Commerce Authority Stands Firm Against Critics of Film Tax Credits

Arizona is defending its annual allocation of $125 million in film tax credits in court, asserting their constitutionality amid criticism.

The Arizona Commerce Authority seeks a ruling from Judge Michael Herrod in Maricopa County Superior Court regarding a lawsuit from the Goldwater Institute. The institute claims that these credits violate the Gift Clause of the Arizona Constitution, which prohibits the state from paying more than what it receives in return.

Attorney Andrew Pappas contends that these tax credits are not “gifts” as defined by the constitution. He clarified that the credits are designed to attract filmmakers and enhance local production, which he argues benefits the state economically.

Pappas emphasized that the state does not own future taxable income, thus cannot distribute it as a gift. He elaborated that finding otherwise would imply ownership of future income by the state, a legally untenable idea.

This legal battle extends beyond constitutional interpretation; it has significant implications for Arizona’s competitiveness in the film industry. The state faces stiff competition from New Mexico and Georgia, both of which effectively lure filmmakers through similar incentives.

The controversy centers on a law initiated by Sen. David Gowan, aiming to revive Arizona’s once-thriving film scene that dates back to the 1930s. Historical productions like “Stagecoach” and various Westerns at Old Tucson highlight the state’s cinematic history.

Despite calls for revitalization, many producers have opted for filming locations outside Arizona, even for stories set within the state. Supporters of the tax credits argue they are crucial for attracting film projects, TV shows, and commercials.

Critics remain focused on the Gift Clause issue, claiming that the state fails to generate equivalent revenue from the credits dispensed. Pappas, however, argues that the lawsuit lacks merit and questions the legality of circumventing established tax policy, which is traditionally the legislature’s domain.

If the court were to nullify these tax credits, Pappas warns that it might lead to widespread challenges against various tax exemptions across Arizona. The risk of destabilizing established tax structures could cripple financial incentives for other sectors.

Arizona previously implemented a similar film tax credit program but repealed it amid concerns about financial returns. Proponents of the current law maintain that new measures are in place, requiring stringent audits and proof of local spending.

No hearing date has been set. The resolution of this case could significantly shape Arizona’s film industry landscape and its legislative policies moving forward.