SENATE BILL 44

50th legislature - STATE OF NEW MEXICO - first session, 2011

INTRODUCED BY

Timothy M. Keller

FOR THE REVENUE STABILIZATION AND TAX POLICY COMMITTEE

AN ACT

RELATING TO TAXATION; ENACTING THE FILM PRODUCTION TAX CREDIT ACT; PROVIDING TRACKING REQUIREMENTS FOR THE FILM PRODUCTION TAX CREDITS; PROVIDING FOR REVIEW OF THE FILM PRODUCTION TAX CREDIT.

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 

                     (c) exclude direct production expenditures for which another taxpayer claims the film production tax credit; 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;

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

                     (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] the Film Production Tax Credit Act and shall agree in writing:

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

                (2) to [publish] post a notice 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] on the web site of the division that:

                     (a) contains production company information, including the name of the production, the address of the production company and contact information that includes a working phone number, fax number and email address for both the local production office and the permanent production office to notify the public of the need to file creditor claims against the film production company [by a specified date]; and

                     (b) remains posted on the web site until all financial obligations incurred in the state by the film production company have been paid;

                (3) that outstanding obligations are not waived should a creditor fail to file [by the specified date; 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; and

                (5) to submit a completed application for the film production tax credit and supporting documentation to the division within one year of making the final expenditures in New Mexico that are included in the credit claim.

          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] division 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. A new section of Chapter 7, Article 2F NMSA 1978 is enacted to read:

     "[NEW MATERIAL] SHORT TITLE.--Chapter 7, Article 2F NMSA 1978 may be cited as the "Film Production Tax Credit Act"."

     SECTION 3. 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] the Film Production Tax Credit Act:

          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 for the services of a performing artist if:

                     (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] personal services corporation deducts and remits income tax at the maximum rate in New Mexico on the portion of those payments qualifying for the tax credit; and

                (3) any of the following provided by a vendor that has a physical presence in New Mexico:

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

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

                     (c) photography, sound synchronization, lighting 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, [and] broker or bonding agent;

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

                     (k) related digital content;

          C. "division" means the New Mexico film division of the economic development department;

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

          G. "physical presence" means a physical address in New Mexico, not a post office box or other mail drop enterprise unless the business is providing mail services to a film production company, from which a vendor conducts business, stores inventory or otherwise creates, assembles or offers for sale the product purchases or leased by a film production company; the meaning of "physical presence" may vary from vendor to vendor depending on the type of business conducted and the special circumstances of that business that indicate that the business has established and maintains a physical presence in the state, as determined on a case-by-case basis by the division; and

          [F.] H. "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 4. A new section of Chapter 7, Article 2F NMSA 1978 is enacted to read:

     "[NEW MATERIAL] PURPOSES--GOALS.--The purposes and goals of the film production tax credit are to:

          A. establish the film industry as a permanent component of the economic base of New Mexico;

          B. develop a pool of trained professionals and businesses in New Mexico to supply and support the film industry in the state;

          C. increase employment of New Mexico residents;

          D. improve the economic success of existing businesses in New Mexico; and

          E. develop the infrastructure in the state necessary for a thriving film industry."

     SECTION 5. A new section of Chapter 7, Article 2F NMSA 1978 is enacted to read:

     "[NEW MATERIAL] REPORTING--ACCOUNTABILITY.--

          A. The economic development department shall:

                (1) collect data to be used in an econometric tool that objectively assesses the effectiveness of the film production tax credit;

                (2) track the direct expenditures for the film production tax credit;

                (3) with the support and assistance of the legislative finance committee staff and the taxation and revenue department, review and assess the analysis developed in Paragraph (1) of this subsection and create a report for presentation to the revenue stabilization and tax policy committee and the legislative finance committee that provides an objective assessment of the effectiveness of the film production tax credit; and

                (4) report annually to the revenue stabilization and tax policy committee and the legislative finance committee on aggregate approved tax credits made pursuant to the Film Production Tax Credit Act.

          B. The division shall develop a form on which the taxpayer claiming a film production tax credit pursuant to the Film Production Tax Credit Act shall submit a report to accompany the taxpayer's application for that credit.

          C. With respect to the film on which the application for a film production tax credit is based, the film production company shall report to the division at a minimum the following information:

                (1) the total aggregate wages of the members of the New Mexico resident crew;

                (2) the number of New Mexico residents employed;

                (3) the total amount of gross receipts taxes paid;

                (4) the total number of hours worked by New Mexico residents;

                (5) the total expenditures made in New Mexico that do not qualify for the film production tax credit;

                (6) the aggregate wages paid to the members of the nonresident crew while working in New Mexico; and

                (7) other information deemed necessary by the division and economic development department to determine the effectiveness of the film production tax credit.

          D. For purposes of assessing the effectiveness of the film production tax credit, the inability of the economic development department to aggregate data due to sample size shall not relieve the department of the requirement to report all relevant data to the legislature. The division shall provide notice to a film production company applying for the film production tax credit that information provided to the division may be revealed by the department in reports to the legislature."

     SECTION 6. A new section of Chapter 7, Article 2F NMSA 1978 is enacted to read:

     "[NEW MATERIAL] FOUR-YEAR REVIEW OF TAX CREDIT EFFECTIVENESS.--The revenue stabilization and tax policy committee shall review the film production tax credit for its effectiveness in achieving the goals and meeting the purposes for which the credit was adopted at four-year intervals beginning in calendar year 2012. The review shall be completed by October 31 of the calendar year."

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