NYS Theater Tax Credit: Who Benefits and How

The New York City Musical and Theatrical Production Tax Credit has become essential to Broadway's recovery, with many shows receiving the full $3 million credit.

By: Feb. 20, 2024
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NYS Theater Tax Credit: Who Benefits and How
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One thing that has been pivotal to Broadway’s return is the New York City Musical and Theatrical Production Tax Credit, which is a New York State program, despite what the name might indicate. It now applies to both Broadway and off-Broadway. Several producers have told me it was pivotal in securing investors for their shows.

“The NY tax credit has absolutely helped keep the Broadway and off-Broadway investor remain on board amidst the fluid times the industry is going through,” stated producer and general manager John Johnson, who has shepherded numerous shows on and off Broadway (and is one of those leading the recent resurgence of high-profile commercial mountings). “It acts as the incentive it was legislated to [be] by investing dollars in jobs in the arts and provides the investors with a layer of security as shows try to recoup their costs.”

Not only that, but it is helping diversify the industry and its fanbase. Applicants are expected to participate in a “diversity and arts job training program” and also offer a substantial amount of low-or no-cost tickets to low-income New Yorkers. (The number of these tickets depends on house size and running weeks, but for shows that run a year, the number is double the venue’s capacity. It is pro-rated for shorter runs.)

I've long wanted to write about how the credit works. It is solely targeted at “for-profit, live, scripted dramatic performance” and does "not include ballet, opera, musical solo, group, band or orchestra performance, or solo, duo or several performers’ stand-up comedy performances.” (One wonders about Broadway shows that straddle the lines there.) The credit is for shows that open on or before June 30, 2025, assuming the $300 million allocated for the program has not dried up beforehand. 

It is a refundable credit, meaning you can get a refund even if you don't owe any tax. So it’s basically cash back from the state. For Broadway shows, you get up to $3 million on 25% of qualified expenses. Not everything is a qualified expense—for example, no legal expenses, no royalties, no shipping or transportation to/from outside the state, salaries are capped at $200,000, and only 50% of advertising and marketing is covered. But you can see how large musicals would get up to $3 million pretty quickly. (For off-Broadway—and it only applies to off-Broadway in Manhattan—the credit is up to $350,000 provided that the production has a production budget of at least $750,000 and incurs at least $750,000 in qualified expenses.) If the show is a big hit—the statutory definition of which is too complicated to get into here—applicants agree to pay an amount monthly into the New York State Council on the Arts Cultural Program Fund up to 50% of the total credit they receive. So there is a possibility that some of it needs to be returned in a sense, but if your show is that big a hit, you probably can't be too angry about netting $1.5 million less of state money.

If a show opened last spring, or was still in the process of hitting that $3 million mark well into 2023, its full credit information isn’t available yet, but I can tell you some of the Broadway shows that have benefited. Among those that have received the full $3 million are: A Strange Loop, Aladdin, Beetlejuice, Come From Away, American Utopia, Dear Evan Hansen, Funny Girl, Girl From The North Country, Hadestown, Harry Potter and the Cursed Child, Moulin Rouge!, The Music Man, The Book of Mormon, The Lion King, Tina, and Wicked. Obviously, if a show, even a big musical, doesn’t run that long, it does not net that full $3 million. For example, KPOP received a credit certificate for $1,870,970. A couple of other musicals received just short of the $3 million. In terms of plays, some like Harry Potter will get up to the maximum amount, but many will not. The play that kicked off the reopening, Pass Over, received a credit certificate for $886,873. Some other plays to benefit include Slave Play ($1,481,877), American Buffalo ($1,856,405), The Minutes ($1,892,161), and The Lehman Trilogy ($2,091,142). I’d have to assume Leopoldstadt will hit that $3 million mark, assuming it applied, but its credit information is not obtainable yet.

2023 Tony Honor for Excellence in the Theatre recipient Robert Fried, who is a partner and co-founder of Theatre Industry Services Team at Withum, an advisory and accounting firm, said that the credit is claimed by either a production services corporation or a producing limited liability company (LLC) or Limited Partnership (LP). "[The credit is] treated as income when it comes in and it's available like any other stream of income,” Fried stated.

If the credit goes to the production services corporation, it can be paid to the producing entity itself, which then means it can pay current expenses or be used for return of capital, as a profit distribution, or to repay priority loans. If the credit is claimed by the producing entity, then it must flow to the taxpaying owners of the producing entity (read: investors).

To keep in perspective what this means. If a taxpaying entity is one of two $10 million investors in a $20 million musical that runs through its reserve and closes with nothing in the coffers, that entity still may receive a “refund” for $1.5 million, meaning some recoupment where none would exist without this credit.

I want to do additional columns about how New York expanded the credit last May and how other states are supporting theater, but I didn't want that to get lost in here. The point here is that this credit has been indispensable in keeping the industry afloat.

To show you just how valuable this credit is—I’ve heard of producers essentially guaranteeing priority loans on the basis of it. Because you get a preliminary okay from the state, so a producer may know a credit for at least a certain amount is coming in when they seek that priority loan.

Some shows are also recouping solely on the back of this credit. It puts them over the line.

“I have found most investors are keen to inquire about the credit,” noted Brian Moreland, producer of several Broadway productions, including early credit recipient Thoughts of a Colored Man (which received a credit certificate of $1,389,604) and the upcoming The Wiz revival. “Often times if the investor is working on multiple shows the credit becomes quite appealing. One thing is certain, I hope the tax credits remain, as the costs in theatre continue to rise, all of us can use some support from our states.”

Industry Trends Weekly is a short column that runs in the weekly Industry Pro Newsletter. To read past columns and subscribe https://cloud.broadwayworld.com/rec/ticketclick.cfm?fromlink=2263077&regid=&articlelink=https%3A%2F%2Fwww.broadwayworld.com%2Ftopic%2FIndustry-Pro?utm_source=BWW2022&utm_medium=referral&utm_campaign=article&utm_content=bottombuybutton1. If you have an idea for the column, you can reach the author at cara@broadwayworld.com.