Arizona Governor Allows $125 Million Film Tax Credit to Become Law

Arizona has adopted a new tax credit for film and TV production, as the state aims to attract productions that have gone to New Mexico and other states in recent years.

Gov. Doug Ducey, a Republican, allowed the legislation, HB 2156, to become law without his signature on Wednesday. Ducey’s office declined to comment on the unusual maneuver.

The program will provide a refundable credit worth 15% to 20% of qualified production costs, plus additional bonuses for meeting certain criteria. The credit is designed to incentivize the construction of two large soundstage facilities in the Phoenix area.

“It’ll be good to put Arizona on the map again,” said state Rep. Mitzi Epstein, D-Tempe. “We have some beautiful places here that make stunning backdrops.”

The bill passed both houses of the Legislature last month with bipartisan support. But most of the opposition came from Republicans, including from House Speaker Rusty Bowers. During the House floor debate on June 23, a handful of Republicans expressed concern about luring “woke” Hollywood actors to the state.

The Republican speaker pro tem, Travis Grantham, also voiced his objections, arguing that the bill was an unconstitutional giveaway to corporations. Grantham alleged the bill’s sponsor in the state Senate had held the House “hostage” by refusing to move other legislation until the tax credit was put on the House floor.

The bill passed the House by a vote of 39-18. Among Democrats, the vote was 26-1 in favor, while among Republicans it was 17-13 opposed. The divide was similar in the state Senate, with Democrats supporting the bill 11-1 and Republicans split 8-8.

The Tucson area was home to many Western films and TV shows from the 1940s through the 1970s, including “Cimarron,” “Bonanza,” “Gunsmoke” and “Gunfight at the O.K. Corral.” But in recent years, productions have largely shot elsewhere due to tax incentives in other states.

Arizona had a film incentive from 2005 to 2010, but it was allowed to expire after the state reported that it lost millions of dollars per year on net. Backers of the new incentive argue that taxpayers will benefit in the long run. Legislators relied on an economic analysis from the Rounds Consulting Group showing that tax revenues attributable to increased production would surpass the cost of the credit after seven years.

The credit will be capped at $75 million in the first year, $100 million in the second year and $125 million in the third year and thereafter. The program is set to sunset after 20 years.

The credit will put Arizona roughly on par with a handful of other states that compete for filming, including New Mexico, Louisiana, Connecticut, New Jersey and Illinois. The state of Georgia remains the leader by far, with $1.2 billion allocated last year, followed by California and New York at $420 million apiece.

Tax incentives have come to dominate location decisions in recent years, as productions can ill afford to forgo a 20%-30% discount on production costs. The Great Recession prompted several states to phase out their programs over the last decade. But with states enjoying surpluses over the last couple of years, several have restarted their incentives or expanded them.

West Virginia and Indiana approved new film incentives this year, though neither will be close to the scale of Arizona’s. The state of Washington also expanded its credit from $3.5 million to $15 million.