In a time where the US economy is still in trouble, many are wondering why large US corporations are still getting big tax breaks that are denied to others. The New York Times has a new article that exposes the fact that video game publishers get some of the biggest tax deductions and credits in the country. One of the reasons, according to University of Texas at Austin tax professor Calvin H. Johnson, is that game publishers can be considered members of the software, entertainment and online retail industries. That allows them to combine various tax breaks to give them an edge over other businesses.
One big tax deduction comes way back in 1969 where the Internal Revenue Service expanded a 1954 tax break for all laboratory-based research to include software development. That allowed companies like EA to deduct expenses related to the development of its games, including salaries for its game developers, immediately. In fact EA has lobbied government officials successfully to gain access to even more tax breaks.
Game industry supporters claim that US based publishers like EA need these tax breaks to keep workers from going to other countries. One of those countries is just across the border: Canada. The US's neighbor to the north provides even more tax breaks and subsidiaries to game developers. That has caused cities like Montreal to become big centers for game development for EA, THQ and others. In addition, US states like Texas also provide their own tax breaks to lure game publishers to set up shop in their cities.