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Tax break bill aims to woo film studios to Arizona

A Republican legislator says if Arizona is ever going to regain its old reputation as a state that welcomes the film industry, it needs to be more appealing to big production studios that want to shoot here.

SB1159, sponsored by Sen. John Nelson, R-Glendale, would create tax incentives for film and television studios, as well as for multimedia studios crafting everything from video games to corporate training videos.

The Senate Economic Development and Jobs Creation Committee on Feb. 2, approved the bill 6-0, with one committee member absent. The bill heads to the Senate floor via the Rule Committee.

What distinguishes SB1159 from past incentive laws is that it requires a company to spend a significant amount of money on production within the state before it can apply to the Department of Revenue for a tax credit.

It’s a variation on a 2006 statute that expired last year. The tax credits disbursed under that statute caused the state to lose money, because Arizona was giving away more money than it collected in corporate and personal income taxes from the movie companies and the people they employed.

Nelson and other supporters of the bill said they hope new provisions in SB1159 prevent that kind of money-hemorrhaging. (See “How the tax credits would work,” this page.)

“We are really interested in getting production companies up and running,” Nelson said in committee, “because that’s where a lot of the money will come from.”

Detractors argue that carving out tax codes for specific industries is asking for trouble. Steve Voeller, president of the Arizona Free Enterprise Club, testified that the bill amounts to tax code manipulation.

“But the tax relief that occurs when all rates are reduced across the board is not tax code manipulation,” Voeller said. “It’s not a new credit; it doesn’t favor one industry, one company, one activity or one behavior over someone else’s.”

Speaking directly to the legislators, Voeller warned of possible political consequences for passing the bill.

“You’d have to go back to your districts and defend why they need to pay higher taxes so that film producers do not,” he said.

Nelson said in an interview that although projections for the bill’s effect on the state general fund are unknown at this time, the aim of the bill is to have the state turn a profit.

“The goal obviously is to have a positive impact, because we want to see the industry grow,” Nelson said. “We’ve tried to adapt the positives from other states, recognizing the fact that they’ve been successful now because of what they’ve done. If we’re right and it works, this thing is going to be positive on the general fund.”

Barry Aarons, a lobbyist representing Tucson film companies, said that the argument against picking “winning and losing” industries is less important than stimulating the state’s economy.

“I have an alternative way to look at that,” Aarons told the committee. “Mine is that we look for the opportunities that create the greatest opportunity for economic development. That’s what this bill does.”

Nelson concluded his testimony by saying that Arizona shouldn’t wait much longer to re-institute some kind of tax credit for in-state multimedia production, or the companies will stay elsewhere.

“When the sun set [on the statute], they quit looking at us,” he said. “The sooner we get this going, the sooner they’ll be back and coming across from California rather than flying over us going to New Mexico.”

How the tax credits would work

Under SB1159, production companies could get 20 percent of their individual and corporate income taxes back if their production spends at least $250,000.

They would qualify for an additional 5 percent refund if, for at least half of the production, they use a “privately funded production facility” that meets the following requirements:
• At least 50 percent of the full-time employees of the facility are Arizona residents.
• The facility must have an infrastructure valued at $50 million or more.

The total credit, or amount of money that studios can see a return on, will not exceed $15 million.

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