A version of this editorial appeared in the April 2014 print edition of Carolina Journal:

North Carolina’s 25-percent tax credit for film production is due to expire Jan. 1 and it may not be renewed, notwithstanding a massive push by state Commerce Secretary Sharon Decker and the industry’s other star-struck allies in economic development and tourism.

Good. The credit is an egregious form of corporate welfare. It needs to be eliminated, as it drains the state treasury, distorts the tax code and investment decisions, and fails to boost overall economic activity or employment.

The credit reduces the tax burden of a production firm by 25 percent of “qualified, production-related expenditures.” In plain English, a company filming part of a movie or a TV show in North Carolina gets reimbursed for 25 percent of its costs. Since the credit is refundable, if the company owes no taxes, it gets a check for the full credit amount from the state Department of Revenue.

This happens frequently, as production companies — such as Iron Works Productions III, LLC, which was created in North Carolina solely to film parts of the third movie in the Iron Man series — often are formed to do a single project and shut their doors not long after release. This guarantees that most if not all of the profits wind up with the parent studio conglomerate and are not subjected to North Carolina taxes.

In fact, using information from a Commerce Department presentation, John Locke Foundation director of regulatory studies Jon Sanders determined that North Carolina taxpayers got back 19.4 cents for every dollar we spent luring film productions to the state.

Think of the credit as an Earned Income Tax Credit for Hollywood fat cats.

But wait. There’s more. The film credit creates few full-time jobs in the state. Carolina Journal‘s Don Carrington recently reported that the number of jobs created in 2012 by film production in the state ranged from 792 to 2,004 to 4,100 — according to different divisions of the Commerce Department. (For more, visit http://bit.ly/1fgo0Y5)

Commerce may not have its numbers straight, but Revenue attributed 17,730 jobs to film production in the fiscal year ending June 30, 2012. Even so, that figure doesn’t say what you might think. It’s a count of the number of paychecks that were issued by production companies rather than the number of people who claimed employment in film production. The count includes movie extras who may have worked one day on a single shoot, and camera crews who worked a week or two each on a half-dozen different productions.

In its defense, the film industry is touting a new study it funded by N.C. State professor Rob Handfield, whose expertise is in supply-chain management. The study concludes that state and local governments in North Carolina generate $1.52 in tax revenues for every dollar of incentives offered, and $9.00 in “direct” spending for every dollar spent on incentives.

Economists in the legislature’s Fiscal Research staff have torn the Handfield study apart, noting it contains a host of errors, including a basic ignorance of North Carolina’s tax code; Handfield said state and local governments collected $3.3 million in additional property taxes because of the film credit. Two problems: The state doesn’t collect property taxes, and the owners of the properties listed would have to pay local taxes on them whether or not they were used to make movies. Fiscal Research concluded the state loses at least 54 cents for every dollar it offers in film incentives.

The Handfield study is not a credible piece of research, and lawmakers should treat it that way.

The film credit suffers from all the perversities and cronyism that accompany targeted tax credits. It subsidizes economic activities that take place in North Carolina only because the production companies are receiving what amounts to bribes from the state.

The film credit offers few residual benefits to North Carolina and imposes too many costs. It’s time to wrap this production.