film industry.

Currently, executives say relatively few commercials are filmed here, except for tourism ads, modest spots featuring local executives, and other commercials where a Massachusetts backdrop is essential. Earon estimated Massachusetts captures less than $40 million of the $3.5 billion companies spend nationwide to produce ads each year.

But Earon and advertising industry executives believe the film incentives could change the equation, making it less expensive to film ads in Boston than in New York or Los Angeles.

"Massachusetts is becoming a very good place to shoot," said RJ Casey, president of Redtree Productions Inc., a Boston advertising production firm that has applied for some of the state money.

Company executives acknowledge that some taxpayer money is going to aid commercials that would have been filmed here without the incentives. For instance, Redtree said it wants subsidies for several productions, including one for Ocean Spray Cranberries Inc. filmed at company bogs in Carver. "None of those jobs were done here because of the tax credits. They were done here because they were New England jobs," Casey said.

Similarly, Element Productions Inc., another Boston company, said it has applied for subsidies for two sets of commercials so far, including one for Procter & Gamble's Head and Shoulders unit. In both cases, Element owner Eran Lobel said, the ads were shot here before the company knew it would qualify for incentives.

"It's a waste of taxpayers' money," state Representative Steven D'Amico, Democrat of Seekonk, said of the incentives. D'Amico was one of a few lawmakers who voted against a measure last year to expand the tax credits.

But Casey and Lobel said the incentives will probably help the companies lure productions to Boston, injecting money into the state's economy. Indeed, Element said it is currently competing to bring two lucrative jobs to Massachusetts. And Picture Park Inc., another Boston ad production company, said the subsidies have already helped it attract several out-of-state firms, including Intel Corp., ServiceMaster, and the company that makes Just for Men hair coloring. "It's made me more competitive," said Picture Park owner Mark Hankey. "I am using [tax incentives] as a tool to bring work here that wouldn't have been here."

Nor is Massachusetts the only state to offer incentives to the film industry. Earon said 14 states provide tax credits for film production, most of which include advertising. Several local ad agencies, including Redtree, were part of an industry group formed in 2005 to lobby for the film tax incentives in Massachusetts, which helped incorporate advertising into the definition of film production.

Production companies benefit in two ways. They are exempt from sales taxes on expenses related to filming in Massachusetts, and they can recover up to one-quarter of production costs in the form of tax credits. Even companies that would owe little or no corporate income taxes in Massachusetts stand to benefit by selling the tax credits to other companies - at least $12 million of credits have already been sold to financial institutions - or back to the state, which pays 90 cents for every $1 in credits.

Boston Beer and other advertisers emphasized they aren't eligible for the tax credits themselves. Technically, the state money goes to companies producing the ads. But Element, which is filming Boston Beer's ads, said advertisers benefit, too. Lobel, the Element agency owner, said that because of the incentives, production companies like his can offer lower prices or invest more time in an ad for the same price. As a result, Lobel said, advertisers are "getting more bang for the buck."

In theory, the subsidies could also raise the cost of ads commissioned by the state. For instance, since 2006 the Massachusetts State Lottery has spent more than $1 million to produce nine advertising spots, with the money split among seven local companies. Some of the firms might qualify for additional money from the Department of Revenue under the incentive program. Lottery spokesman Dan Rosenfeld said the agency will look into the matter.

The incentives were originally enacted in 2006 and significantly expanded last year, lowering the amount of production expenses needed to qualify from $250,000 to $50,000 and lifting the amount of benefits a company can receive per production.

Still, some film-industry supporters say the incentives are not broad enough to make Massachusetts a major production center. Earon, of Coastal Capital Advisors, said the state should reimburse companies for a portion of their travel costs to fly in actors and crews, because there isn't enough talent in Massachusetts. Currently, production companies are only allowed to count in-state travel costs. Lawmakers also are considering legislation to offer as much as $60 million in tax credits for the construction of film studios here. Studio projects have been proposed in Plymouth and Weymouth. On Wednesday, the Legislature's Joint Committee on Revenue recommended the bill's approval on a 5-to-4 vote.

Five other committee members abstained, including Senator Cynthia Stone Creem, who cochairs the Joint Committee on Revenue. Creem said she supported the original tax incentives, but has reservations about spending taxpayer money to help build private film studios at a time when the state must restrict other spending.

"It's a lot of money in a bad economy," said the Newton Democrat. "It's using public funds for private endeavors."

Todd Wallack can be reached at twallack@globe.com.