When Danny Bigel was a film producer, one of his biggest headaches had nothing to do with pampered actors, finicky directors or the fickle movie-going public. Instead, it was finding anyone who would pay a good price for his state tax credits.
Over the last decade, states have entered into a fierce competition for the highly mobile movie business. Today, about 30 states offer tax credits to try to lure moviemakers. In using these tax credits as an incentive, however, states face a complication: Since most film production companies spend only a few weeks shooting in a state, they don't usually owe much in state taxes.
States, though, have become adept at providing tax breaks larger than businesses' tax burdens—to, in effect, make a company's tax burden a negative number. One way they do that is through "transferable" tax credits. If the value of a company's credits is higher than its tax liability, it can sell the excess credits to another taxpayer who owes the state taxes.