BILL ANALYSIS Ó ------------------------------------------------------------ |SENATE RULES COMMITTEE | AB 1069| |Office of Senate Floor Analyses | | |1020 N Street, Suite 524 | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ------------------------------------------------------------ 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 CONTINUED AB 1069 Page 2 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 CONTINUED AB 1069 Page 3 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 CONTINUED AB 1069 Page 4 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 CONTINUED AB 1069 Page 5 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 CONTINUED AB 1069 Page 6 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, CONTINUED AB 1069 Page 7 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 **** END **** CONTINUED