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F I S C A L I M P A C T R E P O R T

SPONSOR B. Lujan

ORIGINAL DATE

LAST UPDATED

1/24/08

HB 211

SHORT TITLE Film Performing Artist Tax Exemption

SB

ANALYST Schardin

REVENUE (dollars in thousands)

Estimated Revenue

Recurring

or Non-Rec

Fund

Affected

FY08

FY09

FY10

Minimal

Recurring General Fund

(Parenthesis ( ) Indicate Revenue Decreases)

SOURCES OF INFORMATION

LFC Files

Responses Received From

Economic Development Department (EDD)

Taxation and Revenue Department (TRD)

SUMMARY

Synopsis of Bill

House Bill 211 amends the film production tax credit. Under current law, “direct production

expenditures" include, among other items, payment for performing artist services to a personal

services corporation if the personal services corporation pays gross receipts tax on the services

and if the performing artist pays New Mexico income tax on the payment for services.

The bill would amend the definition of “direct production expenditures" to include instead

payment for performing artist services to a film performing artist entity if the entity pays gross

receipts tax on the services and if the entity deducts and remits withholding tax. The new term

“film performing artist entity" is defined as a business organization that receives payments for

the services of a performing artist.

The definition of a “pass-through entity" in the withholding tax act is amended to explicitly

include a film performing artist entity. The bill adds language to require a film performing artist

entity to deduct withholding tax from each payment to each nonresident owner of a pass-through

entity at the highest personal income tax rate for single individuals (4.9 percent in 2008 and

beyond). For pass-through entities that are not film performing artist entities, the pass-through

entity will be required to deduct withholding at the highest corporate income tax rate (7.6

percent).

House Bill 211 – Page

2

Also deleted from the withholding tax act is the definition of a “person."

The bill creates a new gross receipts tax exemption for receipts of a film performing artist entity

from another film performing artist entity for services of a performing artist.

The effective date of these provisions is July 1, 2008.

FISCAL IMPLICATIONS

TRD expects the bill may cause a small positive impact on income tax collections if it results in

increased compliance through the proposed mandatory withholding for performing artists.

SIGNIFICANT ISSUES

According to EDD, the bill addresses two issues in current law:

1.) Under current law, if a performing artist fails to file and pay New Mexico personal income

tax, TRD can demand repayment from the film production company for the portion of the film

production tax credit awarded for expenditures to the performing artist. Both the state and the

film production company can be left vulnerable in this situation, as it can be difficult to force a

performing artist to pay the personal income tax. By creating mandatory withholding for

performing artists, the bill protects the state and film production companies from the risk that a

performing artist does not pay New Mexico personal income tax.

2.) In reality, the film production company, not each performing artist’s loan-out corporation,

pays gross receipts tax on the services provided by performing artists or the performing artist’s

loan-out corporation. Therefore, the law as currently written does not accurately reflect which

entity pays gross receipts tax.

TRD notes that the gross receipts tax exemption proposed would prevent pyramiding in instances

where there is more than one entity between a performing artist’s loan-out corporation and the

performing artist.

ADMINISTRATIVE IMPLICATIONS

According to EDD, mandatory withholding of income tax for performing artists will make the

film production tax credit easier for TRD to administer.

SS/mt