How CBS Scored Stephen Colbert's 'Late Show' a $16 Million Tax Break

New York Governor Andrew Cuomo went to Les Moonves to keep the show in the Empire State.

A version of this article first appeared in the Aug. 8 issue of The Hollywood Reporter magazine.

Like most networks and studios, CBS reaps millions of dollars in tax breaks from New York State each year that help lure TV and movie shoots. But the network seems to have broken new ground with a $16 million package revealed July 23 for The Late Show -- which already calls New York's theater district home -- when Stephen Colbert takes over as host in 2015.

When Colbert was hired, New York Gov. Andrew Cuomo approached CBS chief Leslie Moonves to see what it would take to keep The Late Show. Unlike NBC's The Tonight Show, which moved from Burbank to 30 Rockefeller Center for Jimmy Fallon in February, Late Show never has qualified for a piece of the $430 million spent by New York State on movie and TV incentives each year. So the governor had to look elsewhere for funding.

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The first $11 million is coming from the New York State Excelsior Jobs Program, which typically supports the manufacturing and service industries. "Excelsior incentives are targeted to financial services, manufacturing, software development and scientific research," says Marilyn Rubin, a municipal tax specialist who teaches at John Jay College in New York. "Late-night shows weren't on the list [in the legislation], but there is a catch-all category that extends these incentives to any industry with significant potential for private-sector economic growth."

Out of dozens of recipients of Excelsior incentives, only two entertainment firms have benefited from its grants since the program was created in 2010: Comcast-NBCUniversal when it relocated the Sprout network from Philadelphia to Manhattan earlier this year ($2 million over 10 years to create 70 jobs); and Vice Media in a deal announced July 2 ($6.5 million over five years to create 525 jobs and retain 400 others in Brooklyn).

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"We had to get a little more creative in the incentives to keep them here," says a spokesman for Empire State Development, noting that the governor has made it a priority of his administration to keep and expand the entertainment industry in his state.

The ESD spokesman says they felt pressure to act because there was interest in playing host to The Late Show from Los Angeles, New Orleans and Connecticut.

The Excelsior program primarily offers credits to businesses that relocate, but with David Letterman retiring and his Worldwide Pants exiting as producer of Late Show, CBS will create a company that is being treated by the state as a new business.

"This is an example of laws written to give bureaucrats a lot of flexibility to design deals any way they want as long as it is justified as job creation," says David Cay Johnston, an author who specializes in tax matters and teaches at Syracuse University.

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For its part, CBS is guaranteeing at least 200 high-paying, permanent jobs and an investment of $100 million over five years, including renovating the Ed Sullivan Theater in midtown Manhattan. The state is providing CBS with an additional $5 million "performance" grant, in addition to the Excelsior incentives, to cover some of the costs of the renovations. That will be paid by the state after CBS spends that money and provides documentation.

Rubin says she has never seen any company get a similar outright grant like the one for the renovations.

Adds Rubin about the entire incentive: "I am not aware that any other company in the entertainment industry has gotten a package like this."