SANTA FE, N.M. β€” Producers of the western movie β€œRust” may have to forgo a robust economic incentive as they try to sell the film to distributors and fulfill financial obligations to the immediate family of a cinematographer who was fatally shot by Alec Baldwin during rehearsal in 2021.

New Mexico tax authorities denied an application this spring by Rust Movie Productions for incentives worth as much as $1.6 million, according to documents obtained by The Associated Press. A late July deadline for producers to appeal the decision is approaching.

Alec Baldwin speaks with investigators Oct. 21, 2021, following a fatal shooting on a movie set in Santa Fe, N.M.

Meanwhile, Baldwin is scheduled toΒ go on trialΒ starting Tuesday on an involuntary manslaughter charge in Halyna Hutchins' death. The lead actor and co-producer of β€œRust” was pointing a gun at Hutchins when it went off, killing her and wounding director Joel Souza.

Melina Spadone, an attorney representing the production company, said the film production tax incentive was going to be used to finance aΒ legal settlementΒ between producers and Hutchins' widower and son.

β€œThe denial of the tax credit has disrupted those financial arrangements,” said Spadone, a New York- and Los Angeles-based senior counsel at Pillsbury Winthrop Shaw Pittman. She helped broker the 2022 settlement that rebooted the stalled production of β€œRust” in Montana with some of the original cast and crew, including Baldwin and Souza. Filming wrapped up last year.

Alec Baldwin attends the Roundabout Theatre Company's annual gala March 6, 2023, at the Ziegfeld Ballroom in New York.Β Baldwin is scheduled to go on trial next week over β€œRust” cinematographerΒ Halyna Hutchins’ shooting death.Β 

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

Court documents indicate that settlement payments are up to a year late, as attorneys for Hutchins' widower determine β€œnext steps” that include whether to resume wrongful death litigation or initiate new claims. Legal representatives for Matthew Hutchins did not respond to telephone and email messages seeking comment.

The prosecution of Baldwin and the film’s tax incentive application both have financial implications for New Mexico taxpayers. The Santa Fe district attorney’s office says it spent $625,000 on β€œRust”-related prosecution through the end of April.

The state'sΒ film incentives programΒ is among the most generous in the nation, offering a direct rebate of between 25% and 40% on an array of expenditures to entice movie projects, employment and infrastructure investments. 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. That lets producers use the rebate to underwrite production ahead of time, often layering rights to the rebate and future movie income into production loans.

Among the beneficiaries of the rebate program are the 2011 movie β€œCowboys and Aliens” and the TV series β€œBetter Call Saul,” a spinoff of β€œBreaking Bad.” As for current productions, New Mexico is the backdrop for a new film starring Matthew McConaughey and America Ferrera about the rescue of students inΒ a 2018 wildfireΒ in the town of Paradise β€” the most destructive in California's history.

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

During a recent 12-month period, 56 film incentive applications were approved and 43 were partially or fully denied, Moore said.

A musician plays a violin behind a photograph of cinematographer Halyna Hutchins during a vigilΒ Oct. 23, 2021, in her honor in Albuquerque, N.M.

Documents obtained by AP show the New Mexico Film Office issued a memo in January to β€œRust” that approved eligibility to apply for the tax incentive, in a process that involves accounting ledgers, vetting against outstanding debts and an on-screen closing credit to New Mexico as a filming location. Taxation officials have final say on whether expenses are eligible.

Spadone, the attorney for β€œRust,” said the denial of the application is β€œsurprising” and could disrupt confidence in the tax program with a chilling effect on rebate-backed loans that propel the local film industry.

Alton Walpole, a production manager at Santa Fe-based Mountainair Films who was not involved in β€œRust,” said he faults the movie's creators for seemingly cutting corners on safety but officials have an obligation to review its tax credit application based on legal and accounting principles only β€” or risk losing major projects to other states. Movies are inherently dangerous even without firearms on set, he noted.

At least 18 statesΒ have enacted measures to implement or expand film tax incentives since 2021, while some have gone in the opposite direction and sought toΒ limit the transferabilityΒ and refundability 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 linked to record oil and natural gas production. Film rebate payouts were $100 million in the fiscal year ending in June 2023 and are expected to rise to nearly $272 million by 2027, according to tax agency records and the Legislature's budget and accountability office.

β€œRust” does not yet have a U.S. distributor as producers shop the newly completed movie at film festivals.

Become a #ThisIsTucson member! Your contribution helps our team bring you stories that keep you connected to the community. Become a member today.