A provision in the American economic stimulus package that threatened to gut the Canadian service industry has been quietly withdrawn after being voted down by the U.S. Senate, though Hollywood lobbyists are reportedly ‘not giving up.’

U.S. lawmakers earlier this week voted down (52-45) a provision in the US$885 billion stimulus plan that would have handed studios a 50% write-off on projects started in 2009 — an offer that threatened Canada’s lucrative, albeit shrinking, service industry.

‘Any tax credit that the U.S. doesn’t get is good for Canada,’ said a Canadian government source, who spoke on the condition of anonymity. Tax breaks are already on the books in states such as New York, Louisiana, Illinois, Florida and Michigan.

Canada’s film and television service sector — which relies primarily on American pictures — generated $1.4 billion here for the fiscal year ended March 31, 2007, according to the CFTPA’s most recent annual report.

Canada’s trade relations with the U.S. have been hotly debated due to various ‘protectionist’ clauses in the stimulus package that is currently before the American Senate. Over $1.6 billion worth of goods and services crosses the border every day, according to Ottawa.

According to an article in Wednesday’s Los Angeles Times, Republican Senator and former U.S. presidential candidate John McCain said his decision to vote against the tax break was because ‘Hollywood’s doing OK.’

Critics of the legislation noted that Hollywood had raked in a record-breaking $1.03 billion in movie ticket sales in January. ‘They had their best January ever,’ according to Oklahoma’s Republican Senator Tom Coburn, also quoted in the Times.

The Motion Picture Association of America, which lobbies on behalf of the U.S. studios, told the Times ‘it was not giving up’ on the federal tax break, thought to be the first of its kind.

‘There is no doubt that the motion picture industry is a vital component of the American economic engine, generating billions of dollars every year in state and federal taxes and employing workers all over the country,’ said spokeswoman Angela Martinez, vowing to keep pushing for policies ‘that keep our industry strong.’

Dan Glickman — chairman and CEO of the Washington-based group — was ‘in transit’ on Friday and could not be reached for comment.

For its part, the Canadian government offers its own tax incentives to foreign shoots, and many provinces offer write-offs to lure shoots to Hollywood North. However the percentages, such as British Columbia’s 25% rebate on service shoots, are typically half, or less, than the U.S. federal 50% write-off in question.

Neither the Department of Canadian Heritage or the CFTPA had any comment at press time.