OLR Research Report

December 13, 2011




By: Rute Pinho, Associate Analyst

You asked how film tax credits (1) are converted into cash and (2) affect a production company's costs and income.


Eligible companies that produce qualified films or other types of television, video, or digital media in Connecticut can receive tax credits of up to 30% of their eligible production expenses. The law allows companies to use the credits to reduce their corporation and insurance premium tax liability or transfer them to other taxpayers.

Generally, production companies making films in the state do not have corporation or insurance premium tax liability. Even if they have the tax liability, the value of the credits often exceeds it. But the law allows such companies to sell or otherwise transfer the credits for cash.

There are several ways a company can do this, but in most cases, they use tax credit brokers to arrange the sale of the credits in return for a cut of the proceeds. The brokers resell the credits to companies that use them like coupons to reduce their corporate or insurance premium tax liability. Not all credits are transferred, but when they are, filmmakers receive only about three quarters of the value; the rest goes to brokers and their customers (Luther, William. “Movie Production Credits: Blockbuster Support for Lackluster Policy,” State Tax Notes, February 8, 2010).

Production companies may also transfer their tax credits without using a broker and thus avoid paying the broker's fee.

Banks or tax credit brokers may also issue loans to production companies based on the future value of film tax credits. In this scenario, the production company enters into a contract with the bank or broker to transfer the credits upon completion of the film. This happens most often when the producer and actors are well-known.


The money a production company receives from transferring film tax credits increases its income by lowering its production costs. For example, suppose a production company incurs $10 million in eligible production costs to make a movie in the state. Under current law, it would be eligible for approximately $2.8 million in tax credits. By transferring the credits to a broker, the production company conceivably receives about $2.1 million in cash (assuming the credits sell for 75 cents on the dollar). This lowers its production costs by $2.1 million, thus increasing its income on the film.

According to George Norfleet at the Connecticut Office of Film, Television, and Digital Media, production companies often use the proceeds from transferring tax credits to finance post-production activities, including the cost of editing the film, adding music, and providing special effects.