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

SPONSOR Lujan

DATE TYPED 03/14/05 HB 242/a HTRC

SHORT TITLE Expand Film Production Tax Credit Eligibility

SB

ANALYST Padilla-Jackson

REVENUE

Estimated Revenue

Subsequent

Years Impact

Recurring

or Non-Rec

Fund

Affected

FY05

FY06

($250.0)*

($250.0)

Recurring

General Fund

(Parenthesis ( ) Indicate Revenue Decreases)

At this time, the TRD fiscal impact analysis was not available for the amended bill. Upon the

receipt of this analysis, the estimate will be revised, if necessary.

SOURCES OF INFORMATION

LFC Files

Responses Received From

Taxation and Revenue Department (TRD) (none received for HTRC amendment)

SUMMARY

House Bill 242 as Amended by House Taxation and Revenue Committee

The House Taxation and Revenue Committee (HTRC) amended House Bill 242. The amend-

ments appear to be fairly minor. One amendment changes the wording regarding the application

to TRD to include a certification of the amount of direct production expenditures or “post pro-

duction expenditures”, striking “technology expenditures”. Another amendment modifies the

definition of “postproduction” to mean an expenditure that occurs after the completion of princi-

pal and ongoing photography including an expenditure for editing, Foley recording, automatic

dialogue replacement, sound editing, special effects, including computer-generated imagery or

other effects scoring and music editing, beginning and end credits, negative cutting, soundtrack

production, dubbing, subtitling or addition of sound or visual effects; but not including an ex-

penditure for advertising, marketing distribution or expense payments.

The original bill defined "postproduction" to mean the final stage in the production of a film that

occurs after the completion of principal and ongoing photography and includes editing, Foley

House Bill 242/aHTRC -- Page 2

recording, automatic dialogue replacement, sound editing, special effects, scoring and music ed-

iting, beginning and end credits, negative cutting, soundtrack production, dubbing, subtitling and

addition of sound or visual effects, but does not include advertising, marketing or expense pay-

ments.

Synopsis of Original Bill

House Bill 242 makes several changes to the Film Production Tax Credit, including expanding

eligibility for the 15 percent film production tax credit and increasing requirements for film pro-

duction company applicants.

Expanded Eligibility

The bill expands eligibility by allowing postproduction expenditures that are: (1) attributable to

the production of a commercial audiovisual product (a film or videogame for commercial exploi-

tation) (2) services performed in New Mexico, and (3) subject to taxation in New Mexico. The

bill defines postproduction as the final stage in the production of a film, including but not limited

to editing, special effects, beginning and ending credits and excluding advertising, marketing, or

expense payments.

Additional Requirement

House Bill 242 includes provisions to increase the requirements by stating that the film produc-

tion company must agree in writing to the following:

•

Pay all obligations the film production company has incurred in New Mexico;

•

Publish in local newspapers, once a week for three consecutive weeks, to notify the pub-

lic of the need to file creditor claims against the film production company by a specified

date;

•

That outstanding obligations are not waived should a creditor fail to file by the specified

date; and

•

Delay filing of a claim for the film production tax credit until the New Mexico film divi-

sion delivers written notification to the Taxation and Revenue Department that the film

production company has fulfilled all requirements for the credit.

The effective date of this act is July 1, 2005.

FISCAL IMPLICATIONS

At this time, the TRD fiscal impact analysis was not available for the amended bill. Upon the

receipt of this analysis, the estimate will be revised, if necessary.

According to TRD’s revised analysis of the original bill, House Bill 242 would have a -$250

thousand impact to the General Fund in FY06. According to TRD, the bill is expected to in-

crease utilization of film credits by expanding eligibility to include post-production services pro-

vided in New Mexico for films shot outside the state. According to TRD, approximately $5 mil-

lion in credits has been claimed under current law in the past two and a half years. They note

that the 1997 Economic Census for New Mexico reports total revenue of “post-production and

other motion picture and video industries” was $2.1 million. TRD’s estimate assumes a $250

thousand annual increase in credits for production activities not previously eligible for the credit.

House Bill 242/aHTRC -- Page 3

ADMINISTRATIVE IMPLICATIONS

According to TRD, the Department will face modest administrative expenses in making the tran-

sition to implement the new eligibility allowed under the bill.

OPJ/lg:yr