BILL NUMBER: AB 2747 AMENDED
BILL TEXT
AMENDED IN SENATE AUGUST 27, 2002
AMENDED IN SENATE AUGUST 26, 2002
AMENDED IN SENATE AUGUST 12, 2002
AMENDED IN SENATE JUNE 20, 2002
AMENDED IN ASSEMBLY MAY 16, 2002
AMENDED IN ASSEMBLY APRIL 30, 2002
AMENDED IN ASSEMBLY APRIL 18, 2002
INTRODUCED BY Assembly Members Wesson, Cohn, Goldberg, and Frommer
(Coauthors: Assembly Members Alquist, Koretz, Nakano, Negrete
McLeod, and Pavley)
FEBRUARY 22, 2002
An act to amend Section 23036 of, and to add and repeal Sections
17053.35 and 23635 of, the Revenue and Taxation Code, relating to
taxation, and making an appropriation therefor, to take effect
immediately, tax levy.
LEGISLATIVE COUNSEL'S DIGEST
AB 2747, as amended, Wesson. Tax: credits: qualified motion
picture.
The Personal Income Tax Law and the Bank and Corporation Tax Law
authorize various credits against the taxes imposed by those laws.
This bill would authorize a credit against those taxes for taxable
years beginning on or after July 1, 2004, and before January 1,
2010, in an amount equal to 15% of the qualified amount for qualified
wages paid or incurred for services performed, on or after January
1, 2004, and before January 1, 2007, with respect to the production
of each qualified motion picture.
This bill would provide that any portion of the credit that is in
excess of the taxpayer's liability is refundable, as applicable.
This bill, by authorizing the payment of these amounts, would make an
appropriation.
The Bank and Corporation Tax Law defines the term "tax" for those
purposes, and provides that credits shall be allowed against the tax
in a specified order.
This bill would add to that list of credits, credits that contain
refundable provisions, but do not contain carryover provisions.
This bill would require the Technology, Trade, and Commerce Agency
to report to the Legislature on the effectiveness of the tax credits
authorized by this bill, as specified.
The bill would require a taxpayer to certify under penalty of
perjury that he or she is the taxpayer entitled to claim certain
deductions with respect to a qualified motion picture, thus imposing
a state-mandated local program by expanding the scope of an existing
crime.
The California Constitution requires the state to reimburse local
agencies and school districts for certain costs mandated by the
state. Statutory provisions establish procedures for making that
reimbursement.
This bill would provide that no reimbursement is required by this
act for a specified reason.
This bill would take effect immediately as a tax levy.
Vote: 2/3. Appropriation: yes. Fiscal committee: yes.
State-mandated local program: no yes .
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. Section 17053.35 is added to the Revenue and Taxation
Code, to read:
17053.35. (a) (1) For taxable years beginning on or after July 1,
2004, and before January 1, 2010, there shall be allowed to a
qualified taxpayer as a credit against the "net tax," as defined in
Section 17039, an amount equal to 15 percent of the qualified amount.
(2) For each qualified motion picture, there shall be no more than
one taxpayer eligible to claim the credit allowed under this
section.
(3)
(2) In the case of any qualified wages paid or incurred on
or after January 1, 2004, and prior to the commencement of the first
taxable year of the qualified taxpayer beginning on or after July 1,
2004, with respect to a qualified motion picture that is completed
and placed in service prior to the commencement of the
qualified taxpayer's first taxable year beginning on or after July 1,
2004, the credit allowed under paragraph (1) shall be claimed by the
qualified taxpayer on the taxpayer's return for the first taxable
year beginning on or after July 1, 2004.
(4)
(3) Notwithstanding anything to the contrary in this
section, no credit shall be claimed under this section on any return
filed for any taxable year commencing prior to a taxpayer's first
taxable year beginning on or after July 1, 2004.
(b) The amount of qualified wages with respect to a qualified
individual that may be taken into account when determining the
qualified amount under subdivision (a) for each qualified motion
picture shall be limited to twenty-five thousand dollars ($25,000)
for each qualified individual. For purposes of this subdivision, in
the case of episodic television, to the extent that qualified wages
are paid for a qualified individual on other than a "per episode"
basis, qualified wages shall be apportioned to each qualified motion
picture on which the qualified individual renders service.
(c) For purposes of this section, the following definitions shall
apply:
(1) "Ancillary product" means any article for sale to the public
that contains a portion of or any element of the motion picture.
(2) "Clip use" means a use of any portion of the motion picture in
another motion picture.
(3) "Delayed residual compensation" means supplemental
compensation paid at the time that a motion picture is exhibited
through new use, reuse, clip use, or in secondary markets, as
distinguished from payments made during production.
(4) (A) "Employee fringe benefits" means the amount allowable as a
deduction under this part to any taxpayer involved in the production
of the qualified motion picture for any taxable year during the
production period with respect to any of the following:
(i) Employer contributions under any stock bonus, pension, profit
sharing, annuity, or similar plan.
(ii) Employer-provided coverage under any accident or health plan
for employees.
(iii) The cost of life or disability insurance provided to
employees.
(B) Any amount treated as wages under clause (i) of subparagraph
(A) of paragraph (13) shall not be taken into account under this
paragraph.
(5) "Licensing" means any grant of rights to distribute the motion
picture, in whole or in part.
(6) "New use" means any use of a motion picture in a medium other
than the medium for which it was initially created.
(7) "Production period" means the period commencing with approval
to proceed with the production project and ending with
delivery of the completed qualified motion picture. In the event the
qualified motion picture is not completed, the "production period"
ends when all activity on the project ceases.
(8) the date the qualified motion picture is placed
in service for purposes of the qualified taxpayer claiming
amortization deductions under Section 167 of the Internal Revenue
Code for income tax purposes.
(8) (A) "Qualified amount" means the total amount paid or incurred
during the production period for qualified wages with respect to the
production of each qualified motion picture.
(B) Notwithstanding subparagraph (A), the term "qualified amount"
shall not include any qualified wages paid or incurred for services
performed before January 1, 2004, or after December 31, 2006.
(9) "Qualified entity" means a personal service corporation
as defined in Section 269A(b)(1) of the Internal Revenue Code, a
payroll services corporation, or any entity receiving qualified wages
with respect to services performed by a qualified individual.
(9)
(10) (A) "Qualified individual" means any individual who
performs services during the production period in an activity related
to the production of a qualified motion picture , within
the meaning of paragraph (2) of subdivision (b) of Section 6010.6.
.
(B) "Qualified individual" shall not include any
either of the following:
(i) Any individual described in subparagraph (A), (B), or (C) of
Section 51(i)(1) of the Internal Revenue Code.
(ii) Any 5-percent owner, as defined in Section 416(i)(1)(B) of
the Internal Revenue Code, of the qualified taxpayer.
(iii) Any individual who receives more than $____ for services
performed during the production period.
(10) (A) "Qualified motion picture" has the same meaning as
"qualified motion picture" in paragraph (3) of subdivision (b) of
Section 6010.6, including, but not limited to, productions in digital
format, provided that both of the following conditions are
(11) (A) "Qualified motion picture" means any motion picture that
is produced, adapted, or altered for exploitation in, on, or through
any medium or by any device, including, but not limited to, a motion
picture produced for exploitation in movie theaters, through any form
of television, or videocassettes, videotapes, videodiscs, or digital
format in amusement parks, or on commercial carriers, for any
purpose, including, but not limited to, for any entertainment,
commercial advertising, promotional, industrial, or educational
purposes. Qualified motion picture does not include motion pictures
produced for private noncommercial use, as weddings or graduations.
Qualified motion picture includes, but is not limited to, all
adapted versions thereof (whether adapted for exploitation in any
language, for any media, or otherwise) creative advertising, or
publicity materials, as trailers, television spots, or featurettes.
To qualify as a "qualified motion picture" all of the following
additional conditions shall be satisfied:
(i) The total wages paid or incurred for the production of the
qualified motion picture, exclusive of payments excluded
pursuant to including amounts identified in clause (v)
of subparagraph (B) of paragraph (13) and excluding payments
identified in clauses (i) to (iv), inclusive, of subparagraph
(B) of paragraph (12) (13) , is more
than two hundred thousand dollars ($200,000), but less than ten
million dollars ($10,000,000).
(ii) At least 75 percent of the total wages paid or incurred for
the production of a qualified motion picture on or after January 1,
2004, are qualified wages wages paid or
incurred for services performed within this state .
(iii) Production of the motion picture is complete, and the motion
picture is placed in service for purposes of the qualified taxpayer
claiming amortization deductions under Section 167 of the Internal
Revenue Code for income tax purposes.
(iv) The copyright for the motion picture is registered with the
United States Copyright Office pursuant to the provisions of Title 17
of the United States Code.
(B) For the purposes of clause (i) of subparagraph (A), the
following additional rules shall apply:
(i) In computing the total wages paid or incurred for the
production of a qualified motion picture, all amounts paid or
incurred by all persons or entities that share in the costs of the
qualified motion picture shall be aggregated.
(ii) In the case of an episodic television series, each episode
shall be treated as a separate qualified motion picture.
(C) For purposes of computing the limitations under this
paragraph, "wages" means all amounts described in subparagraph (A) of
paragraph (13), whether these amounts are paid for services
performed or rendered within or without this state.
(12) (A) "Qualified Except as provided in
subparagraph (C), "qualified taxpayer" means the taxpayer who
is , for purposes of this section, is the one
taxpayer properly entitled to claim amortization deductions
under Section 167 of the Internal Revenue Code for income tax
purposes with respect to the qualified motion picture.
(B) (i) If more than one taxpayer is properly entitled to claim
amortization deductions under Section 167 of the Internal Revenue
Code for income tax purposes with respect to any
the qualified motion picture as of the date the
production period ends, no more than one taxpayer shall be a
qualified taxpayer be treated as the taxpayer
properly entitled to claim amortization deductions for purposes
of this section. The All taxpayers
entitled to claim amortization deductions with respect to that
qualified motion picture for income tax purposes shall
agree in writing as to which taxpayer will be the qualified
taxpayer for purposes of this credit, and none of the other taxpayers
shall be entitled to claim the credit allowed under this section
with respect to that qualified motion picture.
taxpayer will be the taxpayer entitled to claim amortization
deductions for purposes of this section, and no other taxpayer shall
be treated as entitled to claim amortization deductions with respect
to that qualified motion picture for purposes of this section.
(ii) The written agreement described in clause (i) shall identify
all taxpayers with amortization rights under Section 167 of the
Internal Revenue Code.
(iii) The written agreement shall be attached to the qualified
taxpayer's return on which the credit is first claimed.
(iii) The taxpayer properly entitled to claim amortization
deductions under Section 167 of the Internal Revenue Code with
respect to a qualified motion picture shall certify, under penalty of
perjury, that either no other taxpayer is entitled to claim
amortization deductions under Section 167 for income tax purposes
with respect to that qualified motion picture, or, pursuant to a
written agreement, that the taxpayer is the taxpayer entitled to
claim amortization deductions under Section 167 with respect to the
qualified motion picture for purposes of this section. The
certification and, if applicable, written agreement shall be attached
to the return on which the credit is first claimed.
(C) For purposes of this section, if the taxpayer properly
entitled to claim the amortization deductions under Section 167 of
the Internal Revenue Code with respect to a qualified motion picture
is a passthrough entity, the following rules shall apply:
(i) Each partner (other than a partner that is a passthrough
entity) or shareholder of that passthrough entity that is subject to
tax under this part shall be treated as a qualified taxpayer of the
qualified motion picture for purposes of claiming the distributive or
pro rata share of the allowed credit.
(ii) The credit allowed under this section shall not reduce any
tax imposed under this part on the passthrough entity.
(iii) For purposes of this subparagraph, "passthrough entity"
means any partnership (including a limited liability company
classified as a partnership) or S corporation.
(13) (A) "Qualified wages" means all of the following:
(i) Any wages required to be reported under Section 13050 of the
Unemployment Insurance Code that were paid or incurred by any
taxpayer involved in the production of the qualified motion picture
with respect to a qualified individual for services performed within
this state.
(ii) The portion of any employee fringe benefits paid or incurred
by any taxpayer involved in the production of the qualified motion
picture that are properly allocable to qualified wage amounts
described in clause (i).
(iii) Any payments made to a qualified entity for services
performed in this state by qualified individuals (within the meaning
of paragraph (10)).
(iv) Remuneration paid to an independent contractor who is a
qualified individual for services performed within this state by that
qualified individual.
(B) "Qualified wages" does not include any of the following:
(i) Expenses, including wages, for legal or accounting services.
(ii) Expenses, including wages, related to new use, reuse, clip
use, licensing, secondary markets, or delayed residual compensation,
or the creation of any ancillary product, including, but not limited
to, a soundtrack album, toy, or game.
(iii) Expenses, including wages, paid or incurred with respect to
acquisition, development, turnaround, or any rights thereto.
(iv) Expenses, including wages, related to marketing, promotion,
or distribution of a qualified motion picture.
(v) Any amounts, including wages, paid or incurred for the
services of an individual with respect to a qualified motion picture
if more than two hundred thousand dollars ($200,000) is paid or
incurred for those services.
(14) "Reuse" means any use of a qualified motion picture in the
same medium for which it was created, following the initial use in
that medium.
(15) "Secondary markets" means media in which a motion picture is
exhibited following the initial media in which it is exhibited.
(d) (1) Notwithstanding the provisions of subdivision (g) of
Section 17039, related to credits attributable to a disregarded
business entity, in the case where the credit allowed by this section
exceeds the taxpayer's tax liability computed under this part, the
excess shall be credited against other amounts due, if any, from the
taxpayer and the balance, if any, shall be refunded to the taxpayer.
(2) Those amounts that are determined by the board to be necessary
to make the refunds required by this subdivision shall be
transferred from the Personal Income Tax Fund to the Tax Relief and
Refund Account established pursuant to Section 19611 and shall,
notwithstanding Section 13340 of the Government Code, be continuously
appropriated from that account, without regard to fiscal years, to
the board for the purpose of making those refunds.
(e) The amount of any credit allowed under this section (without
regard to whether the "net tax," as defined in Section 17039, is
reduced) to the qualified taxpayer shall be treated as a separate
item of income of the qualified taxpayer from a source wholly within
this state for the taxable year in which the credit is allowed.
(f) No credit pursuant to this section shall be allowed unless the
qualified taxpayer substantiates by adequate books and records or by
sufficient evidence corroborating his or her own statement that:
(1) The qualified wages on which the credit was calculated were
actually paid or incurred in the amount claimed. Substantiation of
this item shall include proof that the services were performed in
California.
(2) The motion picture was a qualified motion picture.
Substantiation of this item shall include the following:
(A) Identification of each qualified individual.
(B) The specific start and end dates of production.
(C) The total wages paid.
(D) The amount of qualified wages paid to each qualified
individual.
(E) The copyright registration number, as reflected on the
certificate of registration issued under the authority of Section 410
of Title 17 of the United States Code, relating to registration of
claim and issuance of certificate. The registration number shall be
provided to on the return claiming the
credit.
(g) The Franchise Tax Board may prescribe regulations to carry out
the purposes of this section including any regulations necessary to
establish procedures, processes, requirements, and rules identified
in or required to implement this section.
(h) Subdivision (c) of Section 19341, relating to interest on
overpayments , shall not apply to any return claiming a
credit under this section.
(i) If the qualified taxpayer fails to provide the copyright
registration number as required in subparagraph (E) of paragraph (2)
of subdivision (f), or fails to attach the certification and, if
applicable, the written agreement required by clause (iii) of
subparagraph (B) of paragraph (12) of subdivision (c), the credit
shall be disallowed and assessed and collected under Section 19051.
(j) This section shall remain in effect only until December 1,
2010, and as of that date is repealed.
SEC. 2. Section 23036 of the Revenue and Taxation Code is amended
to read:
23036. (a) (1) The term "tax" includes any of the following:
(A) The tax imposed under Chapter 2 (commencing with Section
23101).
(B) The tax imposed under Chapter 3 (commencing with Section
23501).
(C) The tax on unrelated business taxable income, imposed under
Section 23731.
(D) The tax on S corporations imposed under Section 23802.
(2) The term "tax" does not include any amount imposed under
paragraph (1) of subdivision (e) of Section 24667 or paragraph (2) of
subdivision (f) of Section 24667.
(b) For purposes of Article 5 (commencing with Section 18661) of
Chapter 2, Article 3 (commencing with Section 19031) of Chapter 4,
Article 6 (commencing with Section 19101) of Chapter 4, and Chapter 7
(commencing with Section 19501) of Part 10.2, and for purposes of
Sections 18601, 19001, and 19005, the term "tax" shall also include
all of the following:
(1) The tax on limited partnerships, imposed under Section 17935
or Section 23081, the tax on limited liability companies, imposed
under Section 17941 or Section 23091, and the tax on registered
limited liability partnerships and foreign limited liability
partnerships imposed under Section 17948 or Section 23097.
(2) The alternative minimum tax imposed under Chapter 2.5
(commencing with Section 23400).
(3) The tax on built-in gains of S corporations, imposed under
Section 23809.
(4) The tax on excess passive investment income of S corporations,
imposed under Section 23811.
(c) Notwithstanding any other provision of this part, credits
shall be allowed against the "tax" in the following order:
(1) Credits that do not contain carryover provisions.
(2) Credits that, when the credit exceeds the "tax," allow the
excess to be carried over to offset the "tax" in succeeding taxable
years, except for those credits that are allowed to reduce the "tax"
below the tentative minimum tax, as defined by Section 23455. The
order of credits within this paragraph shall be determined by the
Franchise Tax Board.
(3) The minimum tax credit allowed by Section 23453.
(4) Credits that are allowed to reduce the "tax" below the
tentative minimum tax, as defined by Section 23455.
(5) Credits for taxes withheld under Section 18662.
(6) Credits that contain refundable provisions, but do not contain
carryover provisions.
(d) Notwithstanding any other provision of this part, each of the
following shall be applicable:
(1) No credit shall reduce the "tax" below the tentative minimum
tax (as defined by paragraph (1) of subdivision (a) of Section
23455), except the following credits:
(A) The credit allowed by former Section 23601 (relating to solar
energy).
(B) The credit allowed by former Section 23601.4 (relating to
solar energy).
(C) The credit allowed by Section 23601.5 (relating to solar
energy).
(D) The credit allowed by Section 23609 (relating to research
expenditures).
(E) The credit allowed by Section 23609.5 (relating to clinical
testing expenses).
(F) The credit allowed by Section 23610.5 (relating to low-income
housing).
(G) The credit allowed by former Section 23612 (relating to sales
and use tax credit).
(H) The credit allowed by Section 23612.2 (relating to enterprise
zone sales or use tax credit).
(I) The credit allowed by Section 23612.6 (relating to Los Angeles
Revitalization Zone sales tax credit).
(J) The credit allowed by former Section 23622 (relating to
enterprise zone hiring credit).
(K) The credit allowed by Section 23622.7 (relating to enterprise
zone hiring credit).
(L) The credit allowed by former Section 23623 (relating to
program area hiring credit).
(M) For each taxable year beginning on or after January 1, 1994,
the credit allowed by Section 23623.5 (relating to Los Angeles
Revitalization Zone hiring credit).
(N) The credit allowed by Section 23625 (relating to Los Angeles
Revitalization Zone hiring credit).
(O) The credit allowed by Section 23633 (relating to targeted tax
area sales or use tax credit).
(P) The credit allowed by Section 23634 (relating to targeted tax
area hiring credit).
(Q) The credit allowed by Section 23649 (relating to qualified
property).
(2) No credit against the tax shall reduce the minimum franchise
tax imposed under Chapter 2 (commencing with Section 23101).
(e) Any credit which is partially or totally denied under
subdivision (d) shall be allowed to be carried over to reduce the
"tax" in the following year, and succeeding years if necessary, if
the provisions relating to that credit include a provision to allow a
carryover of the unused portion of that credit.
(f) Unless otherwise provided, any remaining carryover from a
credit that has been repealed or made inoperative shall continue to
be allowed to be carried over under the provisions of that section as
it read immediately prior to being repealed or becoming inoperative.
(g) Unless otherwise provided, if two or more taxpayers share in
costs that would be eligible for a tax credit allowed under this
part, each taxpayer shall be eligible to receive the tax credit in
proportion to its respective share of the costs paid or incurred.
(h) Unless otherwise provided, in the case of an S corporation,
any credit allowed by this part shall be computed at the S
corporation level, and any limitation on the expenses qualifying for
the credit or limitation upon the amount of the credit shall be
applied to the S corporation and to each shareholder.
(i) (1) With respect to any taxpayer that directly or indirectly
owns an interest in a business entity that is disregarded for tax
purposes pursuant to Section 23038 and any regulations thereunder,
the amount of any credit or credit carryforward allowable for any
taxable year attributable to the disregarded business entity shall be
limited in accordance with paragraphs (2) and (3).
(2) The amount of any credit otherwise allowed under this part,
including any credit carryover from prior years, that may be applied
to reduce the taxpayer's "tax," as defined in subdivision (a), for
the taxable year shall be limited to an amount equal to the excess of
the taxpayer's regular tax (as defined in Section 23455), determined
by including income attributable to the disregarded business entity
that generated the credit or credit carryover, over the taxpayer's
regular tax (as defined in Section 23455), determined by excluding
the income attributable to that disregarded business entity. No
credit shall be allowed if the taxpayer's regular tax (as defined in
Section 23455), determined by including the income attributable to
the disregarded business entity is less than the taxpayer's regular
tax (as defined in Section 23455), determined by excluding the income
attributable to the disregarded business entity.
(3) If the amount of a credit allowed pursuant to the section
establishing the credit exceeds the amount allowable under this
subdivision in any taxable year, the excess amount may be carried
over to subsequent taxable years pursuant to subdivisions (d), (e),
and (f).
(j) (1) Unless otherwise specifically provided, in the case of a
taxpayer that is a partner or shareholder of an eligible pass-through
entity described in paragraph (2), any credit passed through to the
taxpayer in the taxpayer's first taxable year beginning on or after
the date the credit is no longer operative may be claimed by the
taxpayer in that taxable year, notwithstanding the repeal of the
statute authorizing the credit prior to the close of that taxable
year.
(2) For purposes of this subdivision, "eligible pass-through
entity" means any partnership or S corporation that files its return
on a fiscal year basis pursuant to Section 18566, and that is
entitled to a credit pursuant to this part for the taxable year that
begins during the last year a credit is operative.
(3) This subdivision shall apply to credits that become
inoperative on or after the operative date of the act adding this
subdivision.
SEC. 3. Section 23635 is added to the Revenue and Taxation Code,
to read:
23635. (a) (1) For taxable years beginning on or after July 1,
2004, and before January 1, 2010, there shall be allowed to a
qualified taxpayer as a credit against the "tax," as defined in
Section 23036, an amount equal to 15 percent of the qualified amount.
(2) For each qualified motion picture, there shall be no more than
one taxpayer eligible to claim the credit allowed under this
section.
(3)
(2) In the case of any qualified wages paid or incurred on
or after January 1, 2004, and prior to the commencement of the first
taxable year of the qualified taxpayer beginning on or after July 1,
2004, with respect to a qualified motion picture that is completed
and placed in service prior to the commencement of the
qualified taxpayer's first taxable year beginning on or after July 1,
2004, the credit provided under paragraph (1) shall be claimed by
the qualified taxpayer on the taxpayer's return for the first taxable
year beginning on or after July 1, 2004.
(4)
(3) Notwithstanding anything to the contrary in this
section, no credit shall be claimed under this section on any return
filed for any taxable year commencing prior to a taxpayer's first
taxable year beginning on or after
July 1, 2004.
(b) The amount of qualified wages with respect to a qualified
individual that may be taken into account when determining the
qualified amount under subdivision (a) for each qualified motion
picture shall be limited to twenty-five thousand dollars ($25,000)
for each qualified individual. For purposes of this subdivision, in
the case of episodic television, to the extent that qualified wages
are paid for a qualified individual on other than a "per episode"
basis, qualified wages shall be apportioned to each qualified motion
picture on which the qualified individual renders service.
(c) For purposes of this section, the following definitions shall
apply:
(1) "Ancillary product" means any article for sale to the public
that contains a portion of or any element of the motion picture.
(2) "Clip use" means a use of any portion of the motion picture in
another motion picture.
(3) "Delayed residual compensation" means supplemental
compensation paid at the time that a motion picture is exhibited
through new use, reuse, clip use, or in secondary markets, as
distinguished from payments made during production.
(4) (A) "Employee fringe benefits" means the amount allowable as a
deduction under this part to any taxpayer involved in the production
of the qualified motion picture for any taxable year during the
production period with respect to any of the following:
(i) Employer contributions under any stock bonus, pension, profit
sharing, annuity, or similar plan.
(ii) Employer-provided coverage under any accident or health plan
for employees.
(iii) The cost of life or disability insurance provided to
employees.
(B) Any amount treated as wages under clause (i) of subparagraph
(A) of paragraph (13) shall not be taken into account under this
paragraph.
(5) "Licensing" means any grant of rights to distribute the motion
picture, in whole or in part.
(6) "New use" means any use of a motion picture in a medium other
than the medium for which it was initially created.
(7) "Production period" means the period commencing with approval
to proceed with the production project and ending with the date the
qualified motion picture is placed in service for purposes of the
qualified taxpayer claiming amortization deductions under Section 167
of the Internal Revenue Code for income tax purposes.
(8) (A) "Qualified amount" means the total amount paid or incurred
during the production period for qualified wages with respect to the
production of each qualified motion picture.
(B) Notwithstanding subparagraph (A), the term "qualified amount"
shall not include any qualified wages paid or incurred for services
performed before January 1, 2004, or after December 31, 2006.
(9) "Qualified entity" means a personal service corporation as
defined in Section 269A(b)(1) of the Internal Revenue Code, a payroll
services corporation, or any entity receiving qualified wages with
respect to services performed by a qualified individual.
(10) (A) "Qualified individual" means any individual who performs
services during the production period in an activity related to the
production of a qualified motion picture , within the
meaning of paragraph (2) of subdivision (b) of Section 6010.6.
.
(B) "Qualified individual" shall not include either of the
following:
(i) Any individual described in subparagraph (A), (B), or (C) of
Section 51(i)(1) of the Internal Revenue Code.
(ii) Any 5-percent owner, as defined in Section 416(i)(1)(B) of
the Internal Revenue Code, of the qualified taxpayer.
(11) (A) "Qualified motion picture" has the same meaning as
"qualified motion picture" in paragraph (3) of subdivision (b) of
Section 6010.6, including, but not limited to, productions in digital
format, provided that all of the following additional conditions are
(11) (A) "Qualified motion picture" means any motion picture that
is produced, adapted, or altered for exploitation in, on, or through
any medium or by any device, including, but not limited to, a motion
picture produced for exploitation in movie theaters, through any form
of television, or videocassettes, videotapes, videodiscs, or digital
format in amusement parks, or on commercial carriers, for any
purpose, including, but not limited to, for any entertainment,
commercial advertising, promotional, industrial, or educational
purposes. Qualified motion picture does not include motion pictures
produced for private noncommercial use, as weddings or graduations.
Qualified motion picture includes, but is not limited to, all
adapted versions thereof (whether adapted for exploitation in any
language, for any media, or otherwise) creative advertising, or
publicity materials, as trailers, television spots, or featurettes.
To qualify as a "qualified motion picture" all of the following
additional conditions shall be satisfied:
(i) The total wages paid or incurred for the production of the
qualified motion picture, including amounts identified in clause (v)
of subparagraph (B) of paragraph (13) and excluding payments excluded
pursuant to identified in clauses (i) through (iv),
inclusive, of subparagraph (B) of paragraph (13), is more than two
hundred thousand dollars ($200,000), but less than ten million
dollars ($10,000,000).
(ii) At least 75 percent of the total wages paid or incurred for
the production of the qualified motion picture on or after January 1,
2004, are qualified wages wages paid or
incurred for services performed within this state .
(iii) Production of the motion picture is complete, and the motion
picture is placed in service for purposes of the qualified taxpayer
claiming amortization deductions under Section 167 of the Internal
Revenue Code for federal income tax purposes.
(iv) The copyright for the motion picture is registered with the
United States Copyright Office pursuant to the provisions of Title 17
of the United States Code.
(B) For the purposes of clause (i) of subparagraph (A) the
following additional rules shall apply:
(i) In computing the total wages paid or incurred for the
production of a qualified motion picture, all amounts paid or
incurred by all persons or entities that share in the costs of the
qualified motion picture shall be aggregated.
(ii) In the case of an episodic television series, each episode
shall be treated as a separate qualified motion picture.
(C) For purposes of computing the limitations under this
paragraph, "wages" means all amounts described in subparagraph (A) of
paragraph (13), whether these amounts are paid or services performed
or rendered within or without this state.
(12) (A) "Qualified Except as provided in
subparagraph (C), "qualified taxpayer" means the taxpayer who
is , for purposes of this section, is the one
taxpayer properly entitled to claim amortization deductions
under Section 167(g) of the Internal Revenue Code for federal income
tax purposes with respect to the qualified motion picture as
of the date the production period ends. .
(B) (i) If more than one taxpayer is properly entitled to claim
amortization deductions under Section 167 of the Internal Revenue
Code for income tax purposes with respect to any
the qualified motion picture as of the date the
production period ends, no more than one taxpayer shall be a
qualified taxpayer be treated as the taxpayer
properly entitled to claim amortization deductions for purposes
of this section. The All taxpayers
entitled to claim amortization deductions with respect to that
qualified motion picture for income tax purposes shall
agree in writing as to which taxpayer will be the qualified
taxpayer for purposes of this credit, and none of the other taxpayers
shall be entitled to claim the credit allowed under this section
with respect to that qualified motion picture.
taxpayer will be the taxpayer entitled to claim amortization
deductions for purposes of this section, and no other taxpayer shall
be treated as entitled to claim amortization deductions with respect
to that qualified motion picture for purposes of this section.
(ii) The written agreement described in clause (i) shall identify
all taxpayers with amortization rights under Section 167 of the
Internal Revenue Code.
(iii) The written agreement shall be attached to the qualified
taxpayer's return on which the credit is first claimed.
(iii) The taxpayer properly entitled to claim amortization
deductions under Section 167 of the Internal Revenue Code with
respect to a qualified motion picture shall certify, under penalty of
perjury, that either no other taxpayer is entitled to claim
amortization deductions under Section 167 for income tax purposes
with respect to that qualified motion picture, or, pursuant to a
written agreement, that the taxpayer is the taxpayer entitled to
claim amortization deductions under Section 167 with respect to the
qualified motion picture for purposes of this section. The
certification and, if applicable, written agreement shall be attached
to the return on which the credit is first claimed.
(C) For purposes of this section, if the taxpayer properly
entitled to claim the amortization deductions under Section 167 of
the Internal Revenue Code with respect to a qualified motion picture
is a passthrough entity, the following rules shall apply:
(i) Each partner (other than a partner that is a passthrough
entity) of that passthrough entity that is subject to tax under this
part shall be treated as a qualified taxpayer of the qualified motion
picture for purposes of claiming the distributive share of the
allowed credit.
(ii) For purposes of this subparagraph, "passthrough entity" means
any partnership, including a limited liability company classified as
a partnership.
(13) (A) "Qualified wages" means all of the following:
(i) Any wages required to be reported under Section 13050 of the
Unemployment Insurance Code that were paid or incurred by any
taxpayer involved in the production of the qualified motion picture
with respect to a qualified individual for services performed within
this state.
(ii) The portion of any employee fringe benefits paid or incurred
by any taxpayer involved in the production of the qualified motion
picture that are properly allocable to qualified wage amounts
described in clause (i).
(iii) Any payments made to a qualified entity for services
performed in this state by qualified individuals (within the meaning
of paragraph (10)).
(iv) Remuneration paid to an independent contractor who is a
qualified individual for services performed within this state by that
qualified individual.
(B) "Qualified wages" does not include any of the following:
(i) Expenses, including wages, for legal or accounting services.
(ii) Expenses, including wages, related to new use, reuse, clip
use, licensing, secondary markets, or delayed residual compensation,
or the creation of any ancillary product, including, but not limited
to, a soundtrack album, toy, or game.
(iii) Expenses, including wages, paid or incurred with respect to
acquisition, development, turnaround, or any rights thereto.
(iv) Expenses, including wages, related to marketing, promotion,
or distribution of a qualified motion picture.
(v) Any amounts, including wages, paid or incurred for the
services of an individual with respect to a qualified motion picture
if more than two hundred thousand dollars ($200,000) is paid or
incurred for those services.
(14) "Reuse" means any use of a qualified motion picture in the
same medium for which it was created, following the initial use in
that medium.
(15) "Secondary markets" means media in which a motion picture is
exhibited following the initial media in which it is exhibited.
(d) (1) Notwithstanding the provisions of subdivision (i) of
Section 23036, related to credits attributable to a disregarded
business entity, in the case where the credit allowed by this section
exceeds the taxpayer's tax liability computed under this part, the
excess shall be credited against other amount
amounts due, if any, from the taxpayer and , except as
provided in paragraph (2), the balance, if any, shall be
refunded to the taxpayer.
(2) No portion of this credit allowed by this section shall
be refunded to an "S corporation."
(3) Those amounts that are determined by the board to be
necessary to make the refunds required by this subdivision,
notwithstanding Section 13340 of the Government Code, shall be
continuously appropriated from the Corporation Tax Fund, without
regard to fiscal years, to the board for the purpose of making those
refunds.
(e) The amount of any credit allowed under this section to the
qualified taxpayer (without regard to whether the "tax," as defined
in Section 23036 is reduced) shall be treated as an item of income of
the qualified taxpayer from a separate trade or business conducted
wholly within this state for the taxable year in which the credit is
allowed.
(f) No credit pursuant to this section shall be allowed unless the
qualified taxpayer substantiates by adequate books and records or by
sufficient evidence corroborating his or her own statement that:
(1) The qualified wages on which the credit was calculated were
actually paid or incurred in the amount claimed. Substantiation of
this item shall include proof that the services were performed in
California.
(2) The motion picture was a qualified motion picture.
Substantiation of this item shall include the following:
(A) Identification of each qualified individual.
(B) The specific start and end dates of production.
(C) The total wages paid.
(D) The amount of qualified wages paid to each qualified
individual.
(E) The copyright registration number, as reflected on the
certificate of registration issued under the authority of Section 410
of Title 17 of the United States Code, relating to registration of
claim and issuance of certificate. The registration number shall be
provided to on the return claiming the
credit.
(g) The Franchise Tax Board may prescribe regulations to carry out
the purposes of this section including any regulations necessary to
establish procedures, processes, requirements, and rules identified
in or required to implement this section.
(h) If the qualified taxpayer fails to provide the copyright
registration number as required in subparagraph (E) of paragraph (2)
of subdivision (f), or fails to attach the certification and, if
applicable, the written agreement required by clause (iii) of
subparagraph (B) of paragraph (12) of subdivision (c), the credit
shall be disallowed and assessed and collected under Section 19051.
(i) This section shall remain in effect only until December 1,
2010, and as of that date is repealed.
SEC. 4. (a) On or before December 31, 2007, and on or before
December 31, 2009, the Technology, Trade, and Commerce Agency shall
report to the Legislature on the effectiveness of the incentives
created by this act. In preparing the report, the agency shall
consider, but is not limited to considering, all of the following:
(1) The number and increase or decrease of qualified motion
pictures produced in California.
(2) The amount of total qualified wages paid or incurred in
California.
(3) The level of employment in the production industry in
California.
(b) The agency may consult with the Employment Development
Department, the Franchise Tax Board, the State Board of Equalization,
representatives of industry and labor organizations, and agencies of
local government before completing its report.
SEC. 5. The provisions of this act are severable. If any
provision of this act or its application is held invalid, that
invalidity shall not affect other provisions or applications that can
be given effect without the invalid provision or application.
SEC. 6. No reimbursement is required by this act pursuant to
Section 6 of Article XIII B of the California Constitution because
the only costs that may be incurred by a local agency or school
district will be incurred because this act creates a new crime or
infraction, eliminates a crime or infraction, or changes the penalty
for a crime or infraction, within the meaning of Section 17556 of the
Government Code, or changes the definition of a crime within the
meaning of Section 6 of Article XIII B of the California
Constitution.
SEC. 7. This act provides for a tax levy within the meaning
of Article IV of the Constitution and shall go into immediate effect.