In late October, as part of the American Jobs Creation Act of 2004 (H.R. 4520), Congress incorporated into the federal IRS Code a tax incentive similar to those which had already been enacted into law in several states, including New York, Illinois and South Carolina: The ability of motion-picture and television producers to deduct the costs associated with a “qualified production” shot in the U.S. from the tax liabilities of the producer during the year in which the production was completed.
While the newly-created IRS Code Sec. 181 is complex, and accountants are still considering its intricacies as applied to their particular clients, it would seem, from a facial reading of the law, that it clearly applies to a production company that funds its own shoot, employs its own director and performers and picks up all or most of the costs associated with the production.
The law would also seem to apply even if a producer pays an independent production company to produce the film, as long as the rights are not transferred to the funding production company during production.
Other caveats are that the production must have begun shooting after October 22, 2004 and before December 31, 2008, cannot cost more than $15 million, and 75 percent of the total compensation relating to the audio-visual work must be paid for services performed by cast, crew and “producers” in the United States.
Oh, yeah – there’s just one other thing: “A production is not described in this paragraph if records are required under section 2257 of title 18, United States Code, to be maintained with respect to any performer in such production.”
Of course, the only productions required to keep 2257 records are sexually-explicit or bondage-related adult productions.
But non-obscene adult features have most of the same rights as any other First Amendment-protected work – and by law, the right not to be discriminated against by the IRS is certainly one of them!
Congressional representatives from California have been trying at least since 2001 to get federal tax breaks for the mainstream entertainment industry, which in recent years has shifted more and more of its productions to Canada and other non-U.S. sites. Rep. David Dreier (R-San Dimas) proposed the United States Independent Film and Television Production Incentive Act of 2001, which, according to his press release on the bill, would “encourage film and television/cable production in the United States and employment of U.S. small business workers on such productions” by creating “a dollar-for-dollar offset against any Federal tax liability.”
However, Dreier thought small: The credit would apply only to the first $25,000 in wages, and only to productions that cost more than $200,000 and less than $10 million – apparently an attempt to exclude, among others, adult industry productions, which typically fail to meet that minimum – and, more tellingly, “The credit is not available to a production subject to the reporting requirements of 18 USC 2257 (reporting of books, films, etc. with sexually explicit conduct).”
Two years later, Dreier teamed up with Rep. Howard Berman (a Democrat!) and 47 co-sponsors to introduce The United States Independent Film and Television Act of 2003 (H.R. 715), which called for almost exactly the same credits – and exactly the same exclusions. It too failed – but Dreier and Berman and most of their co-sponsors also supported the American Jobs Creation Act of 2004, which was introduced by Rep. William Thompson. It’s not clear which particular legislator is responsible for H.R. 4520’s 2257 exclusion, but no one is on record as having objected to it.
What is clear is that the American Jobs Creation Act of 2004 is discriminatory against sexual speech, and that such content-based restrictions with no other reasonable basis for their existence have been struck down time and again by the federal courts, including the U.S. Supreme Court.
This is truly astounding,” commented First Amendment attorney Clyde DeWitt, legal columnist for AVN and AVN Online. “It is odd enough that they think they can tax film production differently according to where it was shot, but to allow special tax incentives for every kind of movie except those containing adult content is equivalent to assessing a special tax on adult productions, and that is plainly unconstitutional. The government simply cannot tax media based on content, as has been done here.
“The U.S. Supreme Court said dealt with this issue over 20 years ago in Minneapolis Star v. Minnesota Commissioner of Revenue, where Minnesota put a tax on cost of paper and ink products consumed in the production of a publication,” DeWitt noted. “As the Court explained, government cannot impose ‘a special tax that applies only to certain publications protected by the First Amendment,’ which is exactly what has been done here by allowing a tax preference to all but one class of motion pictures.”
At this writing, several adult production companies, having been informed of the law, said they would consider taking the deduction on their tax returns, and if the deduction were refused, taking the matter to court.
The Free Speech Coalition is also in the process of forming a policy statement on the issue.
