Nasir and Matt welcome Steve Rothschild to discuss the film tax credit bill recently passed in California, as well as the importance of transferrable tax credits to businesses. They also answer, "I received a demand letter from an attorney that is asking for way more money that I would ever be responsible for. What should I do about this?"
NASIR: Welcome to Legally Sound Smart Business.
This is Nasir Pasha.
MATT: And this is Matt Staub.
NASIR: This is our business podcast where we cover business legal news and also answer some of your business legal questions that you, the listener, submits to firstname.lastname@example.org.
We are at the mid-week point, Episode 50. That’s a lot of episodes.
MATT: Yeah, pretty crazy. It’s a semi-milestone.
NASIR: I thought 48 episodes was a lot but 50 is just… I think we should just stop. It’s too much.
MATT: Yeah, we’ll see how this one goes. If it’s the best one, we’ll stop at 50.
NASIR: That’s a lot of pressure.
MATT: Well, let’s get into the story that we have for today. The story here is the one that was in California. Senate passes film tax credit bill which basically is trying to keep filming and production in the state or give incentive for the filming and production to stay in California.
Obviously, in California, we have Los Angeles, Hollywood, there’s lot of companies, lots of actors here. There’s no reason to let them leave but a lot of them are leaving for these tax credits that are in different states. I know there’s a few states in the country that a lot of places film but California is just trying to keep this in in order to generate more money, help the economy. It’s obviously struggling in California but I think this is a good thing for a lot of people, especially for California.
NASIR: Yeah, absolutely. I think it’s going to cost quite a bit to California off the bat because of the hikes but they also have additional incentive for production companies that are actually moving into California.
This started me thinking about tax credits in general. I don’t think businesses realize how many different tax credits for all these little things are there and I wanted to bring in Steve from State Tax Credit Exchange. He’s a tax credit clearing house.
Steve, welcome to the program.
STEVE: Thank you. Good to be hear.
NASIR: Obviously, there’s always going to be legislation in different states that gives different tax incentives to businesses. You’re an expert on tax credits. Why don’t you tell us a little bit about tax credits in general and also how you’ve been dealing with it in your business as well?
STEVE: Tax credits are obviously incentives by typically the states such as the state tax credits – typically by the states – to foster growth in certain industries.
The feds have also tax credits to foster growth in particular industries as well. Some of them are for more social reasons such as affordable housing. Others are for more business development – call it jobs which would be the film and entertainment tax credit. Certainly, California is trying to keep the flood of folks from leaving the state of California to other states as film production and technology has been a little easier to do on an international basis for that matter. It’s not as essential to film in the state of California. Other talent is now national and international as well. Some actors and actresses as well are not living necessarily in the state of California. That has been an issue where California has struggled to keep these folks and there’s now infrastructure being generated – or should I say built – in places all over the world.
Our company as an exchange or clearing house, we basically take the tax credits that have been generated by these companies and we sell them or transfer them to other taxpayers – they could be individuals or businesses that have tax liability. These incentives that we only work with are ones that are transferrable by law.
NASIR: Are most tax credits transferrable? Or just a few of them?
STEVE: Not all tax credits are transferrable. There are indeed tax credits and job credits in certain markets that are not transferrable. They can only be used by the companies that are generating those credits. There are other credits – lots of other credits, actually – that are transferrable. The reason why is that those companies who are generating those tax credits do not either have the liability or it’s a timing issue and they want to monetize those tax credits thereby selling them or transferring them to another taxpayer.
NASIR: That’s an amazing industry and exchange that most people probably aren’t even aware of. I think a lot of businesses have probably heard of the shop tax credit. What is this? Small business health options program in the new healthcare law because that was implemented this year. What are your thoughts about that? Has that been something that you’ve been working with?
STEVE: It is a tax credit that is not transferrable and nothing that I am familiar with.
NASIR: Okay, that’s good to know. It’s not a transferrable tax credit.
Steve, what’s your opinion on tax credits in general from a business perspective or as a business owner?
STEVE: From a taxpayer’s perspective, it’s a no brainer. If you have a tax liability and you can buy a discount on your taxes, certainly, ones that are bulletproof from the standpoint of risk, it’s a no-brainer. From a business who has the opportunity to generate these tax credits, again, it’s a way to mitigate your expenses, reduce your costs of whatever industry you’re in that has these tax credits. Certainly, the film and entertainment business, if you come to certain states – matter of fact, even Canada, these incentives are offered all over the world – you can get somewhere between 20 to 40 percent of your production costs mitigated.
STEVE: Through the tax credits.
MATT: One thing I found that was pretty interesting, Anchorman 2 which was supposed to be set – at least in part – in San Diego, there was a little bit of filming here but it was mostly filmed in Georgia, from what I understand.
Steve, is this a pretty frequent occurrence? Films supposed to be set in one city and ended up coming to Georgia in order to film just for the tax credits?
STEVE: No question. There is actually an entire town in the south side of Atlanta that was built to be somewhat agnostic as far as the buildings and anything could be shot in that town and then they basically transpose the Eiffel Tower for that matter in it. When you’re watching the movie, it’s as if you are watching it in Paris.
MATT: That’s cool.
STEVE: That’s the reason. Because of technology, it allows for a lot more opening to film in locations outside of the potential location it seems to be on the silver screen.
MATT: Very cool. I didn’t even know about that. Every time I watch a movie now, I’m going to think of it differently, if I know it’s filmed in Georgia.
NASIR: Yeah, I’m just going to assume all movies are filmed there now. Ruin the fun.
NASIR: Let’s get to our question of the day. This is going to be good because, even though you’re an expert on tax credits, I want to get your business owner partner perspective on this.
Go ahead, Matt.
MATT: “I received a demand letter from an attorney that is asking for way more money than I would ever be responsible for. What should I do about this?”
NASIR: Yeah, I think this is pretty common. I personally don’t send letters like this but I think our clients do all the time. You get some crazy requests from even attorneys, let alone demand letters from customers. My initial reaction is almost always, if it’s outrageous to ignore it, if it’s from an attorney and it’s nothing too crazy, then okay, let’s try to deal with this and respond accordingly.
What do you say?
MATT: I think that’s pretty good. Yeah, there’s definitely the ones you see that are just way outrageous and sometimes those end up online because they’re so outrageous and funny, almost. But, if it’s something that’s close and something that you think you might be responsible for, yeah, you can at least open up the conversation with the attorney that sent it.
NASIR: I think almost every business has gone through something like this.
Steve, have you had any experience with someone basically asking for money that you knew you didn’t owe and maybe you received a demand letter for it?
STEVE: Yeah, I understand ignoring it and sometimes you feel like you should ignore it. My issue with ignoring it sometimes gets you in a bigger issue later. So, I tend to respond and I tend to respond in a fairly strong way and it’s something that I basically dismiss. You know, this is not something that we owe and at least I’m now going on record that I am responding and it’s something that I don’t believe we owe. If it does bring up additional information back to us, then we can respond accordingly as to prove to us what you’re demanding for – what service or whatever it is – and then we can reply.
NASIR: I think that’s right. I think it depends how outrageous it is. Ignoring it is a risk and I have this conversation all the time but, I’d tell you, from sending demand letters, one of the most frustrating things is when you send a demand letter and it’s ignored and you know very well that you have no intentions of filing a lawsuit or pursuing it further.
Sometimes, you get these letters that you know are just kind of fishing and trying to get some cash out of you with no real intention to go further with that. But, of course, the risk is that it could escalate further and you kind of have to go case by case. But I think that’s important – coming back strong, if you do come back, is absolutely important. That’s definitely good perspective from someone who clearly has been through the process.
All right. Well, that’s our episode.
Steve, why don’t you tell us a little bit about State Tax Credit Exchange a little bit? We’ll, of course, put your contact information or website on our show notes.
STEVE: Thank you. I appreciate it.
State Tax Credit Exchange, again, is a tax credit clearing house that transfers credits from companies that generate these tax credits by law to other taxpayers. There are state tax credits and there are federal tax credits. Each tax credit has certain nuances, certain risks, and certain capabilities that some folks can take advantage of and others cannot. Our firm is one of the largest in the country. We are certainly the largest in the southeast. We’ve been doing this now for fourteen years. One of the – I guess – premier tax code experts on our team so we do get involved in consultation of how these things can be applicable to companies and individuals. Most of them are having to deal with income tax, some of them have to do with premium tax from insurance companies, and that’s about it.
NASIR: Very cool.
All right. Well, thank you for joining us.
MATT: Yeah, thank you, Steve.
NASIR: Thank you for joining us, everyone.
MATT: Keep it sound and keep it smart.