Receiving the Credit
Register the project with the Film Office before at least two week before principal photography and submit the project’s tax application after the last qualifying project expense in each tax year. After the close of the production company's tax year, a state tax or informational return is filed with the approved claim document provided after the internal review of the expenditures by the NM Taxation & Review Department. When the “check is cut” (or the deposit is made) for the first (or only) payment, that’s when the annual cap of $50M is affected (drawn down). This is usually 8 to 12 months after wrap if the submission happens in a timely manner. It’s not a case of “if” but “when” you receive the credit, and we will assist you in determining the timeline to receive a refund for your project.
The following is a brief description of the timeline:
- Upon the last qualifying expenditure within the filing entity's taxable year, a hard copy of the signed tax credit application(s), and other documents related to the film office requirements, are submitted to the New Mexico Film Office by the Film Production Company. This includes the Film Office's Film Stats Form as listed in the NM Tax Credit in Ten Steps.
- The New Mexico Film Office submits this to the NM Tax & Revenue Department after determining that all clear, financial obligations to local vendors and crew have been met by the company. The Film Office includes a memo which confirms the project type and eligibility.
- Upon receipt, the Film Production Company will receive an engagement letter from the NM Tax & Revenue Department. This letter will include directions to send the project's ledgers, and other related documents, over a secure electronic transfer directly to the Film Unit Supervisor. The project is then in queue (on a first in, first out basis) for an internal review that determines the approved claim amount. This review takes approximately five to six months for the department to complete.
- The filing entity submits the signed claim amount document sent to the Film Production Company after the review with their state income tax return (or informational return) to the NM Tax & Revenue Department after the close of their taxable year; and, upon authorization by Tax & Revenue, a check or deposit is issued. This takes approximately eight to twelve weeks.
Note: if your Tax Credit Application is not submitted to the NM Tax & Revenue Department within a year of your last qualifying direct production or post production expenditure that was made within the filing entity's taxable year, you will miss the required deadline for the credit. Contact the Film Office for more details at 505.476.5605.
Also see NM Tax Credit in Ten Steps. Visit the NM Tax & Revenue Film website for a detailed description of the organization of the ledgers.
CPA Audits for Credits >$5M
If your projected credit exceeds five million dollars ($5M) within your tax year, an external audit from a NM CPA firm licensed to practice in-state is required. Guidelines are available on the NM Tax & Revenue Department's (TRD) website. When the AP and PC ledgers are ready, the Production Company (or the CPA) submits the Pre-submission Worksheet to the film office in order for the NMFO to confirm eligibility. A memo is sent to TRD by the NMFO confirming the company’s obligations have been met and this will trigger TRD to pull the sample for the CPA. When the CPA has a draft report of the results, this report and the tax application(s) are submitted to the film office. No backup is sent to the NMFO. The NMFO then sends a memo to TRD for the project to enter the queue. (Note: the payment will qualify for the credit if that CPA meets physical presence requirements and services were rendered in-state.)
If the project crosses tax years, the pre-submission worksheet only applies to the year for which the credit is $5M or above. The other tax year(s) can be submitted with the application for that year.
Deferred payments are based on the amount of your tax credit, not your budget.
Credit claims authorized for payment (after the approved claim is filed with a state tax or informational return) shall be paid to the taxpayer as follows:
(1) a credit claim amount of less than two million dollars ($2,000,000) per taxable year shall be paid immediately upon authorization for payment of the credit claim;
(2) a credit claim amount of two million dollars ($2,000,000) or more but less than five million dollars ($5,000,000) per taxable year shall be divided into two equal payments, with the first payment to be made immediately upon authorization of the payment of the credit claim and the second payment to be made twelve months following the date of the first payment; and
(3) a credit claim amount of five million dollars ($5,000,000) or more per taxable year shall be divided into three equal payments, with the first payment to be made immediately upon authorization of payment of the credit claim, the second payment to be made twelve months following the date of the first payment and the third payment to be made twenty-four months following the date of the first payment.
If there are unexpended funds available at the end of given fiscal year (June 30), productions with scheduled, authorized payments in the next fiscal year may receive payment ("pay-forward").
Claiming the Credit
“A credit claim shall only be considered received by the department if the credit claim is made on a complete tax return filed timely after the close of the taxable year. All direct production expenditures and post-production expenditures for services incurred during the taxable year by a film production company shall be submitted as part of the same income tax return and paid pursuant to this section. A credit claim shall not be divided and submitted with multiple returns or in multiple years."
"For purposes of determining the payment of credit claims, the Secretary of the Tax & Revenue may require that credit claims of affiliated persons be combined into one claim if necessary to accurately reflect closely integrated activities of affiliated persons.”
Considerations include the taxpayer’s/filing entity's taxable year, which may or may not correspond with a calendar (or fiscal) year depending on the entity’s structure and filing schedule. Example: Film Company “X’s” taxable year is a calendar year. Film Company “X” incurred expenditures from March through May 2012. They will submit their tax credit package and application in July 2012 and anticipate receiving an approved claim amount from the NM Tax & Rev Department in October 2012. Film Company “X” must wait until January 2013 in order to submit their credit claim and file their state tax or informational return. They can then estimate receiving their credit (check or deposit) two to ten weeks after submittal or for this example, in March 2013.
Based on a first-come, first-served basis, NM Tax & Revenue Department will award credits until they reach $50 million. Any amounts over $50 million will be awarded at the beginning of the next fiscal year (July 1 of each year) when there is a “new pot” of funds.
Crossing Taxable Years
“All direct production expenditures and post-production expenditures incurred during the taxable year by a film production company shall be submitted as part of the same income tax or informational return…A credit claim shall not be divided and submitted with multiple returns or in multiple years.”
What does this mean?
Under this scenario, the film company must submit a tax application and then file a return for each taxable year that reflects the amount of credit earned during that year. If credit-eligible expenditures occur in more than one year, the taxpayer submits a tax application then files a credit claim for each year, with each application and claim reflecting the expenditures that occurred within a given taxable year.
If a production starts in one taxable year and finishes shooting and wrapping in the next taxable year, there will be two separate claims and returns. If a production company has multiple projects under the same taxpayer/filing entity in a given taxable year, they may have multiple applications but they all are submitted under one return for the one tax credit.
A registration form and tax agreement is submitted for each project; however, a project may have more than one tax application if the expenditures cross taxable years. Starting January 1, 2016, a tax application must be submitted within a year from when the last qualifying expenditure was made in the company's tax year (not project end).
There is no pre-qualifying or “getting in line” since credits will be awarded based upon when you file your credit claim (approved amount) and state tax or informational return. The NM Tax & Revenue Department will award tax credits on a first-come, first-served basis. So, if the $50 million cap has been met, the remaining amounts will be placed at the front of a queue and awarded in the next fiscal year (which begins July 1 of each year.) Any accrued amounts greater than fifty million ($50M) in any one fiscal year will be “rolled over” into the next fiscal year which begins on July 1.
This means that productions will be motivated to submit their Tax Credit Package to the New Mexico Film Office as quickly as possible as the internal audit by Tax & Rev may take up to six (6) months.
A claim for film production tax credits shall be filed as part of a return filed pursuant to the Income Tax Act or the Corporate Income and Franchise Tax Act. The date a credit claim is received by the department shall determine the order that a credit claim is authorized for payment by the department.
In the case where the cap is not met, unexpended funds in a given fiscal year may be applied to authorized payments scheduled in the next fiscal year. ("Pay-forward" of obligated deferred payments in order of date due.)
The Film Office can not provide a company with an “approval letter” or a guarantee. However, per statute, the Film Office “shall report monthly the projected amount of credit claims for the fiscal year.” In addition, “to provide guidance to film companies regarding the amount of credit capacity remaining in the fiscal year, NM Tax & Revenue Department shall post monthly on their website the aggregate amount of credits claimed and processed for the fiscal year.”
Projection of Pay-Outs FY16 ($50M Available per Fiscal Year)
The New Mexico Film Office estimates that the total amount to be expended for the Refundable Film Production Tax Credit from filed returns between July 1, 2015 through June 30, 2016 (fiscal year 2016) to be $50M. This means a production would have to receive their approved claim amount and to file their return by April. For fiscal year 2015 (July 1, 2014 through June 30, 2015), NM TRD expended $50M including "pay forwards."
Visit the NM Tax and Revenue's film page for monthly actuals.