July 25, 2024

What Happened with the New Mexico Denial of the RUST Incentive?!

The entertainment industry is abuzz with the recent dismissal of Alec Baldwin’s criminal case in the death of Halyna Hutchins on the set of the western film, Rust. However, producers and industry insiders are baffled by a totally different aspect of this story: the New Mexico Taxation and Revenue Department’s (TRD) denial of the Rust final application for $1.6 million of film tax credits. A reason for the denial was neither given by TRD nor the New Mexico Film Office (NMFO). So the question remains, why was the application denied and what are the next steps for the production company?

Similar to other states, New Mexico employs a bi-cameral administration of its Film Production Tax Credit Program: (i) NMFO, a division of the state’s Economic Development Department, approves film production companies for eligibility while (ii) the TRD determines whether the film production company’s expenses are eligible. Accordingly, applications are submitted to NMFO for initial certification prior to production and the TRD reviews the production company’s post-production financials to determine their eligibility for a tax credit.

TRD has 120 days from the date of the approval memo and receipt of a completed application to complete the credit review and issue an approval and/or a denial. New Mexico Statutes Annotated §7-1-29.2(E) grants TRD the right to approve or deny an application for a credit in whole or in part as long as a final decision is provided in writing to the production company applicant within the specified. The Statute does not require TRD to give a reason for the denial.

If the production company feels there is no ground for denial, it has the following remedies:

1. Protest via a written appeal demanding an approval of the application with facts

   to support the approval, or

2. Sue the Taxation and Revenue Department in the New Mexico court system.

Producers are stunned at the denial and that the state’s legislation doesn’t require it to provide a denial reason. Furthermore, the limited remedies available to the production company, and the limited time with which the production company has to either protest or sue, means that the burden is on the production company to get its own remedy.

The denial should serve as a warning to producers to thoroughly read through a state’s legislation and regulations authorizing a production incentive before applying for the program. Do not simply rely on the state’s printed brochures to provide the rules and parameters outlining the incentive. And better yet, engage incentive counsel to help you navigate the ins/outs of the incentive process and to understand your rights before, during and after the application process. New Mexico is not the only state that has broad authority to deny a final incentive application. And in similar cases, other states may do the same.

If you have any questions about the aforementioned, let’s talk!