The Definitive Guide to New Mexico’s Film Tax Incentive

As one of the first states in the U.S. to offer production tax incentives, New Mexico’s program has had its share of changes over the years.

From blockbusters to Breaking Bad

In 2011, the program seemed to have hit its high-water mark when three major features were shot there: Thor, Fright Night, and Cowboys and Aliens. Just after that, talk of capping the program took the forefront, giving pause to the bigger studios considering the state for production incentives.

New Mexico hot air balloons Following that 2011 whirlwind of tentpole features, New Mexico began to realize what most states had not yet: that TV was really the ace in the hole when it came to the state’s economic impact from productions. Thus the so-called “Breaking Bad Bill” was born. The state was once ahead of the curve in creating a bonus incentive on top of their base incentives, adding an extra 5% to TV series and Pilots meeting certain criteria.

The success of Breaking Bad was unprecedented. What’s more, shooting Albuquerque for Albuquerque made it a showcase for New Mexico, spawning tourism and ancillary business, such as the ubiquitous RV tours that continue to this day. The dream of landing another such showcase became attractive not just to New Mexico, but to other states as well.

This started a trend in which many states are keener to bag a (hopefully) long-running television series than a one-and-done feature. So even though New Mexico did get a somewhat low cap, they succeeded still by incentivizing TV shows and other independent projects.

What’s new with the New Mexico film tax credit?

The focus on TV has now carried forward, and New Mexico has once again gone through the next evolution of their production incentive. As it stands now, New Mexico offers 25% in a refundable credit on any qualified-spend items purchased through New Mexico vendors, as well as any New Mexico resident wages.

The 25% tax incentive is also applicable to nonresident talent, given certain criteria are met. New Mexico does not have a minimum spend, which makes it attractive to independent productions. The funding cap also doubled, from $55 million to $110 million – great news in itself, but even more on this in a moment.

The new version of the tax incentive retains the 5% TV bonus. So as long as a show has at least six episodes and spends $50,000 per episode in the state, producers can realize a combined return of 30% in refundable tax credits. Veteran shows like Better Call Saul and Longmire continue to take advantage of this offering. Pilots may be able to capitalize on the TV bonus incentive as well.

Not wanting to leave features out, the state also offers a 5% bonus for features utilizing specific facilities. Plus, there is a brand-new rural bonus that gives 5% to those productions filming at least 60 miles outside the Bernalillo and Santa Fe areas.

The Netflix loophole changes everything with New Mexico’s tax incentive

It’s the addition of the “New Mexico Film Partner” language in the incentive that once again puts the state in a unique situation and makes this newest signed legislation a gamechanger. It basically says that if a production company agrees to make projects in New Mexico and invest in a New Mexico production facility for at least 10 years, they are exempt from the state annual incentive cap.

This is huge, for two reasons.

1. Big players are free to spread their wings

Freedom from the incentive cap allows “Film Partner” companies like Netflix and NBC Universal to fully capitalize on New Mexico’s 25-30% offerings with no concerns about funding allocations. That encourages them to bring their big productions to the state, since they can realize the full savings.

2. The little guys can still wet their beaks

Because the Film Partner studios won’t be using up all the cap, this also means New Mexico tax incentive dollars that go to those shows won’t deplete the $110 million fund for the smaller films and TV series. This effectively creates an enormous increase in film tax credit funding for productions in New Mexico.

This unique Film Partner program is ambitious and keeps New Mexico ahead of the curve. NBC Universal and Netflix have both committed to large facility investments in Albuquerque, basically creating or revamping top-tier studio space. The state and Albuquerque have both chipped in toward those costs through allocated funds, but they know it means a big slate of projects is coming down the pike. That means more tax revenue and jobs will be following close behind.

These commitments mark a major leap forward in creating longevity for New Mexico production, as it will build up infrastructure as well as increase the production crew base in the state.

What are the challenges of the New Mexico film tax incentive?

There are some unique hurdles when filming in New Mexico. First, not everything qualifies for the 25% in refundable credit. Indeed, some Above the Line does not qualify at all. Directors, writers, producers, and costume designers, just to name a few, do not count towards the credit. In addition, nonresident Below the Line crew only qualifies for 15% refundable tax credit, and pre-approval of that crew is necessary.

Super Loan Outs don’t have to be super expensive

Additionally, in order for that nonresident talent to qualify, New Mexico income tax withholding is required and, in some cases, a “Super Loan Out” is needed to pay gross receipts tax on the talent’s behalf. So features and shows wanting to take advantage of New Mexico’s film tax credit generally need to partner with a production payroll service that offers a Super Loan Out.

It’s important to ask if your payroll service has a Super Loan Out anytime you’re working with talent from outside the state. Often we see talent with loan out corps established in California, New York or even a less production-heavy state like Missouri or Michigan, if the actor happens to reside there. Regardless of the state, if it’s not New Mexico, you’re going to need to tap into a payroll company’s Super Loan Out in order to qualify for your entire tax credit.

At Media Services, we make Super Loan Outs easy. If you’re going for the incentive in New Mexico, we’ll make sure you’re covered.