Rich Tax Breaks Bolster Makers of Video Games

The United States government offers tax incentives to companies pursuing medical breakthroughs, urban redevelopment and alternatives to fossil fuels, says the New York Times. It also provides tax breaks for a company whose hit video game this year was the gory Dead Space 2, which challenges players to advance through an apocalyptic battlefield by killing space zombies.

Those tax incentives now make video game production one of the most highly subsidized businesses in the United States, says Calvin H. Johnson, who has worked at the Treasury Department and is now a tax professor at the University of Texas at Austin.

 

For example, Electronic Arts of Redwood City, Calif., shipped more than two million copies of Dead Space 2 in the game’s first week on the market this year. It shows a total of $1.2 billion in global profits the last five years using an accounting method that management says captures its operating profits.

But largely because of deferred revenue, deductions for executive stock options and a variety of accounting requirements, the company officially reports a net loss for the period. And the company reports that it paid out $98 million in cash for taxes worldwide in those years.

One reason Electronic Arts and other video game companies have a bounty of tax incentives that other industries envy is that elected officials from across the political spectrum find it hard to resist offering incentives to encourage technological research — and jobs.

Industry advocates say that without these incentives the United States would forfeit its technological edge — and the 32,000 direct jobs in the gaming industry — to countries like Canada, which offers video game developers even greater tax subsidies.

E.A. has 750 employees in Montreal, where all video game companies receive a tax credit equal to 37.5 percent of their payroll, and has announced plans to hire more there. Over all, 4,500 of Electronic Arts’ 7,600 employees are in the United States.

“Software and high-tech industries are the brain trust of the U.S.,” said Shane T. Frank, chief operating officer of Alliantgroup, a consulting firm that helps video game companies and other businesses take advantage of the tax credit for research and development. “We can’t afford to lose that knowledge and those high-paying jobs to India or anywhere else.”

Industry officials say they eventually hope to persuade Congress to make video game companies eligible for the federal tax breaks now available to film and television producers. Michael D. Gallagher, chief executive of the software group, said that the industry would not push for the breaks now, given the nation’s budget problems, but might do so later.

“It certainly is a worthwhile policy goal,” Mr. Gallagher said.

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Jamison Stone

Jamison is the Director and Lead Writer of Apotheosis Studios. In addition to his professional career, Jamison is also a Trustee, Committee Chair, and grant writer for the W. Clement & Jessie V. Stone Foundation, an organization which provides grantmaking programs in education, youth development and early childhood development.