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TITLE: TPT; reimbursement; motion picture production |
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SPONSOR: Blackman |
STATUS: As Introduced |
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PREPARED BY: Elliot Chau |
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Description
The bill would exempt media production companies from state transaction privilege taxes (TPT) and use taxes for qualified production expenses such as rented equipment and vehicles, site fees, hotels, or food. Eligible expenses can only be incurred during a defined time of media production, which excludes ongoing programming such as news and sports. Companies would acquire eligibility and approval through the Arizona Commerce Authority (ACA), and the Arizona Department of Revenue (DOR) would distribute the reimbursement of TPT and use taxes paid.
Estimated Impact
This bill would potentially result in the loss of at least $(247,000) to the General Fund each year. The estimate reflects revenue associated with the traditional film industry but excludes some components of digital media. The magnitude of the fiscal impact is dependent on the number and size of eligible media projects. The estimates are highly speculative due to sparse data. In addition, the presence of one large production in the state could significantly change the fiscal impact.
As a part of the TPT distribution formula, revenue for education and local government would be impacted. Education funding would decrease by $(35,200). Local government revenues would decrease by $(91,800) annually. See the Local Government Impact section.
To date, DOR and ACA have not provided their estimates of HB 2385.
Analysis
The State of Florida had a similar incentive, and their Office of Film and Entertainment tracked sales taxes exempted as a part of production. Averaging 3 fiscal years, film expenditures totaled $1.1 billion with $276.9 million of eligible expenses incurred, or 25.6% of production costs. Food and hotel expenses were ineligible under their legislation.
To factor in food and hotel expenses, Florida's reports average 215,607 room nights per fiscal year. The JLBC Staff use the U.S. General Services Administration's per diem reimbursement rates for Phoenix-Scottsdale. Hotels are covered at $146/night and food at $56/day. This increases eligible expenses by $43.6 million to a total of $320.5 million. Therefore, non-labor production expenses equal roughly 30% [= $320.5 million / $1.1 billion] of media project budgets.
In consultation with various municipal film offices, the direct economic impact of Arizona's movie industry is roughly $22.3 million. If 30% of a media production's budget is for non-labor expenses such as equipment rental, site fees, food, and hotels, then it results in approximately $6.7 million in expenses for which TPT and use taxes paid would be reimbursed under this bill.
We disaggregate reimbursable expenses by the statutory state TPT distribution formula. Based on reports from Phoenix and Tucson, the past 3 fiscal years averaged 5,705 hotel nights at an assumed rate of $146/night, leading to a total lodging expense of $832,900. Transient lodging is taxed at 5.5%, and 67.2% of these revenues are distributed to the General Fund. This results in a revenue loss of $(30,800) [= $(832,900) x 5.5% x 67.2%]. The remaining $5.9 million in expenses are assumed to fall into the retail, personal property rental, and restaurant and bar classification. These are taxed at 5.0%, and 73.8% of these revenues are distributed to the General Fund. This results in a revenue loss of $(216,200) [= $5.9 million x 5.0% x 73.8%]. Total General Fund impact from state TPT exemption is $(247,000).
(Continued)
TPT generated under the retail, personal property rental, and restaurant and bar classifications distribute 0.6% for education funding. This bill would result in a reduction of $(35,200) [= $5.9 million x 0.6%] for education.
We cannot provide estimates of other types of media production eligible under this bill such as filming components for an interactive website, video games, sound recordings, or other formats of digital media. Including eligible expenses from these projects would increase the lost state and local TPT revenue.
ACA offers a "Reel Savings" program where vendors can offer pre-negotiated discounts and rebates to media production professionals. All participants must be registered and approved by ACA in order to receive the benefit. These discounts are not factored into our estimate.
DOR has not provided an administrative cost for operating this reimbursement program.
Our analysis does not attempt to estimate the dynamic effects of this bill which may generate new economic activity. This is due to the unpredictability of film projects and the small dollar value of the aggregate TPT exemption.
Local Government Impact
County Impact of State TPT Reduction
By statute, the state is required to share a certain percentage of state TPT with counties. Under the transient lodging classification, counties receive 20.3% of state TPT. The distribution of state revenue to counties would decrease by $(9,300) [= $(832,900) x 5.5% x 20.3%]. Under the retail, personal property rental, and restaurant and bar classification, counties receive 16.2% of state TPT. The distribution of state revenue to counties would decrease by $(47,500) [= $5.9 million x 5.0% x 16.2%] annually. The total county impact is $(56,800).
Municipal Impact of State TPT Reduction
By statute, the state is required to share a certain percentage of state TPT with cities. Cities and towns receive 12.5% of state TPT under the transient lodging classification. The distribution of state revenue to municipalities would decrease by $(5,700) [= $(832,900) x 5.5% x 12.5%]. Cities and towns receive 10.0% of state TPT under retail, personal property rental, and restaurant and bar classification. The distribution of state TPT to municipalities would decrease by $(29,300) [= $5.9 million x 5.0% x 10.0%] annually. The total municipal impact is $(35,000).
2/20/20