Two years after letting a prior program self-destruct, state senators last week approved a new package of tax credits designed to convince movie and TV producers to make their shows in Arizona.
Only this time they hope it won’t actually lose money for the state.
On a voice vote April 18, the Senate gave preliminary approval to legislation that would give companies an income tax credit of up to 30 percent of what they spend in Arizona. Credits would also be available for construction of sound stages and other production facilities.
Sen. John Nelson, R-Litchfield Park, who has championed the measure, said the move will make Arizona more competitive with surrounding states which have done a good job in luring Hollywood producers out of Southern California, even if just for specific projects. He said that includes Utah and New Mexico, both of which provide similar incentives.
But the move has generated stiff opposition from some Republicans who disputed the contention that the move makes financial sense.
Sen. Ron Gould, R-Lake Havasu City, said if nothing else giving tax breaks to one industry means the state has to make up the cash from everyone else.
“I don’t think that that’s fair,” he said. “I think Arizona should have low, broad-based taxes where everybody pays the same rate.”
And Gould said the measure smacks of favoritism.
“I don’t think just because an industry has enough money to hire a cadre of lobbyists to come down and influence the Legislature that they should receive a special tax rate,” he said. “It is not fair that government picks winners and losers.”
Central to the debate is the contention that movie and TV production brings in enough outside money and hires enough local crew to make it appropriate to pave the way with some cash.
It’s an argument that Nelson said has been enough to get 14 states to adopt their own package of incentives.
“This is an industry standard,” he said of the package of tax credits.
Nelson said in six years Utah has had these credits it created about 4,000 jobs and generated $150 million in tax revenues. He said similar legislation in New Mexico has created about 9,000 jobs “and has become very productive in providing income to the state.”
Arizona’s experience, however, has been different.
A 2009 study by the state Department of Commerce said productions given credits generated 317 full-time jobs in the industry, with another 413 created indirectly from spending by filmmakers in the state.
All totaled, that generated about $2.3 million in additional state and local taxes.
But Arizona gave out more than $8.6 million in credits to get that gain.
Based on that report, lawmakers let those credits expire two years ago. Nelson said this new plan is different — and better.
Part of it, he said, is that there will be real promotion of the industry.
“Staff didn’t really care that much about it,” he said of the branch of the Commerce Department which had been in charge of selling Arizona to producers. He said this time there will be funding for staff.
And Nelson said that the old system allowed a company that had a tax credit but did not owe money to the state to sell that credit outright to someone else who could use it to offset Arizona tax liability.
But Gould said this is no better, pointing out that the tax credits — essentially a dollar-for-dollar offset to the income tax owed by an individual or firm — are refundable.
“That means the film crew or the film studio that comes here, if they don’t have an Arizona tax liability, the Arizona taxpayers, the treasurer, will be cutting them a check,” Gould said.
“So they’ll be mailed a check ... from the wallets of our constituents,” he continued. “I find that to be egregious.”
But Sen. Al Melvin, R-Tucson, said he’s willing to go along.
“I believe it will result in jobs and will rejuvenate the film industry in our state,” he said.
Melvin said the incentives will fit nicely with degree programs in film and television at state universities. And he said Arizona is in a good position to lure production companies given the state’s proximity to Southern California.
Sen. Sylvia Allen, R-Snowflake, said she believes such credits run afoul of beliefs in the free market. She said that means not only providing the ability to succeed but also allowing those who cannot compete to fail.
The legislation does allow credits to be denied if state officials determine that the production would be obscene, depict obscene sexual activity or would constitute sexual exploitation of a minor. Gould said, though, that still leaves the door open for movies and TV shows that would put the state in a bad light.
He specifically cited “Breaking Bad,” a TV series filmed and set in New Mexico.
“We glamorize the meth trade,” he said. “We glamorize drug dealing, murdering, prostitution with the tax dollars of New Mexicans.”