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The Realities of Michigan's Game Tax Breaks
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The Realities of Michigan's Game Tax Breaks

June 29, 2011 Article Start Page 1 of 3 Next

[In 2008, Michigan introduced a tax credit that would reimburse qualified film and digital productions 42 percent of production related expenses if they did business in the state -- but so far, the game industry hasn't seen much of the money. Why not? Gamasutra investigates.]

In 2008, Michigan Governor Jennifer Granholm signed a tax credit into law that would reimburse qualified film and digital productions 42 percent of production related expenses if they did business in the state. The bill was designed to employ displaced autoworkers and help alleviate "brain drain" -- young people who leave the state immediately after graduating college.

While the film industry has enjoyed great success in Michigan, the game industry has had its share of problems getting a foothold and taking advantage of this tax incentive program. From April 2008 to December 2010, the Michigan Film Office has paid out over $223 million dollars in tax breaks for 136 completed film projects. In stark comparison, only $486,766 has been paid out to the game industry -- for one project, Pixofactor Entertainment's Ben Hogan's Five Lessons.

"We've only received a handful of applications; it's not like we've been turning down apps left and right," said the Michigan Film Office's Michelle Begnoche.

In order for a film or digital project to receive approval, applicants must submit a detailed report of where the work will be done, how many Michigan hires are planned, a timeline, and proof of financing. "It's a pretty extensive application and review process," said Begnoche.

Some in the Michigan development community have said it's a little too extensive, and that the Film Office doesn't understand the video game industry -- thus the low amount of approvals. To date there have been seven total applications for video game projects, with three pending, three denied and one approved.

"I think the committee (that approves incentive requests) or the organization doesn't quite understand the industry, and it doesn't understand how the industry fits into this program," Matt Toschlog, president of Ann Arbor-based Reactor Zero told the West Michigan Business Review in 2008.

He applied for the tax breaks for his studio's work on the PC port of THQ's Red Faction: Guerrilla. He was told that only THQ could apply for the credit, as they owned the intellectual property and funded the project.

It wasn't appropriate for Reactor Zero to apply because they only did the work, which makes sense given that a costume designer doesn't apply for tax credits on a movie -- the production company does. "I don't think the law is written that way; it's a little unclear. But that's the way the Treasury department interpreted it," Toschlog said.

The application itself is written explicitly with the film industry in mind. The only mention of video games is in the portion where it asks the applicant to pick from a series of checkboxes what type of project the work falls under.

Even then, there are separate boxes for "interactive games" and "video games." Elsewhere are mentions of directors of photography, casting directors, camera operators, and grips. Commonplace in on a movie set, sure, but video games use none of these. Video games were obviously an afterthought.

Stardock Systems, Michigan's largest developer, applied for the incentives and its application was accepted, but the studio didn't take any of the money because of the surfeit of paperwork that would follow. "The compliance requirements were just way beyond what we were willing to do based on the amount of money we would get," said Stardock CEO Brad Wardell. "The MFO did a great job to make sure no one is bilking the government."

Wardell said Stardock didn't have the time to finish the process because they were in a rush. For a company as small as his where everyone is a specialist, Wardell said the payoff isn't "sufficient enough to justify" working on compliance. Had he finished the process, Wardell said he would have used the incentive money to court senior-level talent -- a rarity in Michigan -- to his studio.

Article Start Page 1 of 3 Next

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