From Santa Fe New Mexican.Com

Split vote stalls bill to kill film incentive

by Trip Jennings | The New Mexican

Is it a "subsidy" or a "tax credit" when New Mexico refunds part of what a TV or film production spends in the state?

That question — which term most accurately describes the state's film production tax credit — repeatedly came up Thursday during a first, and possibly last, legislative hearing on a piece of legislation that would kill the program.

On a 5-to-4 vote along party lines, the House Labor and Human Resources Committee tabled a bill sponsored by Rep. Dennis Kintigh, R-Roswell, aimed at completely doing away with the tax credit.

The tabling was a blow to Kintigh and others who want to eliminate or at least reduce the program, but it likely won't be the final skirmish in the battle over film-industry incentives.

Thursday's vote came after a two-hour hearing in which dozens of people, including more than a few Santa Fe business owners, spoke against the legislation.

"I sold my house, everything in California, and moved 100 percent here because of the incentives" four years ago, said Adam Barth, owner of Santa Fe's Absolute Video Assist. "I believe if they even reduce it, (the film business) will go away."

Subsidy or tax credit?

While no one in the audience spoke in support of Kintigh's legislation, the debate among state lawmakers put on display the multilayered quality of legislative debates in which not only numbers are thrown around, but state lawmakers engage in deliberate word play to make their case.

Critics repeatedly used the word "subsidy" to describe the program, similar to the phrase Gov. Susana Martinez has employed since announcing her desire to lower from 25 percent to 15 percent the refundable tax credit the state gives to production companies that meet certain requirements.

Supporters of the program, meanwhile, returned again and again to the phrase tax credit or discount, and avoided "subsidy" like the plague.

The artful use of words as weapons is inherent in political debates, particularly in highly charged ones. And the battle over whether to reduce New Mexico's film-production tax credit is no exception. The Martinez administration has said her recommended reduction would save $25 million at a time when state policymakers are trying to close a projected shortfall between $200 million and $450 million.

During Thursday's more than two-hour hearing, Kintigh said "subsidy" repeatedly, especially when speaking of the $65.9 million New Mexico paid to TV and film productions from the state treasury last year through the program.

Because of the way the program works, the total refunds of $65.9 million, or 25 percent of qualified expenses, to film and TV production companies means that those firms spent at least $263 million in New Mexico last year.

Kintigh's choice of words caught the attention of Rep. Sheryl Williams Stapleton, D-Albuquerque, who asked Kintigh what he thought of the tax credits, exemptions and deductions New Mexico gives to other industries.

Of the $1.3 billion New Mexico didn't collect in taxes because of hundreds of tax credits, exemptions and deductions in the state tax code, more than $134 million went to the oil and gas industry, according to a New Mexico Taxation and Revenue Department document.

"This is fundamentally different," Kintigh said to Stapleton. "Show me the checks. I can show you ... of checks written from the public treasury to the film companies," Kintigh said.

Kintigh held up a state memorandum listing more than $180 million in payments to more than 110 TV and film productions over the past three years, including the $65.9 million from last year.

"There are no corresponding checks" to the other industries, he told Stapleton.

"As glamorous, as appealing, as notable as this industry is, we have to look at the data," Kintigh said in defense of his bill.

Stapleton shot back that the effect was still the same. Whether the state cut checks or decided not to tax an industry through tax credits, exemptions or deductions, the "state is getting less money," she said.

Fuzziness over program

The use of competing terms to describe the state's film-production tax-credit program is fostered by a lack of clarity about exactly what the program does. The state's film-production tax credit isn't a traditional film tax credit so much as a rebate.

A tax credit usually removes part of a taxpayer's tax liability. For example, a 25 percent tax credit normally means a taxpayer owing $1,000 in taxes pays only $750, or $250 less than the full amount.

The state's film production tax credit works differently.

The film productions spend money in New Mexico and then the state reimburses up to 25 percent of what each production spends in "qualified expenses," a broad category that contains any direct production expense for a purchase in New Mexico that has a state tax attached. For example, lumber or meals from a local caterer trigger the state's gross-receipts tax.

The money New Mexicans earn while working on the production, as carpenters or electricians or technical crew, also could count as qualifying expenses.

Real life consequences

The program's intricacies might be hard to grasp, but there will be easy-to-understand consequences if the state reduces the program, said dozens of people who packed into Room 317 of the Capitol, where Thursday's hearing was held.

Rick Clemente of I-25 Studios in Albuquerque said two productions recently had called him while looking to rent space.

"One is a TV series probably that would have spent millions of dollars in New Mexico," he said. "The other one was a major, two-hour, made-for-TV movie that was also a pilot."

Now, they aren't answering their phones, he said, and he'd heard they were scouting locations in Texas. Clemente attributed the change of heart to New Mexico's debate over the film-production tax-credit program.

Steve Perry of Masque Entertainment Studios, which has received city approval to build facilities at the Santa Fe Railyard, said the film industry "is one of the most expensive industries to create and sustain. So the business decision is where can you maximize your discount? We don't call the (New Mexico) rebate a rebate. We call it a discount."

State officials who think New Mexico can keep the same amount of film business coming if they reduce the incentives are mistaken, he said. "They think if they reduce it, they'll still keep it here," he said. "The banks are pushing the decisions. It's a business."