tv tax credit program

State lawmakers have approved a series of modest changes intended to bolster California’s film and TV tax credit program.

Among the key revisions, independent filmmakers would be exempted from the $5 million state corporate tax credit cap that was approved earlier this year as part of Gov. Gavin Newsom’s state budget.

Film industry advocates lobbied hard for a carve-out, saying the cap would undercut gains made under the current film and TV tax credit program at a time when Hollywood has been reeling from job losses.

The exemption is a compromise. Film industry advocates were hoping all types of producers would be exempt from the corporate tax cap.

The bill includes other changes intended to help Hollywood, such as allowing companies to carry forward older tax credits for up to 15 years (the old limit was nine) and reducing the discount they are charged when they opt to seek a cash refund on unused credits.

Producers will also be able to collect their refund money more quickly — within two years instead of five.

California offers tax credits of up to 35% on qualified expenses, which can be applied to any tax liabilities the production companies have in the state. The program allocates $750 million annually in film and TV tax breaks.

The budget trailer bill was introduced to the Senate on Friday by Assemblyman Rick Chavez Zbur (D-Los Angeles), chair of the Assembly Democratic Caucus and Senator Ben Allen (D-Santa Monica).

The new cap, issued by Gov. Newsom, would have undermined the “competitiveness” of the current California Film and Television Jobs Program, said the Entertainment Union Coalition, an advocacy group that supports the bill. But with these new modifications, the group — which represents the Directors Guild, SAG-AFTRA, IATSE and more — said the program will be able to continue to “support the fragile recovery of our industry here in California.”

“Most importantly, we want to recognize the major role our members played in today’s success as advocates for their industry in California,” Rebecca Rhine, the coalition’s president, said in a statement. “They sent an unprecedented 450,000 letters to the California legislature, making clear the negative impact that SB 122 [the new cap] would have on their livelihoods, their families, and their communities.”

Over the program’s first full year in its expanded $750-million form, the California Film Commission says it delivered $6.6 billion in direct production spending and $4.3 billion in qualified expenditures, supporting nearly 35,000 cast and crew jobs across 6,630 filming days statewide.

The bill cleared the Assembly floor by a vote of 68-2, with the Senate approving its companion measure by a vote of 32 in favor, 8 against the same day. It now awaits Gov. Newsom’s signature.

“It’s a good day that we took steps to strengthen the program and while we have to do more next year, this was a crucial first step,” Zbur said in an interview.

Zbur said he believes everyone in the state’s film and TV tax credit program should have been exempted from the corporate tax credit cap and he plans to look at that within the context of next year’s budget.

“There were budget implications to doing that, so we really did all the things that are viable to do in this legislative session,” Zbur said.

More than three dozen California legislators are calling for Gov. Gavin Newsom to exempt the state’s film and TV production incentive program from a recently approved cap on corporate tax credits, warning that without action it will be “significantly kneecapped.”

Though the state’s budget has already been approved, the legislators say a solution must be devised before the end of the year so that production companies do not lose the “full value of tax credits they earned in exchange for creating middle-class entertainment industry jobs,” according to a letter dated Friday and addressed to Newsom, State Senate President Pro Tempore Monique Limón and Assembly Speaker Robert Rivas.

“Tax credits earned for creating jobs in motion picture and television production are not the same as tax credits provided for research and development,” the letter states. The legislation “creates short-term budget savings by reneging on commitments made to the entertainment industry and the working families who depend upon it for their livelihoods.”

The letter comes shortly after Newsom signed his final state budget as California’s governor, a $351.7-billion spending plan that includes new limitations on corporate tax credits.

The budget includes a provision that restricts the maximum tax credit companies can claim in a given year to $5 million or 50% of a company’s tax state tax liability, whichever is greater.

Hollywood industry representatives had warned the governor’s office that the new restrictions could affect the state’s production incentive program, which was just bolstered last year to an annual cap of $750 million.

The film and TV industry in Southern California has struggled to rebound from the effects of the pandemic, the dual writers’ and actors’ strikes in 2023 and the exodus of production to other states and countries.

Members who voted for the budget bill had believed there was a carve-out for the film and TV tax credit program, said Assemblyman Rick Chavez Zbur (D-Los Angeles), chair of the Assembly Democratic Caucus.

“I don’t think that anyone understood what this cap was, what it did and that it effectively kneecapped and reverses the progress that we made last year,” Zbur, who co-authored last year’s bill, said in an interview. “We need to have people understand that these changes, which I think people believed were minor, are really significant and will result in significant job loss if we don’t fix them.”

The new changes to the state’s film and TV tax credit program, which included expanded eligibility for additional shows and films, came after intense lobbying from studios and industry workers, who argued that more funding was necessary to lure production back from other states and countries.

Last week, the California Film Commission said the expanded tax credit program was set to deliver $6.6 billion in direct production spending in-state and more than 34,000 cast and crew jobs across the 170 total film and TV shows that received production incentives this year.