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F I S C A L I M P A C T R E P O R T
SPONSOR Robinson
ORIGINAL DATE
LAST UPDATED
2/12/07
3/14/07 HB
SHORT TITLE Film Production Tax Credit For Postproduction
SB 802/aSCORC
ANALYST Francis
REVENUE (dollars in thousands)
Estimated Revenue
Recurring
or Non-Rec
Fund
Affected
FY07
FY08
FY09
$2,200.0
$3,000.0 Recurring General Fund
See Narrative for Negative Out Year Impacts
(Parenthesis ( ) Indicate Revenue Decreases)
Relates to HB757
SOURCES OF INFORMATION
LFC Files
Taxation and Revenue Department (TRD)
Responses Received From
New Mexico Film Office (NMFO)
Taxation and Revenue Department
SUMMARY
Synopsis of SCORC Amendment
The Senate Corporations and Transportation Committee amended Senate Bill 802 by delineating
between direct production expenditures and postproduction expenditures. Post production
expenditures for which another taxpayer has claimed the credit are ineligible for the credit.
HBIC also modified the definition of “film production company" to allow producers who only
work on a part of a film rather than the whole film to be eligible and the definition of
“postproduction expenditures" by removing the requirement that the expenditures have to be
made following principal photography.
SCORC also clarified that the 30 percent credit was for the salary and wages of key hires rather
than all expenditures and removes the requirement that they have to be members of a local union.
The amendment also changes the effective date to January 1, 2008.
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Senate Bill 802/aSCORC – Page
2
Synopsis of Original Bill
Senate Bill 802 amends the film production tax credit to set the credit at 25 percent permanently
except for those productions that qualify for the federal new markets tax credit which remain at
20 percent, limits the credit for services of performing artists to $5 million, and increases the
credit to 30 percent for productions where 75 percent of their key “below the line" hires are NM
residents, that are covered by collective bargaining agreement, and the key hires are members of
the local union.
1
SB 802 also makes three technical changes:
1.
clarifies that the credit only goes to taxpayers for productions that have not already
received the credit.
2.
clarifies that qualified personal services corporation expenditures are those that are
subject to gross receipts tax.
3.
clarifies that qualified expenditures does not include chartering airplanes for out of state
transportation or non-commercial airfare booked by an NM travel agent.
FISCAL IMPLICATIONS
Film Production Tax Credit: House Bill 757a Impacts
(thousands of dollars)
2007 2008 2009 2010 2010 2010
Assumptions:
Total Qualified expenditures by tax year
133,000
146,300
160,900
177,000
195,000
215,000
Share due to performing artists > $20 million
12,000
13,200
14,500
16,000
17,600
19,400
Present law:
Credit rate
25.0% 25.0% 20.0% 20.0% 20.0% 20.0%
Film Production credit approved by tax year
(33,250)
(36,575)
(32,180)
(35,400)
(39,000)
(43,000)
Credit s claimed by year from approval
0%
80% 20%
Film Production credit claimed by fiscal year
(15,000)
(26,600)
(35,910)
(33,059)
(34,756)
(38,280)
HB 757:
Credit Base
121,000
133,100
146,400
161,000
177,400
195,600
Credit rate
25.0% 25.0% 25.0% 25.0% 25.0% 25.0%
Credit
(30,300)
(33,300)
(36,600)
(40,300)
(44,400)
(48,900)
Increased credit for expenditures on films with NM keys
(210)
(230)
(250)
(275)
(300)
(330)
Film Production credit approved by tax year
(30,510)
(33,530)
(36,850)
(40,575)
(44,700)
(49,230)
Credit s claimed by year from approval
0%
80% 20%
Film Production credit claimed by fiscal year
(15,000)
(24,408)
(32,926)
(36,186)
(39,830)
(43,875)
Impacts of HB757a (Rounded)
-
2,200
3,000
(3,100)
(5,100)
(5,600)
Source: TRD
In 2006, there were 21 films with $96.8 million in qualified expenditures or $4.6 million per
project. Using the NM Film Office’s estimate that 10 films will qualify for the 30 percent credit
on wages and salaries, the impact of this provision is a roughly $200 thousand reduction in
revenues.
The cap on the services of performing artists (e.g. actors) will reduce the amount of the credit for
large productions. The Taxation and Revenue Department (TRD) estimates this impact is a
reduction in the credit amount of $3.3 million in FY08 and $3.6 million in FY09. This is based
on information provided by the NM Film Office. They report that this is the reduction of credit
1
“Below the line" payroll consists of those employees who do not have a participation interest in a project.
Typically, lead actors, directors, writers and producers are excluded.
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Senate Bill 802/aSCORC – Page
3
for a major film, similar to one last year, and they expect at least one of these films per year.
In FY10 and beyond, the fiscal impact will include the 5 percent credit that had been scheduled
to expire on January 1, 2009. That impact is estimated to be a reduction in revenues of $8
million in FY09 and growing roughly $1 million per year if current trends continue.
It is important to note that the amount of film expenditures has grown dramatically. Last year,
House Bill 358 was passed adding an additional 10 percent credit for film expenditures. That
bill was scored as having a $1.5 million impact, based on information provided by NM Film
Office. It is now estimated that the impact was closer to $10 million for that bill. The film credit
under current law will reduce general fund revenues $23 million in FY08 growing to $34 million
by FY10.
SIGNIFICANT ISSUES
The clarification regarding air charters and commercial air travel closes a loophole in the credit
that currently allows an in-state travel agent to arrange travel for film productions using charter
planes. This was the subject of some controversy in the fall of 2006 when a film production
claimed $25,000 for the charter of a plane for one of the lead actors.
NM Film Office:
With significant infrastructure investments being made by private companies, and more
investments being contemplated in the next several years, removing the end date of
December 31, 2007 for the additional five percent (enacted last session, bringing the tax
credit to 25%) will encourage these investments to come to fruition. Other states have
lost film infrastructure opportunities due to sunset clauses, and a general lack of
confidence in the longevity of a state’s incentive program.
CONFLICT, DUPLICATION, COMPANIONSHIP, RELATIONSHIP
HB757 as amended includes all of the same provisions.
TECHNICAL ISSUES
NM Film Office reported that their understanding of the bill prior to introduction was that the 30
percent credit would only go toward qualified payroll expenses for the key hires rather than for
all qualified expenditures for a production that meets the key hire criteria.
TRD:
Allowing credit only once for each activity:
As amended, the bill clarifies that the credit can be claimed only once for a given amount
of direct production expenditures or postproduction expenditures. This is helpful because
present law is not clear on this issue. The remaining problem is how should credits be
allocated between two otherwise eligible taxpayers for expenditures related to the same
services. For example, one film production company could provide services to another
film production company in such a way that both companies would otherwise be eligible
for the credit for their expenditures. As amended, the statute does not specify which
company has the priority in claiming the credits. This could lead to disputes and
litigation. One possible solution would be to stipulate that the company selling the
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Senate Bill 802/aSCORC – Page
4
services is the one entitled to the credit. The Department may be able to address this
issue through regulations.
ALTERNATIVES
To address NM Film Office concerns over the 30 percent credit, a possible amendment may be
to restrict the 30 percent credit only to key hire payroll.
NF/nt