BILL ANALYSIS Ó AB 1069 Page 1 CORRECTED: 09/14/2011 ( Without Reference to File ) CONCURRENCE IN SENATE AMENDMENTS AB 1069 (Fuentes) As Amended September 9, 2011 Majority vote. Urgency ----------------------------------------------------------------- |ASSEMBLY: |77-1 |(May 31, 2011) |SENATE: |34-2 |(September 10, | | | | | | |2011) | ----------------------------------------------------------------- Original Committee Reference: REV. & TAX. SUMMARY : Extends the application of the California Motion Picture Tax Credit (Film Tax Credit) program for one year, from July 1, 2014, until July 1, 2015, thus authorizing the allocation of an additional $100 million in tax credits to qualified productions, provided certain conditions are met. The Senate amendments reduce the five-year extension of the Film Tax Credit program to one year, from July 1, 2014 until July 1, 2015. AS PASSED BY THE ASSEMBLY , this bill: 1)Authorized the California Film Commission (CFC) to allocate annually the motion picture tax credits, under both the Personal Income Tax and the Corporation Tax Laws, to qualified applicants for five additional FYs, from July 1, 2014, until July 1, 2019. 2)Specified that the aggregate amount of motion picture tax credits that may be allocated by the CFC in any FY is limited to $100 million, through and including FY 2018-19. 3)Ensured that the film tax credit assigned to, or sold to, an unrelated taxpayer may be claimed by that taxpayer as a "qualified taxpayer." 4)Clarified that the otherwise applicable limitation on the utilization of credits by a disregarded entity does not apply and that the disregarded entity may sell the film tax credit AB 1069 Page 2 to an unrelated taxpayer. 5)Deleted duplicative sections of the R&TC. 6)Would take effect immediately as a tax levy. FISCAL EFFECT : Due to major amendments on August 31, 2011 and September 10, 2011, of this bill, the fiscal effect is currently unknown. COMMENTS : Author's statement . The author states that, "California suffered both job and financial losses as hundreds of productions have left the state to seek incentives offered elsewhere. A phenomenon commonly referred to 'run-away production.' In addition to the international competition from Canada, Australia and most EU nations, over 40 U.S. states offer meaningful financial incentives to the film industry successfully luring production and post-production jobs and spending away from California. "In February 2009, the California Film & Television Tax Credit Program was enacted as part of a targeted economic stimulus package to increase production spending, jobs and tax revenues in California. AB 1069, in seeking a five-year extension to the existing law, acknowledges that the Program has been successful in its goal to retain and increase film and television production occurring in California." California Motion Picture Tax Credit Program: Background . In February 2009, the Film Tax Credit program was enacted as a part of an economic stimulus plan to promote production spending, jobs, and tax revenues in California. Although a bill creating some sort of a tax incentive for the motion picture and television production in California had been introduced almost every legislative session long prior to 2009, the existing Film Tax Credit program was initially recommended by then Governor Schwarzenegger in his 2009-10 Budget proposal. Unlike other proposals in the past, the existing Film Tax Credit is targeted, capped and allocated. In many respects, it is similar to a grant program. It is effective only for five FYs, from FY 2009-10 until FY 2013-14, and only $500 million total is allocated to this credit over the life of the program. The CFC is required to allocate and certify the credit on the first-come AB 1069 Page 3 first-serve basis, up to $100 million every FY. The credit cannot be used until January 1, 2011, and is not refundable. Is the Film Tax Credit Program effective in achieving the stated goal ? With the current financial state of the California economy, all state programs affecting the General Fund are under scrutiny to ensure that the programs are effectively achieving desired results. The main goal of the Film Tax Credit Program is to prevent runaway production and retain production already being filmed in California. The Film Tax Credit Program is a relatively new program, and whether the program has been successful in achieving its main goal is up for debate. The film and television industry has been a large source of employment and revenue for the state and losing the industry could be detrimental to the California economy. However, no data is yet available to determine the extent of the film and television production that would have occurred in the state in the last two years in the absence of the Film Tax Credit. Thus, the question remains as to whether the value of the benefits received by the state from providing the Film Tax Credit outweighs the costs of the tax subsidy. Analysis Prepared by : Oksana Jaffe / REV. & TAX. / (916) 319-2098 FN: 0002916