Lord of the Rings Impact on Federal and State Film Industry Tax Incentives and Their Tax Treatment

This article discusses recent developments for both federal and state tax purposes that directly impact the entertainment industry. For federal purposes, Congress has recently expanded the scope of the Section 181 and 199 deductions to allow more generous deductions, and in the case of Section 199 to relax the requirements which must be met to claim the deduction. The states seem to be in competition to "outdo'' each other in enacting rebates or transferable credits to enhance the desirability of their states for film production. The tax treatment of these credits for both federal and state purposes is discussed, and the Appendix summarizes the provisions of these incentives on a state-by-state basis. The article concludes with a discussion of the effectiveness of this type of incentive legislation.