Proposed Arizona film-tax credit faces uncertain future

PHOENIX — When Alexis Bristor graduates from Arizona State University in December with a degree in film and media production, she plans to pack her bags and head straight to Hollywood.

“There’s a few editing places around Arizona, but they aren’t really doing the kind of things I want to do with my career,” Bristor said. “They’re usually focusing on family films or promotional videos kind of a thing for local companies and stuff like that, whereas I want to be making films.”

This mindset is part of what prompted Sen. Al Melvin, R-Tucson, to author SB 1242, which would create an income tax credit for companies that produce multimedia in Arizona. The goal of the legislation, Melvin said, is making Arizona more competitive with other states that offer similar tax incentives, thus enticing graduates of Arizona’s film schools to stay.

“Our universities have great programs in the field, as well as our junior colleges,” Melvin told the Senate Committee on Commerce, Energy and Military earlier this month. “All we’re trying to do here is level the playing field with New Mexico and other states that are competing with us.”

SB 1242 would implement a program similar to one that ended amid recession three years ago. The bill would allow companies that spend more than $250,000 on productions in Arizona to receive a 20 percent refundable tax credit from the state, up to $70 million per year. It would apply to films, TV shows, commercials and video games, as well as to companies that invest in production infrastructure in Arizona.

The bill won unanimous approval from the Commerce, Energy and Military Committee but hasn’t received a hearing from the Finance Committee, to which it also was assigned.

In an interview, Melvin said he hopes to see the proposal revived in the House so it would require only a vote by the full Senate upon returning.

SB 1242 is similar to legislation introduced unsuccessfully in previous years. The efforts followed the 2010 sunset of a five-year tax incentive program applying only to film production.

Mike Kucharo, president of the Arizona Film and Media Coalition, said the end of the previous program devastated the film production industry in Arizona.

“The first year after that program expired, production that had been averaging $35 million had dropped down to $15 million,” Kucharo said. He attributed much of that money to a residual of people who had applied for the credit before its expiration and temporarily remained in the pipeline.

“But then the next year, when there wasn’t any residual, we were down to $6 million,” he said.

Kucharo conceded the program wasn’t without its problems. The tax credits it offered were transferable, meaning they could be bought and sold, which created a secondary market that drove business out of state, he said.

A major difference between the former program and the current proposal is that SB 1242 would create a renewable tax credit rather than a transferable one, which would require the money to be spent in Arizona in order for it to qualify.

“The simple, cleanest way is the rebate, where you come in and you spend the dollar and we give you 20 cents,” Kucharo said.

Opponents of the bill, however, say the fact that the credit would be renewable is part of the problem in that it would allow companies to receive a refund from the state even if they have zero tax liability.

“I wouldn’t put it past the ability of them to lower their income tax liability down to zero and still receive a refund from the state – and get paid money after having zero tax liability,” Scot Mussi of the Arizona Free Enterprise Club told the Senate committee. “That’s the issue with the refundability portion.”

Jennifer Stielow, vice president of the Arizona Tax Research Association, said by implementing incentives for one industry, SB 1242 would open the door to similar requests from other sectors.

“You say to the movie industry, ‘Hey, we’re going to give you this credit,’ and you pass that legislation,” she said. “What prevents another industry from going to the Legislature and saying, ‘Hey, why can’t we get the same benefit?'”

The association, she said, would rather see lawmakers lower taxes across all industries to stimulate the economy rather than favor a certain sector.

Kucharo, however, said anything that helps the film industry would help other industries in the state, such as hospitality and transportation.

“You’re killing an entire industry over a philosophical (argument),” he said. “This industry is not like many of the others. Every production that comes in branches out and affects almost every other industry in the state.”

One of Arizona’s largest production competitors is New Mexico, and proponents of SB 1242 say this is because New Mexico offers a 25 percent tax credit. While Arizona’s scenery can be spotted in movies such as “Oklahoma!” “Return of the Jedi” and “Piranha 3D,” New Mexico holds claim to titles such as “The Avengers” and “The Book of Eli.” Even the 2007 remake of “3:10 to Yuma” was filmed in New Mexico.

Chris LaMont, founder of the Phoenix Film Festival and an ASU faculty member who has taught film for nine years, said a tax incentive is the missing piece that would allow Arizona to compete with other states that offer similar credits. Arizona has the advantage in weather, variety of terrain and proximity to Hollywood, he said.

“We don’t even need incentives that are better than New Mexico,” he said. “What we need are incentives, period.”

A key advantage of SB 1242 in particular, LaMont said, is that it would sunset after 10 years instead of five, giving companies more of an incentive to build studios in the state that would draw long-term business.

“It’s a question of having to build up a pipeline, enough producers recognizing in state or out of state that they can make projects here, that there’s qualified crews here, that they can make a film,” he said. “That’s the key, is to create that foundation.”