For years, those looking to expand Nevada’s film tax credit program have touted their potential to bring jobs, diversify the state’s economy and even provide funding for pre-K programs.

But typically lost in the discussion is the fact that few Nevada film tax credits are used by the film industry at all.

In the more than 10-year history of Nevada’s film tax credit program, more than 98 percent of the credits have been transferred from movie studios to other companies. In total, the state has issued more than $35 million in tax credits, but only about $600,000 have not been transferred.

In Nevada, film tax credits offered by the state are transferrable by law, meaning that studios qualifying for the credits are allowed to sell the credits to other businesses for cash (usually for less than the value of the credits), which can then use them to offset their own tax liability. The three tax types that the credits can be used for are not significant burdens on film companies, which is why they rarely use it themselves.

That structure is not novel — federally, these kinds of credits have been created for projects ranging from clean energy to low-income housing, including in the 2022 Inflation Reduction Act. 

Now, Nevada lawmakers could massively expand the film tax credit program by twelve-fold in the upcoming fall special session, prompting concerns from progressive groups and economists opposed to film tax credits that it could functionally serve as a handout to already wealthy corporations and prevent the state from using its dollars on other programs.

“The only purpose to make these tax credits transferable is to launder subsidy payments through other businesses’ tax returns,” said James Hohman, director of fiscal policy at the Mackinac Center for Public Policy, a Michigan-based nonprofit that advocates for limited government. “The derogatory term ‘launder’ may seem extreme. That's exactly what is going on in the situation.”

UNR Economics Professor Elliott Parker disagreed with Hohman’s characterization, saying it’s a frequently used tool for economic development, and referred to the transferable structure as more of a “sleight of hand” budgeting maneuver.

“We’re making it look like we're giving them a break on the taxes that they pay,” Parker explained. “But in fact, what we're doing is we're allowing them to make money by selling it to other firms that would have been paying those taxes.”

But he said the proposal to set aside $120 million in tax credits each year for the next 15 years would undoubtedly have an effect on the state’s budget and ability to collect taxes and that’s something lawmakers need to consider.

Proponents of film tax credits have said transferable credits are preferred by governments as a means to attract and sustain economic activity because they do not require a direct cash appropriation to a company, which is prohibited under state law.

David O’Reilly, CEO of Howard Hughes — the developer behind the proposed studio project — said the legislation is a “once-in-a-generation opportunity” that requires $1.8 billion in investments from companies before they receive the credits, and the whole idea is for the state to meet economic goals and create jobs it wouldn’t get without the tax credits.

“The proposed legislation doesn’t hand out cash — it rewards private investment and local hiring,” O’Reilly said. “These are precisely the kinds of smart, performance-based incentives that will help future-proof Nevada’s economy and keep our most talented residents working here at home.”

How the transferring works

As is the case with Nevada’s existing film tax credit program, the proposal likely to be discussed during the upcoming special session could be used to offset payments related to the state’s insurance premium tax, gaming license fees or modified business tax (which is assessed on payroll).

However, film studios are only subject to the payroll tax, meaning that the credits would likely be sold for cash to gaming or insurance companies to offset their own tax burden.

Additionally, film companies are not significantly burdened by the payroll tax, according to information provided by the Nevada Film Office, which oversees the tax credit program. That means it could take considerable time for the tax credit to be redeemed in full, according to the film office. The credits must be redeemed within four years of being granted.

It is also standard practice for film production companies to use outside groups to facilitate payroll for their employees, meaning those third parties would be subject to the tax rather than the film production company.

In the past three fiscal years, companies have used about $8.5 million in film tax credits against the insurance tax, with about $5 million used against the gaming fees. Credits used for the modified business tax are a distant third.

Notably, the state considers the individual details of these transfers to be confidential, leaving the public in the dark about which companies are buying the tax credits and how much in cash the film studios are receiving in return. Typically, the companies receive the credits at a discounted rate, meaning the cash return for film companies is less than the value of the transferred credits. The companies that purchase credits at a discount, however, receive the full face value of the credits off their tax bills — so they effectively get a tax break.

Hohman, who opposed a similar proposal in Michigan, added that the confidentiality of these transactions “is a travesty.”

“People should know who's collecting their taxpayer money,” he said.

What the proposal says

Under the proposal likely to come up in this special session — sponsored by Assms. Sandra Jauregui (D-Las Vegas) and Daniele Monroe-Moreno (D-North Las Vegas) — the state starting in 2028 would set aside $120 million in annual transferable tax credits for the industry for the next 15 years, an exponential increase from the existing $10 million annual limit.

Of this pot of money, $95 million would be set aside annually for productions at a yet-to-be-built studio in Las Vegas’ Summerlin community, while the remaining $25 million would be available for productions elsewhere in the state. There’s likely more opportunity for developers to use the tax credits themselves on that larger-scale project. 

The base amount of credits that a film production company could receive is 30 percent of all qualified expenses, which can cover anything from set construction to facility leasing. However, that number could be lowered if the company does not hire enough Nevada workers or does not provide sufficient training or work opportunities to underrepresented groups.

An amended version of the bill also put forward new spending requirements for production companies, including investments of $900 million in construction by the end of 2029 and $1.8 billion in capital investment by the end of 2038. If they fail to meet these milestones, the amendment could require a lien be placed against the remaining undeveloped land in an amount equal to the shortfall. Nevada’s existing film tax credit program does not require private investment or workforce training.

The credits would expire six years after they are issued, an increase from the four-year limit that is in place with the existing program.

Because of this leeway in using the credits, opponents say it could be a pain point for the state budgeting process. If production companies chose to redeem tens of millions of dollars worth of credits in the same year, that would mean less revenue coming into the state, potentially imperiling other initiatives that require state dollars.

“We could see significant [redeeming of credits] during an economic downturn when the state faces its own revenue challenge,” said UNLV economist Michael Brown, the former head of the Nevada Governor’s Office of Economic Development.