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

SPONSOR Wirth

ORIGINAL DATE

LAST UPDATED

1/31/08

2/09/08 HB 374/aHBIC

SHORT TITLE NM Based Media Company Investment Tax Credit SB

ANALYST Francis

REVENUE (dollars in thousands)

Estimated Revenue

Recurring

or Non-Rec

Fund

Affected

FY08

FY09

FY10

($225.0)

($150.0) Recurring General Fund

(Parenthesis ( ) Indicate Revenue Decreases)

ESTIMATED ADDITIONAL OPERATING BUDGET IMPACT (dollars in thousands)

FY08 FY09 FY10 3 Year

Total Cost

Recurring

or Non-Rec

Fund

Affected

Total

$45.0 $45.0

$90.0 Recurring

Agency

budgets

(Parenthesis ( ) Indicate Expenditure Decreases)

SOURCES OF INFORMATION

LFC Files

Responses Received From

Taxation and Revenue Department (TRD)

Economic Development Department (EDD)

Department of Finance and Administration (DFA)

SUMMARY

Synopsis of HBIC Amendment

The House Business and Industry Committee amended House Bill 374 to require that any film

production company must be “engaged in manufacturing or development wholly or substantially

in New Mexico." “Substantially in New Mexico" means that for film projects at least 85 percent

of the principal and second unit photography takes place in New Mexico and that for animation

projects at least 85 percent of the production budget is spent in New Mexico.

Synopsis of Original Bill

House bill 374 creates a personal income tax credit equivalent to 10 percent of an investment up

House Bill 374/aHBIC – Page

2

to $250,000 in a New Mexico-based media company. A taxpayer can only claim two credits in a

taxable year for different investments and can receive the credit for three consecutive years for

investments in the same media company. If the credit exceeds the taxpayer’s liability, the

unused amount may be carried forward for up to three consecutive years. The credit cannot be

claimed if another credit or deduction, federal or state, has been claimed.

A media company is defined as a company engaged in the manufacturing or development of

feature films, television, regional and national commercials, documentaries, video games or post

production and maintains its principal place of business in New Mexico. The Economic

Development Department (EDD) would be responsible for certifying the investment and

providing the taxpayer with a certificate of eligibility to be used to claim the credit.

The credit is available for tax years beginning on or after January 1, 2008.

FISCAL IMPLICATIONS

According to TRD, EDD reports that an estimated six taxpayers would likely take advantage of

the credit in 2008. TRD: Assuming each of the investors would claim the maximum credit only

once, and that a similar number of investors would claim the credit the following years, the

revenue loss for each tax year would be $150 thousand. Tax year 2008 liability changes were

assumed to affect only FY2009 revenues. Tax year 2009 and subsequent year changes in

liabilities were assumed to be evenly split across the two fiscal years included in the calendar

year.

SIGNIFICANT ISSUES

There are already numerous film credits, deductions, and incentives targeted towards the media

industry. The film production tax credit alone is expected to cost over $50 million in FY08.

This credit would be for investors who are investing in a company which will likely get the film

production tax credit. In addition to the 25 percent tax credit on expenditures, New Mexico

offers zero-interest loans from the State Investment Council and wage subsidies though the Job

Training Incentive Program. The state also has invested $22 million in capital outlay

appropriations in media production education programs at New Mexico’s colleges and

universities. These subsidies, coupled with New Mexico’s varied landscape and proximity to Los

Angeles, have led to significant growth in the number of films made in the state.

Film Incentives in NM

•

25 percent production credit

•

Zero percent film loans

•

Gross receipts tax deduction

•

JTIP training

•

Capital outlay for media education

DFA reports that “given all of the other credits and incentives available to the film industry, not

to mention the funding for training, a new credit will have uncertain benefit: substantial

investment capital is already flowing into the film industry. Apparently, the credit is intended to

stimulate the growth of New Mexico production companies -- owned by New Mexicans (since a

credit of this type would not benefit a passive investor)."

House Bill 374/aHBIC – Page

3

PERFORMANCE IMPLICATIONS

Given all of the other credits and incentives, not to mention the funding for training, a new credit

will have uncertain benefit: investment capital is already flowing into the film industry.

ADMINISTRATIVE IMPLICATIONS

According to TRD, the administrative impact of this bill would be high. Coordination with the

Film Office for certification and approval of applications would be necessary. An additional FTE

at a cost of $30,000 would be required to implement the credit.

According to the Economic Development Dept, EDD and/or the Film Division of EDD will be

required to issue rules governing the procedure for qualifying investments and qualifying NM-

based media companies and issuing a certification of eligibility to the taxpayer/investor. This

will require substantial staff time both in the development of rules and the ongoing management

of the program. It is estimated that 80 - 100 hours of staff time will be needed to promulgate the

rules, and 5 hours per week would be dedicated to this project. It is unclear how the current

staffing of NMFO would accommodate this new program. A contractor could be employed to

manage this program at an estimate of $15,000 per year. In the last six months of FY08, it is

estimated that a contract for $7,500 would be needed to develop the rules, confer with TRD, set

up certification paperwork, etc.

TECHNICAL ISSUES

TRD reports 1) The bill is unclear as to which department (Economic Development or Taxation

and Revenue) will determine the amount of the credit. 2) The proposed legislation should be

clarified in a way that would allow determination of when a company is New Mexico based, or

where its main location for business is. 3) The definition of a “company" should be clarified. 4)

For purposes of this credit, the interaction of “headquarters" and “subsidiaries" should be

clarified.

CONFLICT, DUPLICATION, COMPANIONSHIP, RELATIONSHIP

There are several bills related to film being considered by the 2008 legislature.

House Bill 374/aHBIC – Page

4

Bill Title

Description

S 413 SANTA FE SUMMER YOUTH FILM PROGRAM Film program for native american youth

S 325 COUNCIL ON FILM & MEDIA TERM LENGTHS Changes term of Governor's Council on Film and

Media members from four years to two

S 383 NM FILMMAKERS PRODUCTION FUND

Creates a fund for EDD to make grants/loans to NM

and underrepresented minority filmmakers

S 519 FILM PRODUCTION TAX CREDIT ANNUAL

CAP

Caps the film production tax credit

H 211 FILM PERFORMING ARTIST TAX

EXEMPTION

Changes how performing artists and personal

services companies representing performing artists

are treated by the film production tax credit

H 294 CULTURALLY DIVERSE NM FILM CREWS Appropriation for training and mentorship programs

aimed at building a culturally diverse crew

H 470 NMSU GRANTS FILM TECHNICIAN

PROGRAM

Film equipment and training for NMSU-Grants

programs

H 507 GALLUP FILM OFFICE

Creation of Gallup film office

H 634 NM FILMMAKERS PRODUCTION FUND

Allows SIC to invest in small films

POSSIBLE QUESTIONS

Why is the credit necessary given all of the other industry incentives.

NF/mt