House Bill text for HB0404

HOUSE BILL 404

49th legislature - STATE OF NEW MEXICO - first session, 2009

INTRODUCED BY

Ben Lujan

AN ACT

RELATING TO TAXATION; CLARIFYING CERTAIN PROVISIONS OF THE FILM PRODUCTION TAX CREDIT; PROVIDING FOR WITHHOLDING OF INCOME TAXES BY PASS-THROUGH ENTITIES; PROVIDING AN EXEMPTION FROM GROSS RECEIPTS TAXES.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF NEW MEXICO:

Section 1. Section 7-2F-1 NMSA 1978 (being Laws 2002, Chapter 36, Section 1, as amended) is amended to read:

"7-2F-1. FILM PRODUCTION TAX CREDIT.--

A. The tax credit created by this section may be referred to as the "film production tax credit". An eligible film production company may apply for, and the taxation and revenue department may allow, a tax credit in an amount equal to the percentage specified in Subsection B of this section of:

(1) direct production expenditures made in New Mexico that:

(a) are directly attributable to the production in New Mexico of a film or commercial audiovisual product;

(b) are subject to taxation by the state of New Mexico; and

(2) postproduction expenditures made in New Mexico that:

(a) are directly attributable to the production of a commercial film or audiovisual product;

(b) are for services performed in New Mexico;

(d) exclude postproduction expenditures for which another taxpayer claims the film production tax credit.

B. Except as provided in Subsections C and J of this section, the percentage to be applied in calculating the amount of the film production tax credit is twenty-five percent.

C. With respect to expenditures attributable to a production for which the film production company receives a tax credit pursuant to the federal new markets tax credit program, the percentage to be applied in calculating the film production tax credit is twenty percent.

D. The film production tax credit shall not be claimed with respect to direct production expenditures or postproduction expenditures for which the film production company has delivered a nontaxable transaction certificate pursuant to Section 7-9-86 NMSA 1978.

E. A long-form narrative film production for which the film production tax credit is claimed pursuant to Paragraph (1) of Subsection A of this section shall contain an acknowledgment that the production was filmed in New Mexico.

F. To be eligible for the film production tax credit, a film production company shall submit to the New Mexico film division of the economic development department information required by the division to demonstrate conformity with the requirements of this section and shall agree in writing:

(1) to pay all obligations the film production company has incurred in New Mexico;

(2) to publish at completion of principal photography, a notice at least once a week for three consecutive weeks in local newspapers in regions where filming has taken place, to notify the public of the need to file creditor claims against the film production company [by a specified date] pursuant to requirements of the New Mexico film division;

(3) that outstanding obligations are not waived should a creditor fail to [file by the specified date] notify the New Mexico film division; and

(4) to delay filing of a claim for the film production tax credit until the New Mexico film division delivers written notification to the taxation and revenue department that the film production company has fulfilled all requirements for the credit.

G. The New Mexico film division shall determine the eligibility of the company and shall report this information to the taxation and revenue department in a manner and at times the economic development department and the taxation and revenue department shall agree upon.

H. To receive a film production tax credit, a film production company shall apply to the taxation and revenue department on forms and in the manner the department may prescribe. The application shall include a certification of the amount of direct production expenditures or postproduction expenditures made in New Mexico with respect to the film production for which the film production company is seeking the film production tax credit. If the requirements of this section have been complied with, the taxation and revenue department shall approve the film production tax credit and issue a document granting the tax credit.

I. The film production company may apply all or a portion of the film production tax credit granted against personal income tax liability or corporate income tax liability. If the amount of the film production tax credit claimed exceeds the film production company's tax liability for the taxable year in which the credit is being claimed, the excess shall be refunded.

J. As applied to direct production expenditures for the services of performing artists, the film production tax credit authorized by this section shall not exceed five million dollars ($5,000,000) for services rendered by all performing artists in a production for which the film production tax credit is claimed."

Section 2. Section 7-2F-2 NMSA 1978 (being Laws 2003, Chapter 127, Section 2, as amended) is amended to read:

"7-2F-2. DEFINITIONS.--As used in Chapter 7, Article 2F NMSA 1978:

A. "commercial audiovisual product" means a film or a videogame intended for commercial exploitation;

B. "direct production expenditure" means a transaction that is subject to taxation in New Mexico, including:

(1) payment of wages, fringe benefits or fees for talent, management or labor to a person who is a New Mexico resident for purposes of the Income Tax Act;

(2) payment to a [personal services corporation] film performing artist entity for the services of a performing artist if the entity:

(a) [the personal services corporation] pays gross receipts tax in New Mexico on the portion of those payments qualifying for the tax credit; and

(b) [the performing artist receiving payments from the personal services corporation pays New Mexico income tax] deducts and remits withheld income tax pursuant to Subsection D of Section 7-3-12 NMSA 1978; and

(3) any of the following provided by a vendor that has an established physical presence in New Mexico, as defined by rules of the economic development department:

(a) the story and scenario to be used for a film;

(b) set construction and operations, wardrobe, accessories and related services;

(d) editing and related services;

(e) rental of facilities and equipment;

(f) leasing of vehicles, not including the chartering of aircraft for out-of-state transportation; however, New Mexico-based chartered aircraft for in-state transportation directly attributable to the production shall be considered a direct production expenditure;

(g) food or lodging;

(h) commercial airfare if purchased through a New Mexico-based travel agency or travel company for travel to and from New Mexico or within New Mexico that is directly attributable to the production;

(i) insurance coverage and bonding if purchased through a New Mexico-based insurance agent, broker or bonding agent; and

(j) other direct costs of producing a film in accordance with generally accepted entertainment industry practice;

C. "federal new markets tax credit program" means the tax credit program codified as Section 45D of the [United States] Internal Revenue Code [of 1986, as amended];

D. "film" means a single [media] medium or multimedia program, excluding advertising messages other than national or regional advertising messages intended for exhibition, that:

(1) is fixed on film, digital medium, videotape, computer disc, laser disc or other similar delivery medium;

(2) can be viewed or reproduced;

(3) is not intended to and does not violate a provision of Chapter 30, Article 37 NMSA 1978; and

(4) is intended for reasonable commercial exploitation for the delivery medium used;

E. "film performing artist entity" means a personal service corporation or other business association that receives payments for the services of a performing artist;

[E.] F. "film production company" means a person that produces one or more films or videogames or any part of a film [and] or videogame;

G. "Internal Revenue Code" means the Internal Revenue Code of 1986, as amended;

H. "personal service corporation" means "personal service corporation" as that term is defined in the Internal Revenue Code; and

[F.] I. "postproduction expenditure" means 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 expenditure for advertising, marketing, distribution or expense payments."

Section 3. Section 7-3-2 NMSA 1978 (being Laws 1990, Chapter 64, Section 1, as amended) is amended to read:

"7-3-2. DEFINITIONS.--As used in the Withholding Tax Act:

A. "department" means the taxation and revenue department, the secretary of taxation and revenue or any employee of the department exercising authority lawfully delegated to that employee by the secretary;

B. "employee" means either an individual domiciled within the state who performs services either within or without the state for an employer or, to the extent permitted by law, an individual domiciled outside of the state who performs services within the state for an employer;

C. "employer" means a person, or an officer, agent or employee of that person, having control of the payment of wages, doing business in or deriving income from sources within the state for whom an individual performs or performed any service as the employee of that person, except that if the person for whom the individual performs or performed the services does not have control over the payment of the wages for such services, "employer" means the person having control of the payment of wages;

D. "film performing artist entity" means a personal service corporation or other business association that receives payments for the services of a performing artist for the purposes of the film production tax credit;

[D.] E. "Internal Revenue Code" means the Internal Revenue Code of 1986, as amended;

[E.] F. "owner" means a partner in a partnership not taxed as a corporation for federal income tax purposes for the taxable year, a shareholder of an S corporation or of a corporation other than an S corporation that is not taxed as a corporation for federal income tax purposes for the taxable year, a member of a limited liability company or any similar person holding an ownership interest in any pass-through entity;

[F.] G. "pass-through entity" means:

(1) a film performing artist entity; or

(2) any other business association other than:

[(1)] (a) a sole proprietorship;

[(2)] (b) an estate or trust that does not distribute income to beneficiaries;

[(3)] (c) a corporation, limited liability company, partnership or other entity not a sole proprietorship taxed as a corporation for federal income tax purposes for the taxable year; or

[(4)] (d) a partnership that is organized as an investment partnership in which the partners' income is derived solely from interest, dividends and sales of securities;

H. "payee" means an individual to whom a payor is making a pension or annuity payment;

[G.] I. "payor" means [any] a person making payment of a pension or annuity to an individual domiciled in New Mexico;

[H.] J. "payroll period" means a period for which a payment of wages is made to [the] an employee by [his] the employee's employer;

[I.] K. "person" means any individual, club, company, cooperative association, corporation, estate, firm, joint venture, partnership, receiver, syndicate, trust or other association, limited liability company, limited liability partnership or gas, water or electric utility owned or operated by a county or municipality and, to the extent permitted by law, any federal, state or other governmental unit or subdivision or an agency, department or instrumentality thereof;

L. "personal service corporation" means "personal service corporation" as that term is defined in the Internal Revenue Code;

[J.] M. "wagerer" means any person who receives winnings that are subject to withholding;

[K.] N. "wages" means remuneration in cash or other form for services performed by an employee for an employer;

[L.] O. "winnings that are subject to withholding" means "winnings which are subject to withholding" as that term is defined in Section 3402 of the Internal Revenue Code;

[M.] P. "withholdee" means:

(1) an individual domiciled in New Mexico receiving a pension or annuity from which an amount of tax is deducted and withheld pursuant to the Withholding Tax Act;

(2) an employee; and

(3) a wagerer; and

[N.] Q. "withholder" means a payor, an employer or any person required to deduct and withhold from winnings that are subject to withholding."

Section 4. Section 7-3-12 NMSA 1978 (being Laws 1999, Chapter 14, Section 3, as amended) is amended to read:

"7-3-12. INFORMATION RETURN REQUIRED FROM PASS-THROUGH ENTITY--WITHHOLDING.--

A. A pass-through entity doing business in this state shall file an annual information return with the department on or before the due date of the entity's federal return for the taxable year. The information return shall be signed by the business manager or one of the owners of the pass-through entity.

B. The information return required by this section shall contain all information required by the department, including:

(1) the pass-through entity's gross income;

(2) the pass-through entity's net income;

(3) the amount of each owner's share of the pass-through entity's net income; and

(4) the name, address and tax identification number of each owner entitled to a share of net income.

C. A pass-through entity shall provide to each of its owners sufficient information to enable the owner to comply with the provisions of the Income Tax Act and the Corporate Income and Franchise Tax Act with respect to the owner's share of net income.

[D. The pass-through entity shall deduct and withhold from each nonresident owner's share of net income an amount equal to the owner's share of net income multiplied by a rate set by department regulation. In the case of an owner that is an individual or entity not taxed as a corporation for federal income tax purposes for the taxable year, the rate shall not exceed the rate for composite returns. In the case of an owner that is a corporation or other entity taxed as a corporation for the taxable year, the rate shall not exceed the maximum rate for corporate income tax.

E.] D. For each calendar quarter beginning on or after January 1, 2010, a pass-through entity that is not a film performing artist entity shall deduct and withhold from each owner's share of net income for that quarter an amount equal to the owner's share of that net income multiplied by a rate set by a department directive that does not exceed:

(1) the highest rate for single individuals provided in Section 7-2-7 NMSA 1978 in the case of an owner that is an individual or entity not taxed as a corporation for federal income tax purposes for the taxable year; or

(2) the highest rate provided in Section 7-2A-5 NMSA 1978 in the case of an owner that is a corporation or other entity taxed as a corporation for the taxable year.

E. For each calendar quarter beginning on or after July 1, 2009, a pass-through entity that is a film performing artist entity that is a personal service corporation shall deduct and withhold in each quarter an amount equal to its owner-employee's share of deemed net income for that quarter multiplied by a rate set by a department directive that does not exceed the highest rate for single individuals provided in Section 7-2-7 NMSA 1978. For a quarter, all of the net income for that quarter of a film performing artist entity that is a personal service corporation is deemed to be the owner-employee's share for that quarter.

F. For each calendar quarter beginning on or after July 1, 2009, a pass-through entity that is a film performing artist entity other than a personal service corporation shall deduct and withhold in each quarter an amount equal to its net income for the quarter multiplied by a rate set by a department directive that does not exceed the highest rate for single individuals provided in Section 7-2-7 NMSA 1978.

G. Prior to January 1, 2010, the provisions of Subsections D, E and F of this section shall not apply with regard to:

(1) the share of net income of a nonresidential owner that has executed an agreement in accordance with rules or instructions of the department that the owner will report and pay tax, if required, on its own return pursuant to the Income Tax Act or the Corporate Income and Franchise Tax Act;

(2) oil and gas proceeds subject to the Oil and Gas Proceeds Withholding Tax Act; or

(3) a publicly traded partnership as defined in Subsection (b) of Section 7704 of the Internal Revenue Code, as may be amended or renumbered, that is not treated as a corporation pursuant to that section.

H. Beginning on January 1, 2010, the provisions of [Subsection D] Subsections D, E and F of this section shall not apply with regard to:

[(1) the share of net income of a nonresident owner that has executed an agreement in accordance with regulations or instructions of the department that the owner will report and pay tax, if required, on its own return pursuant to the Income Tax Act or the Corporate Income and Franchise Tax Act;

(2)] (1) oil and gas proceeds subject to the Oil and Gas Proceeds Withholding Tax Act; or

[(3)] (2) a publicly traded partnership as defined in Subsection (b) of Section 7704 of the Internal Revenue Code, as may be amended or renumbered, and that is not treated as a corporation pursuant to that section.

[F.] I. Amounts deducted from the owner's share of net income under the provisions of this section shall be a collected tax. [No] An owner shall not have a right of action against the pass-through entity for any amount deducted and withheld from the owner's share of net income.

J. When a pass-through entity has withheld and deducted an amount pursuant to the Withholding Tax Act from the net income of an owner that is also a pass-through entity, the payee pass-through entity may take credit for the amount withheld in determining any withholding obligation that the payee pass-through entity may have pursuant to the Withholding Tax Act."

Section 5. A new section of the Gross Receipts and Compensating Tax Act is enacted to read:

"[NEW MATERIAL] EXEMPTION--GROSS RECEIPTS TAX--FILM PERFORMING ARTIST ENTITY.--Receipts of a film performing artist entity from another film performing artist entity for the services of a performing artist shall be exempt from the gross receipts tax. As used in this section, a "film performing artist entity" is a personal service corporation or other business association that receives payments for the services of a performing artist for purposes of the film production tax credit."

Section 6. EFFECTIVE DATE.--The effective date of the provisions of this act is July 1, 2009.

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