BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                      



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          |SENATE RULES COMMITTEE            |                  AB 1069|
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                                 THIRD READING


          Bill No:  AB 1069
          Author:   Fuentes (D), et al.
          Amended:  8/31/11 in Senate
          Vote:     21

           
           SENATE GOVERNANCE & FINANCE COMMITTEE  :  9-0, 7/6/11
          AYES:  Wolk, Huff, DeSaulnier, Fuller, Hancock, Hernandez, 
            Kehoe, La Malfa, Liu
           
          SENATE APPROPRIATIONS COMMITTEE  :  9-0, 8/25/11
          AYES:  Kehoe, Walters, Alquist, Emmerson, Lieu, Pavley, 
            Price, Runner, Steinberg

           ASSEMBLY FLOOR  :  77-1, 5/31/11 - See last page for vote


           SUBJECT  :    Income taxes:  credits: film:  extension

           SOURCE  :     Author


           DIGEST  :    This bill extends the applicability of the 
          California Film and Television Tax Credit (film tax credit) 
          authorizing the allocation of an additional $100 million 
          annually in tax credits to qualified productions to July 1, 
          2015.

           ANALYSIS  :    In 1985, the Legislature established the 
          California Film Commission (CFC) to coordinate state and 
          local governments' efforts at providing an environment 
          conducive for the film industry.  21 members of the film 
          industry, private sector, and state and local governments 
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          are appointed by the Governor, Senate Pro Tem, and Speaker 
          of the Assembly to sit on the CFC board. 

          In 2009, Governor Schwarzenegger signed the California Film 
          and Television Tax Credit Program (Film Tax Credit Program) 
          as a part of the 2009 Budget plan to promote film 
          production and create and retain jobs in California (SB 
          15X3 ÝCalderon], Chapter 17, Statutes of 2009, and AB 15X3 
          ÝKrekorian], Chapter 19, Statutes of 2009).  Qualified 
          motion pictures, defined as:  (1) feature films with 
          budgets between $1 million and $75 million; (2) movies of 
          the week with a minimum budget of $500,000; and (3) new 
          television series with a minimum $1 million budget, may 
          apply for the credit.  Also, 75 percent of the motion 
          picture shooting days must take place in California, or 75 
          percent of the motion production budget pays for services 
          or the purchase or rental or property within the state.

          This bill:

          1.  Authorizes the CFC to allocate $100 million film tax 
             credits annually until July 1, 2015. 

          2. Makes several clarifications to resolve the Franchise 
             Tax Board's (FTB) technical considerations.

             A.    Any unrelated party or parties to the film project 
                that purchases a tax credit must be treated as a 
                qualified taxpayer.  

             B.    An affiliated corporation or corporations assigned 
                a credit must be treated as a qualified taxpayer. 

             C.    Limitations on taxpayers' amount of credit or 
                carryforward credit do not apply to the film tax 
                credit.  This exclusion applies for taxpayers that 
                that directly, or indirectly, own an interest in a 
                corporation. 

             D.    Limitations on the amount of any credit, including 
                carryover credit from prior years, that may be 
                applied to reduce the taxpayer's "tax" - taxable 
                income, S-corporation taxes (a corporation that 
                elects to be taxed under the S chapter of the 

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                Internal Revenue Code and passes along the 
                corporation's income gains or losses to its 
                shareholders), corporation franchise taxes, or 
                corporation income taxes -- also do not apply for the 
                film tax credit.

          3. Requires the CFC to provide the following information to 
             the Legislative Analyst's Office (LAO) for purposes of 
             conducting a study of the efficacy of the credit:  

             A.  Financial information, including, but not limited 
                to, statements of profits and losses of a partnership 
                or of an owner of a single member limited liability 
                company that is disregarded pursuant to Section 23038 
                of the Revenue and Taxation Code (RTC).

             B.    The names of all members of the qualified 
                taxpayer's combined reporting group and any member to 
                which the credit is assigned.

             C.    The names of all partners in a partnership or the 
                names of all members of a limited liability company 
                classified as a partnership for California income tax 
                purposes that is not publicly traded.

             D.    The sales price of a credit certificate provided 
                by the FTB.  The FTB, upon request and subject to 
                confidentiality requirements, shall provide aggregate 
                information on the identity of the qualified 
                taxpayer, the amount of the credit, and the credit 
                recipient.

          4. Requires, on or before January 1, 2015, and on or before 
             January 1, 2017, release publicly and provide to the 
             Assembly Revenue and Taxation Committee and Senate 
             Governance and Finance Committee a study evaluating the 
             economic effects and administration of the tax credit 
             program described in this section and related sections 
             of this code.  In conducting the study, the LAO may 
             request application materials, sent to and received by 
             the CFC, including, but not limited to, both of the 
             following:

             A.    The estimated expenditures of the applicants, and 

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                the estimated and certified expenditures of the 
                qualified taxpayers, the type of production, and the 
                company name of the applicant or the qualified 
                taxpayer.

             B.    For all qualified taxpayers that are part of the 
                controlled group, for every year an application is 
                made and in the year the credit is received, a list 
                of all other members of the commonly controlled 
                group, as defined in Section 25105, or members of the 
                combined reporting group, as described in Section 
                25106.5(b)(3) of Title 18 of the California Code of 
                Regulations, that filmed productions or planned to 
                film productions.

             For purposes of assisting the LAO in the conduct of the 
             study, the State Board of Equalization, the FTB, the 
             Employment Development Department, and other relevant 
             agencies are authorized to share information with the 
             LAO, including the listing under subdivision (g) of 
             Section 6902.5 of the RTC, but shall retain taxpayer 
             confidentially.  The information provided subject to 
             this subdivision shall be subject to Section 19542.  The 
             LAO may publish statistics in conjunction with its study 
             that are derived from tax agency information and 
             information provided by the CFC, so long as the 
             published information is classified to prevent the 
             identification of particular taxpayers, reports, and tax 
             returns, or the publication of the percentage of 
             dividends paid by any corporation that is deductible by 
             the recipient under Part 11 (commencing with Section 
             23001 of the RTC).  

          5.  Requires the FTB to provide the LAO the sales price of 
             a credit certificate that was sold.
           
          Comments
           
          When 43 other United States states and overseas production 
          companies offer enticing tax subsidies for film and TV 
          productions, California loses big.  A 2011 Los Angeles 
          Economic Development Council economic impact study puts 
          nearly 39 percent of national motion picture and video 
          industry employment and 60 percent of labor industry in 

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          California.  That amounts to around 20 million jobs.  The 
          study further states that the industry purchased $6.4 
          billion in goods and service, $1.7 billion in advertising, 
          and $1.5 billion in rental or real estate services-an 
          aggregate amount of $15.4 billion spent on goods and 
          services in California.  The productions that leave the 
          state to pursue other state or international incentives - 
          "runaway productions" -- translate to significant job and 
          economic losses.  The same economic study found that in the 
          first two years of the California Motion Picture tax credit 
          program, the credit generated more than $3.8 billion in 
          economic output, supports 20, 040 union labor jobs in 
          California, and will return $200 million to state and local 
          governments.  Film L.A., the permitting agency for Los 
          Angeles, reports that in 2010, feature film production 
          posted a 28.1 percent fourth quarter gain and a 
          year-over-year gain of 8.1 percent, which can be wholly 
          attributed to the film tax credit.  California has a 
          historical comparative advantage over other states, because 
          of the long-established film industry and the high-paying 
          talent pool that resides in state.  Coupling the state's 
          natural beauty, clement weather, and high-tech media 
          studios with the tax incentive retains and attracts 
          production to California.  However, if the film credit is 
          left to expire next summer, proponents of this bill argue 
          that California's film industry will steadily become 
          uncompetitive, as other locations invest in and develop 
          their own infrastructure and talent pools.  Moreover, the 
          state will no longer draw ancillary economic benefits from 
          tourism.  

           FISCAL EFFECT  :    Appropriation:  No   Fiscal Com.:  Yes   
          Local:  Yes

          According to the Senate Appropriations Committee:

                         Fiscal Impact (in thousands)

           Major Provisions               2011-12      2012-13    
           2013-14   Fund  

          Tax credit extension         $11,000    $49,000   
          $83,000General*
          Film Commission              Approximately $200/yr in 

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          ongoing staffing             General
          LAO study        Unknown one-time costs           General

          * Additional aggregate revenue loss of $357 million over 
          future fiscal years.

           SUPPORT  :   (Per Senate Governance and Finance Committee 
          analysis of 7/6/11 - unable to reverify at time of writing)

          American Federation of Television and Radio Artists
          California Labor Federation
          California Taxpayers Association
          California Teamsters Public Affairs Council
          Cathy Anderson
          City of Santa Clarita
          County of Tulare
          Directors Guild of America
          Duncan Crabtree-Ireland
          Film Liaisons in California Statewide
          Film Musicians Secondary Markets Fund
          International Alliance of Theatrical Stage Employees Local 
            44, 80, 600, 695, 700, 705, 706, 728, 729, 767, 800, 871, 
            884, 892
          International Brotherhood of Teamsters, Local 399
          Lucy Steffens, Sacramento Film Commission
          Motion Picture Association of America, Inc.
          Professional Musicians, Local 47
          Recording Musicians Association
          Screen Actors Guild
          Sony Pictures Entertainment
          Stu Segall Productions
          Unite Here!


           ASSEMBLY FLOOR  :  77-1, 5/31/11
          AYES:  Achadjian, Alejo, Allen, Ammiano, Atkins, Beall, 
            Bill Berryhill, Block, Blumenfield, Bonilla, Bradford, 
            Brownley, Buchanan, Butler, Charles Calderon, Campos, 
            Carter, Cedillo, Conway, Cook, Davis, Dickinson, 
            Donnelly, Eng, Feuer, Fletcher, Fong, Fuentes, Furutani, 
            Beth Gaines, Galgiani, Garrick, Gatto, Gordon, Grove, 
            Hagman, Halderman, Hall, Harkey, Hayashi, Roger 
            Hernández, Hill, Huber, Hueso, Huffman, Jeffries, Jones, 
            Knight, Lara, Logue, Bonnie Lowenthal, Ma, Mansoor, 

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            Mendoza, Miller, Mitchell, Monning, Morrell, Nestande, 
            Nielsen, Olsen, Pan, Perea, V. Manuel Pérez, Portantino, 
            Silva, Skinner, Smyth, Solorio, Swanson, Torres, Valadao, 
            Wagner, Wieckowski, Williams, Yamada, John A. Pérez
          NOES:  Norby
          NO VOTE RECORDED:  Chesbro, Gorell


          AGB:kc  8/31/11   Senate Floor Analyses 

                         SUPPORT/OPPOSITION:  SEE ABOVE

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