TRAC Gives Film Industry a Free Pass

August 5, 2010

Investigative Reports

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The NerveWhen it comes to paying sales taxes, South Carolina’s motion picture industry is getting a free pass from a special legislatively created panel charged with making recommendations to reform the state’s tax code.

The S.C. Tax Realignment Commission’s 36-page preliminary report on sales tax exemptions, which the panel unanimously approved two weeks ago, doesn’t address two exemptions for motion picture production companies operating in South Carolina.

Those exemptions are among at least 50 existing tax breaks not addressed in the report, which dealt with more than 140 individual exemptions, according to The Nerve’s review of the report, related documents and the state tax code.

Yet the 11-member TRAC commission would have South Carolinians pay sales tax on groceries, prescription medications and utility bills by repealing exemptions on those items.

A public hearing on the TRAC report is scheduled for next week.

The Nerve initially reported last week that several sales tax breaks passed by the S.C. Legislature in a special October session for the Boeing Co.’s new aircraft assembly plant in North Charleston were not addressed in the TRAC report.

The commission,according to its website, is charged with designing a “balanced” tax structure that is “adequate, equitable and efficient.”

Asked last week why the commission didn’t address the tax breaks for the motion picture industry, TRAC Chairman Burnie Maybank told The Nerve in a written response: “Production companies are wholesalers, and the consumer pays sales tax when they go to the theater. A motion picture production company is akin to a manufacturer in that regard.”

Maybank earlier told The Nerve that the commission “really didn’t tinker” with existing sales tax exemptions for two groups: manufacturers, including Boeing, and farmers.

Maybank, a Columbia attorney with the go-to economic development law firm of Nexsen Pruet, was a key player in crafting the Boeing incentives package, which The Nerve earlier estimated to be at least a half-billion dollar tab to taxpayers.

The two sales tax exemptions for the motion picture industry that TRAC didn’t address are:

  • Enacted in 1991, 12-36-2120(43) exempts motion picture companies from paying state sales taxes on “all supplies, technical equipment, machinery and electricity sold to motion picture companies for use in filming or producing motion pictures.”
  • Enacted in 2004, 12-62-30 exempts motion picture production companies that spend at least $250,000 in a 12-month period on filming or production in South Carolina from paying any state or local sales and use taxes “in connection with the filming or production of a motion picture or pictures,” which include any feature-length film, video, television series or commercial.

In addition to those exemptions, the TRAC report cited, but did not recommend repealing, the sales tax exemption for movies sold or rented to movie theaters.The taxpayer cost of the sales tax exemptions for the motion picture industry is unknown, though it likely has run into the millions over the years. For example, according to the S.C. Film Commission, over the production run of the cable television drama, Army Wives, which is filmed in Charleston and began its fourth season in April, more than $30 million has been spent with South Carolina vendors, and another $1 million-plus spent on utilities.

Based on the $30 million spent with vendors, the show’s owners would have avoided paying as much as $1.5 million in state sales taxes over the past four years.

The show also likely will have received at least $23 million in rebates from the state for wages paid and supplies and services purchased in South Carolina, The Nerve reported last month.

TRAC documents estimated revenue to be generated by repealing or amending exemptions that were targeted by the commission at about $689 million.

Film Commission spokesman Marion Edmonds told The Nerve last week that his office did not keep information on the value of sales tax exemptions to the motion picture industry, referring questions to the S.C. Department of Revenue.

State law (12-62-40) requires that motion picture production companies seeking sales tax exemptions provide DOR with an “estimate of total expenditures expected to be made in South Carolina in connection with the filming or production of the motion picture.”

But the Department of Revenue declined The Nerve’s request last week for data on the sales tax breaks, citing a state law (12-54-240) that prohibits the release of individual tax records.

“Although you are not asking for a specific taxpayer’s information, it is still information that would have to come from the sales tax return and therefore would be exempt from disclosure,” DOR spokeswoman Adrienne Fairwell said in a written response.

The law, however, does not prevent the “publication of statistics classified to prevent the identification of particular reports or returns.”

Besides motion picture companies and Boeing, the TRAC report also didn’t address sales tax exemptions for certain other industries, The Nerve’s review found. That included tax breaks on “any device, equipment, or machinery operated by hydrogen or fuel cells,” or “any device, equipment or machinery used predominantly for the manufacturing of, or research and development involving hydrogen or fuel cell technologies.”

The Nerve this year has questioned the use of tax dollars for the hydrogen industry. More than $40 million in state and local tax dollars has been allocated to hydrogen in the Midlands alone over the past several years. But only about 200 jobs have been created, according to S.C. House Speaker Bobby Harrell, R-Charleston and a staunch supporter of taxpayer-supported hydrogen research.

Harrell, who, like Maybank, was a main player in the Boeing incentives deal, appointed two of the 11 TRAC members. Harrell did not respond to written questions from The Nerve seeking comment on the hydrogen tax breaks.

Under the TRAC sales tax report, which the commission unanimously approved two weeks ago, South Carolinians would pay a 2.5-cent sales tax on groceries, prescription drugs (excluding Medicaid and Medicare purchases) and water and electric bills, along with sales taxes on a variety of other now-exempt items. The commission also recommended lowering the state’s overall sales tax rate to 4.96 percent from 6 percent.

A public hearing on the report will be held Aug. 13, with a final commission vote expected in September, according to Maybank. Next week’s meeting is scheduled to start at 10 a.m. in Room 105 of the Gressette Building on the State House grounds.

Maybank earlier told The Nerve that TRAC intends to tackle income and property tax issues by November. Any recommendations by TRAC would have to be approved by the General Assembly to be enacted.

Intern Chelsea Eversmann contributed to this story. Reach Brundrett at (803) 254-4411 or rick@scpolicycouncil.com.