Video Game Companies Cash In on Tax Tokens

Posted on Sep 11, 2011

Flickr / Pink Sherbet Photography

American video game developers are benefiting from an odd combination of tax breaks many analysts say are intended to encourage industries that serve the public good by providing broadly valuable social services. An odd combination of industry characteristics allows gaming businesses to claim a variety of tax incentives that companies in other fields cannot.

At sales of $15 billion a year, the video game industry is now one of the most highly subsidized in the country, according to a former Treasury Department official. —ARK

The New York Times:

Those tax incentives — a collection of deductions, write-offs and credits mostly devised for other industries in other eras — 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.

Because video game makers straddle the lines between software development, the entertainment industry and online retailing, they can combine tax breaks in ways that companies like Netflix and Adobe cannot. Video game developers receive such a rich assortment of incentives that even oil companies have questioned why the government should subsidize such a mature and profitable industry whose main contribution is to create amusing and sometimes antisocial entertainment.

... Many tax policy analysts say the breaks for the video game industry — whose domestic sales of $15 billion a year now exceed those of the music business — are a vivid example of a tax system that defies common sense. Most times, subsidies begin as a way to nurture a fledgling industry that will not be profitable for years or to encourage a business activity deemed to have a broad benefit to society, like reducing pollution or improving public health.

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