Is New Mexico's refundable Film Production Tax Credit (which can pay film companies more than they owe in tax) constitutional under the state constitution's Anti-Donation Clause?

Plain-English summary

Senator George Muñoz asked the AG whether the Film Production Tax Credit Act, which gives film and TV production companies a refundable tax credit (paid as a refund if it exceeds the company's tax liability) on a percentage of qualified spending in New Mexico, is constitutional under article IX, section 14 of the New Mexico Constitution. Article IX, section 14 (the Anti-Donation Clause) prohibits the state from "lend[ing] or pledg[ing] its credit or mak[ing] any donation to or in aid of any person, association or public or private corporation."

The AG concluded the credit is constitutional. The Anti-Donation Clause prohibits gifts without consideration. Tax credits become "donations" only when there is no exchange. New Mexico's film tax credit requires the company to do things it would not otherwise do: employ New Mexico residents, report wages and hours, give on-screen acknowledgments to the state, agree to pay all obligations incurred in New Mexico. That meets the consideration test.

The opinion contrasts the film tax credit with the liquor-retailer tax credit struck down in Chronis v. State ex rel. Rodriguez (1983), which gave retailers a credit "without consideration." The film tax credit is structurally different. It also notes that courts do not "wade into the thicket" of evaluating whether consideration is adequate or fair; that question belongs to the legislature.

What this means for you

If you are a New Mexico legislator considering tax credit programs

The Anti-Donation Clause's bottom line: structure the credit as an exchange. Specifically:

• Require the recipient to do specific things it would not otherwise do.
• Tie those requirements to legislative purposes.
• Build in reporting and verification mechanisms.
• Avoid "open" credits that give money in exchange for nothing more than existing.

The film tax credit is the model. Liquor credits in Chronis are the counter-example.

If you are a film production company or attorney advising one

The AG concludes that the credit is not an unconstitutional donation because companies must fulfill statutory requirements in exchange for it. Check the Act's eligibility, reporting, acknowledgment, and payment requirements when applying. The opinion does not prevent a court challenge or decide a particular application.

If you are a tax credit policy advocate or critic

The opinion concludes that this credit does not violate the Anti-Donation Clause because the state receives consideration. It does not evaluate the credit's economic merits, and its conclusion is an Attorney General opinion rather than a binding court judgment.

If you are an out-of-state film producer evaluating New Mexico

The AG concludes that the credit does not amount to an unconstitutional gift. The opinion does not guarantee the program's future or rule out a court challenge. Check the current Act and application requirements when planning a production.

Common questions

Q: What is the Anti-Donation Clause?
A: Article IX, section 14 of the New Mexico Constitution: "[n]either the state nor any county, school district or municipality, except as otherwise provided in this constitution, shall directly or indirectly lend or pledge its credit or make any donation to or in aid of any person, association or public or private corporation." It prohibits gifts of public funds without consideration.

Q: What is the difference between this credit and the one struck down in Chronis?
A: The Chronis liquor credit reduced retailers' gross receipts tax obligations without requiring anything in exchange. The film tax credit requires film companies to meet specific statutory obligations (employment, reporting, on-screen acknowledgments) that they would not otherwise be required to do. The structure of the requirements is the constitutional difference.

Q: Doesn't the state lose money if the credit exceeds the company's tax liability?
A: The Act makes the credit refundable: an amount exceeding the company's tax liability is paid as a refund. The opinion analyzes whether the state receives consideration in return; it does not assess the program's net fiscal cost or say why refundability was chosen.

Q: Do courts evaluate whether the consideration is "valuable enough"?
A: No. As the AG emphasizes (citing City of Raton and Williston on Contracts), courts do not inquire into the adequacy of consideration. As long as some consideration exists, the constitutional bar is met. Whether the legislature is making a wise economic deal is a legislative judgment.

Q: Could the legislature add more requirements to make the credit even more clearly constitutional?
A: The AG concludes that the existing statutory requirements provide consideration, so this credit is not an unconstitutional gift. It does not evaluate proposed additional requirements or decide a future version of the Act.

Background and statutory framework

The Film Production Tax Credit Act, enacted in 2002 and amended through 2025, creates a refundable tax credit for "qualified production and postproduction expenditures" made in New Mexico. The credit is refundable, meaning it can be paid as a refund if it exceeds the company's tax liability.

The Act's purposes include:

• Establishing the film industry as a permanent component of New Mexico's economy.
• Increasing employment of New Mexico residents.
• Improving the economic success of existing New Mexico businesses.

To qualify, a company must comply with statutory requirements that include reporting wages of New Mexico residents, the number of New Mexico residents employed, hours worked by New Mexico residents (§ 7-2F-4(C)), giving specific on-screen acknowledgments to the state (§ 7-2F-13(H)), and agreeing in writing to pay all obligations incurred in New Mexico (§ 7-2F-13(I)). The application process is detailed in § 7-2F-13(K) and implementing regulations.

The constitutional analysis begins with Vill. of Deming v. Hosdreg Co. (1956), which defined "donation" under article IX, section 14 as "an allocation or appropriation of something of value, without consideration." Subsequent cases (including the Court of Appeals' Lewis in 2007 and Luginbuhl in 2013) make clear that consideration is the dispositive factor.

In Chronis v. State ex rel. Rodriguez (1983), the Supreme Court invalidated a Liquor Control Act tax credit that "required neither an exchange nor consideration." The film tax credit's mandatory requirements distinguish it from Chronis. The benefits to the state (employment, infrastructure, marketing) are "concrete and measurable, not generalized or intangible," consistent with Hutcheson v. Atherton (1940).

The opinion also relies on the principle that "the law will not inquire into the adequacy of consideration" (Williston on Contracts, Restatement (Second) of Contracts), and the federal court's observation in City of Raton v. Arkansas River Power Auth. (D.N.M. 2008) that courts are "reluctant to wade into the thicket of determining whether the consideration is adequate or fair."

Citations and references

Statutes and Constitution:

• NMSA 1978 §§ 7-2F-1 to -15 (Film Production Tax Credit Act)
• N.M. Const. art. IX § 14 (Anti-Donation Clause)

Cases:

• Vill. of Deming v. Hosdreg Co., 1956-NMSC-111, 62 N.M. 18 (donation definition)
• Chronis v. State ex rel. Rodriguez, 1983-NMSC-081, 100 N.M. 342 (liquor credit struck down)
• State ex rel. Office of State Eng'r v. Lewis, 2007-NMCA-008
• Luginbuhl v. City of Gallup, 2013-NMCA-053 (consideration definition)
• Hutcheson v. Atherton, 1940-NMSC-001 (concrete benefits)
• City of Raton v. Arkansas River Power Auth., 600 F. Supp. 2d 1130 (D.N.M. 2008)
• State ex rel. Schwartz v. Johnson, 1995-NMSC-080 (legislative power over public funds)

Source

• Landing page: https://nmdoj.gov/publications/opinions/
• Original PDF: https://nmdoj.gov/wp-content/uploads/Attorney-General-Opinion-2026-06.pdf

Original opinion text

March 31, 2026

OPINION OF RAÚL TORREZ
Attorney General

Opinion No. 2026-06

To: The Honorable George K. Muñoz, New Mexico State Senator
Re: Attorney General Opinion – The Constitutionality of the Film Production Tax Credit Act

Question

Is the tax credit provided under the Film Production Tax Credit Act compliant with the Anti-Donation Clause of Article IX, Section 14 of the New Mexico Constitution?

Short Answer

Yes. To qualify for the credit, film production companies must fulfill statutory requirements that they would otherwise not be required to meet. Through the companies' fulfillment of such requirements, the State receives concrete benefits that support express statutory goals. This amounts to an exchange and not an unconstitutional donation of government funds.

Background

The Film Production Tax Credit Act (the Act), NMSA 1978, §§ 7-2F-1 to -15 (2002, as amended through 2025), creates a "film production tax credit" that allows an eligible film production company to claim a credit for a percentage of its qualified production and postproduction expenditures made in New Mexico. The film production tax credit was first enacted in 2002 and has since been amended several times. The Act's purposes include "establish[ing] the film industry as a permanent component of the economic base of New Mexico; . . . increas[ing] employment of New Mexico residents; [and] improv[ing] the economic success of existing businesses in New Mexico[.]" Section 7-2F-3.

The film production tax credit is a refundable tax credit. In contrast to a non-refundable tax credit, which is limited to the amount of tax liability to which it is applied, the balance of any refundable tax credit remaining after the tax liability is satisfied is paid as a refund to the taxpayer. As stated in the Act, an eligible film production company

> may apply all or a portion of the . . . film production tax credit granted against personal income tax liability or corporate income tax liability. If the amount of the credit claimed exceeds the film production company's tax liability for the taxable year in which the credit is being claimed, the excess shall be refunded.

Section 7-2F-13(D). In other words, if a film production company is granted a credit for its qualified production and postproduction expenditures in an amount that exceeds the company's income tax liability in the year the credit is claimed, the state will pay or, as stated in Section 7-2F-13(D), "refund" the company the amount of the excess credit.

Claiming New Mexico's film tax credit is a multi-step process governed both by statutes and regulations.

Analysis

The Anti-Donation Clause provides, in pertinent part, that "[n]either the state nor any county, school district or municipality, except as otherwise provided in this constitution, shall directly or indirectly lend or pledge its credit or make any donation to or in aid of any person, association or public or private corporation[.]" N.M. Const. art. IX, § 14. A "donation," for purposes of Article IX, Section 14, is "a gift, an allocation or appropriation of something of value, without consideration." Vill. of Deming v. Hosdreg Co., 1956-NMSC-111, ¶ 36, 62 N.M. 18. The Anti-Donation Clause is implicated only in cases where, "by reason of its nature and the circumstances surrounding it," government funding or aid takes on the "character [of] a donation in substance and effect." Id. ¶ 37.

In assessing whether government funding is properly characterized as a donation, consideration is a definitive factor. See id. ¶ 36; see also State ex rel. Office of State Eng'r v. Lewis, 2007-NMCA-008, ¶ 49 ("Consideration for the allocation can be a defining element."). "Consideration consists of a promise to do something that a party is under no legal obligation to do or to forbear from doing something he has a legal right to do." Luginbuhl v. City of Gallup, 2013-NMCA-053, ¶ 15.

Significantly, unlike situations involving unconstitutional industry incentives, the nature of the tax credit at issue involves an exchange. In return for meeting requirements of the Act, taxpayers are eligible for the credit; in exchange for providing the credit, the State receives concrete benefits that are intended to fulfill stated statutory purposes. Where this has not been the case, and a taxpayer's receipt of a statutory tax credit has required neither an exchange nor consideration, our courts have deemed such provisions unconstitutional. For example, in Chronis v. State ex rel. Rodriguez, 1983-NMSC-081, 100 N.M. 342, the New Mexico Supreme Court invalidated a provision of the Liquor Control Act giving liquor retailers a tax credit that reduced retailers' gross receipts tax obligations. Where this provision required neither an exchange nor consideration, the Court deemed it an unconstitutional subsidy to the liquor industry in violation of the Anti-Donation Clause.

In contrast, under the Act, film production companies can only receive the tax credit by complying with specific statutory directives. A film production company seeking the tax credit must prove that it has met all requirements of the Act, including mandates that are tied to the statutory purposes and goals set forth in Section 7-2F-3. See, e.g., §§ 7-2F-4(C) (requiring a film production company seeking the credit to report various information, including "the total aggregate wages of the members of the New Mexico resident crew;" "the number of New Mexico residents employed;" and "the total number of hours worked by New Mexico residents"), 7-2F-13(H) (requiring specific acknowledgments to the State in the production credits), 7-2F-13(I) (requiring company to "agree in writing . . . to pay all obligations the film production company has incurred in New Mexico"). But for seeking a tax credit under the Act, film production companies would not be required to comply with the aforementioned obligations.

By complying with statutory obligations, film production companies promote economic and workforce development within the State. Thus, in exchange for the tax credit, film production companies assist the State in meeting the express purposes and goals of the Act. These benefits to the State are concrete and measurable, not generalized or intangible. See e.g., Hutcheson v. Atherton, 1940-NMSC-001, ¶ 26.

Lastly, in assessing whether the tax credit is supported by consideration, it is not our role to evaluate whether the consideration is valuable. Cf. City of Raton v. Arkansas River Power Auth., 600 F. Supp. 2d 1130, 1161 (D.N.M. 2008) ("The Court does not believe it should evaluate whether the agreement was a good or bad deal under the Anti-Donation Clause[.]"). "It is an elementary and oft quoted principle that the law will not inquire into the adequacy of consideration as long as the consideration is otherwise valid or sufficient to support a promise." 3 Williston on Contracts § 7:22 (4th ed.). Within the context of the Anti-Donation Clause, courts have similarly been "reluctant to wade into the thicket of determining whether the consideration is adequate or fair." City of Raton, 600 F. Supp. 2d at 1160. We will not second-guess fiscal decisions made by the Legislature. See State ex rel. Schwartz v. Johnson, 1995-NMSC-080, ¶ 14.

Conclusion

For the foregoing reasons, we conclude that the film production tax credit authorized by the Act does not amount to an unconstitutional gift.

Please note that this opinion is a public document and is not protected by the attorney-client privilege. It will be published on our website and made available to the general public.

RAÚL TORREZ
ATTORNEY GENERAL