New Mexico denies film incentive application on ‘Rust’ movie after fatal shooting by Alec Baldwin

SANTA FE, NM — Producers of the Western film “Rust” may have to give up a hefty economic incentive as they try to sell the film to distributors and meet financial obligations to the immediate family of a cameraman fatally shot by Alec Baldwin during rehearsals in 2021.

The New Mexico Tax Commission this spring denied an application by Rust Movie Productions for as much as $1.6 million in incentives, according to documents obtained by The Associated Press. The deadline for producers to appeal the decision is approaching at the end of July.

Meanwhile, Baldwin is scheduled to to be on trial starting next week on a charge of involuntary manslaughter in the death of Halyna Hutchins. The star and co-producer of “Rust” pointed a gun at Hutchins when it discharged, killing her and wounding director Joel Souza.

Melina Spadone, an attorney representing the production company, said the tax break for the film production would be used to legal arrangement between the producers and Hutchins’ widower and son.

“The denial of the tax deduction disrupted those financial arrangements,” said Spadone, a senior counsel at Pillsbury Winthrop Shaw Pittman, based in New York and Los Angeles. She helped broker the 2022 settlement that restarted the halted production of “Rust” in Montana with some of the original cast and crew, including Baldwin and Souza. Filming wrapped last year.

Terms of the settlement are confidential, but the producers say finishing the film was intended to honor Hutchins’ artistic vision and generate money for her young son.

Court documents show settlement payments are up to a year overdue as attorneys for Hutchins’ widower determine “next steps,” including whether to resume the wrongful death lawsuit or file new claims. Legal representatives for Matthew Hutchins did not respond to telephone and email messages seeking comment.

Baldwin’s prosecution and the film’s tax credit application both have financial implications for New Mexico taxpayers. The Santa Fe district attorney’s office says it has spent $625,000 on prosecutions related to “Rust” through the end of April.

The States film incentive program is among the most generous in the country, offering a direct rebate of 25% to 40% on a range of expenditures to attract film projects, employment and infrastructure investment. As a percentage of the state budget, only Georgia pays out more in incentives.

It includes a one-time option to assign the payment to a financial institution. This allows producers to use the rebate to pre-underwrite production, often pooling rights to the rebate and future film revenues into production loans.

Beneficiaries of the rebate program include the 2011 film “Cowboys and Aliens” and the TV series “Better Call Saul,” a spinoff of “Breaking Bad.” As for current productions, New Mexico is the setting for a new film starring Matthew McConaughey and America Ferrera about the rescue of college students in a forest fire in 2018 in the town of Paradise — the most destructive in California history.

Charlie Moore, a spokesman for the New Mexico Taxation and Revenue Department, declined to comment specifically on the “Rust” application, citing concerns about confidential taxpayer information. Applications are reviewed against a long list of accounting and claim requirements.

According to Moore, 56 film grant applications have been approved in the past 12 months and 43 have been partially or fully rejected.

Documents obtained by the AP show that the New Mexico Film Office sent a memo to “Rust” in January approving its eligibility for the tax incentive, in a process that includes accounting ledgers, review of outstanding debts and an on-screen closing credit to New Mexico as a filming location. Tax officials have the final say on whether expenses qualify.

Spadone, the attorney for “Rust,” said the denial of the application is “surprising” and could undermine confidence in the tax program, having a chilling effect on the rebate-backed loans that fuel the local film industry.

Alton Walpole, a production manager at Mountainair Films in Santa Fe who was not involved in “Rust,” said he faults the film’s makers for seemingly skimping on safety, but officials have a duty to evaluate the tax credit application based solely on legal and accounting principles — or risk losing big projects to other states. Movies are inherently dangerous, even without guns on set, he noted.

“They’re going to say, ‘Wait, we’re going to New Mexico? They can deny the rebate,'” Walpole said. “They’re watching every penny.”

“In popular opinion? I would say don’t give them a discount. But legally, I think they’re all entitled to it,” he said.

At least 18 states have taken steps since 2021 to implement or expand tax breaks for films, while some have gone the opposite direction and tried limit the transferability and repayability of credit.

Under Democratic Gov. Michelle Lujan Grisham, New Mexico has raised annual spending caps and expanded the film tax credit amid a multibillion-dollar surplus tied to record oil and natural gas production. The film credit totaled $100 million in the fiscal year that ended in June 2023 and is expected to rise to nearly $272 million in 2027, according to data from the Internal Revenue Service and the Legislature’s budget and accountability office.

Democratic Senator George Muñoz has criticized the stimulus program, questioning whether taxpayers should be responsible for unforeseen expenses.

“If we are going to give tax credits and there is a problem with the film or the set, do they really qualify or do they disqualify themselves?” said Muñoz, chairman of the Senate budget committee.

“Rust” does not yet have a U.S. distributor, as the producers are offering the recently completed film at film festivals.