BILL ANALYSIS �
AB 1413
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Date of Hearing: April 23, 2013
ASSEMBLY COMMITTEE ON ARTS, ENTERTAINMENT, SPORTS, TOURISM, AND
INTERNET MEDIA
Ian C. Calderon, Chair
AB 1413 (Committee on Revenue and Taxation) - As Introduced: March
19, 2013
SUBJECT : Tax law: tentative minimum tax credit: exempt
organizations
SUMMARY : In relevant part, this bill would allow, for taxable
years beginning on or after January 1, 2011, the credit for
qualified expenditures for the production of qualified motion
pictures to reduce the tentative minimum tax, as specified.
Specifically, this bill would add the credit allowed relating to
qualified motion pictures, to the list of credits allowed to reduce
the tentative minimum tax, for taxable years beginning on or after
January 1, 2011.
EXISTING LAW provides that a credit may not reduce the "tax" below
the tentative minimum tax [as defined by paragraph (1) of
subdivision (a) of Section 23455], except as specified. [Revenue &
Taxation Code Section 23036 (d)(1)]
FISCAL EFFECT : Unknown
COMMENTS :
1)Film Production Tax Credit Clean-up: Rational and Support :
According to information provided by the Committee on Revenue and
Taxation, "A technical issue has arisen concerning the utilization
of the California Production Tax Credit ("PTC") that requires a
legislative correction as soon as possible. The problem prevents
full monetization of the credit as envisioned by the sponsors and
authors of the bills. Specifically, it appears that technical
language was omitted which would allow the PTC to reduce 'regular'
income tax beyond the 'tentative minimum tax (TMT)(see below).
This language is routinely included in over 97% of the tax credits
claimed by California corporations.
"Without the simple technical fix, many taxpayers will not be able
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to utilize the credit they have been awarded, and were counting on
to make their production in California. Failure to repair the
problem would impair California's efforts to stabilize and reverse
runaway production to other state and countries.
"Because the PTC was inadvertently not added to the list of tax
credits that can be used to reduce regular tax beyond TMT, the PTC
can only be used by corporate taxpayers to reduce their regular
tax liability to their 'tentative minimum tax'. In many cases
this means the credit is limited to about 25% of the amount
awarded (the difference between the regular tax rate of 8.84% and
the AMT rate of 6.65%). Because the use of the PTC is similarly
limited in future years, even carried over credits would be
unlikely to be used in future years.
"From the earliest discussions of the PTC, the motion picture and
television community has let it be known that the key to a credit
that would allow California to effectively compete against other
states and stabilize runaway production was the ability to fully
monetize the credit. To that end, the credit program was designed
to be marketable (for independents), fully transferable amongst
related entities and to be taken in the form of a sales tax
refund. The intent of the sponsors was that the credit be fully
utilized.
"Moreover, since its inception the PTC has been conceived as a
'capped and allocated' credit program; in other words, the state's
exposure was capped at $100 million per year, no matter what form
the credit took to be monetized. That feature, and the belief
that full utilization was the key to effectiveness, paved the way
for approval of the unique structure of the PTC.
"The 2010 FTB Annual Report (the last year available) shows that
97% of the corporate tax credits utilized by taxpayers were listed
in Revenue and Taxation Code Section 23036(d)(1). There is good
reason for this. As at play here, without consideration of the
TMT limitation, any tax credit passed by the legislature would be
limited in use to as little as 25% as the amount awarded."
According to a coalition of union supporters, "This bill corrects
an oversight in the original legislation. Specifically, this bill
permits the credit to be used by film production companies to
reduce their tax liability below the otherwise applicable minimum
tax. This treatment is common for similar tax programs; this bill
adds the film incentive tax credit to a list of approximately 20
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similar programs."
The Motion Picture Association of America adds in further support,
"As a practical matter, it is critically important that production
companies be able to fully monetize the production tax credit.
Without the capacity to fully monetize it, production companies
will discount the value of the production tax credit and choose
other more competitive jurisdictions in which to locate their
productions and the jobs and economic activity they generate.
"In addition, this bill will not have an impact on the General
Fund, since the production tax credit is capped and allocated at
the amount of $100 million annually."
2)Background: Film Production Tax Credit :
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. The California Film and Television
Tax Credit Program was designed to target those productions
most at risk of leaving the state while recognizing annual
funding limits due to state budget constraints. According to
its supporters, the program has succeeded in attracting this
target group: basic cable TV series, mid-sized feature films
and made for TV movies. Even with this narrow target of
potential applicants, which excludes the big-budget feature
films and broadcast network TV series, demand exceeds supply.
The credit first became available in July of 2009. Under existing
statute, a qualified taxpayer is allowed a credit against income
and/or sales and use taxes based on qualified expenditures. The
credit amounts to either 20% or 25% of qualified expenditures,
with a maximum of $500 million dollars allocated total over the
life of the program. The credit cannot be used until January 1,
2011 and is not refundable. The credit may be carried over for
five years and may be transferred to affiliates. Credits issued
to independent films ($1 million- $10 million qualified
expenditure budget that is produced by a company that is not
publically traded and in which a publically traded company does
not own more than 25% of the shares) may be transferred or sold to
an unrelated party.
To be eligible for the credit, a project must meet the 75% test
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(production days or total production budget in California) and
must be a qualifying motion picture.
For the purposes of a 20% tax credit, a qualifying motion picture
is defined as:
a) A Feature Film ($1 million minimum- $75 million maximum
production budget),
b) A Movie of the Week or Miniseries ($500,000 minimum
production budget); or
c) A new television series licensed for original distribution
on basic cable ($1 million minimum budget, one-half hour shows
and other exclusions apply)
For the purposes of a 25% tax credit, a qualifying motion picture
is defined as:
a) A television series, without regard to episode length, that
filmed all of its prior seasons outside of California; or
b) An independent film.
In the 2009-2010 fiscal year, which was the initial year of the
program, $200 million was allocated. In each subsequent year
until July 1, 2017, CFC will allocate $100 million. A minimum $10
million of the annual finding is made available for independent
films.
1)Annual Committee on Revenue and Taxation bill for
Non-controversial Issues .
This bill is the annual Revenue and Taxation Committee Bill. This
bill has two major provisions for clean-up of the codes, one of
which is within the jurisdiction of this committee, and one which
is not.
The Business Law Section of the California State Bar is sponsoring
a plan for simplification of the process for applying for a
California tax exemption under Revenue and Taxation Code Section
23701, for non-profit organizations organized under Internal
Revenue Code 501 (c)(4), (5), (6), or (7), as is currently allowed
in Revenue and Taxation Code Section 23701(d) for those organized
under 501(c)(3) of the Internal Revenue Code.
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Should this bill be adopted, this proposal will be vetted in the
Committee on Revenue and Taxation, which has jurisdiction over
such matters.
2)Double-referral : Should this bill pass out of this committee, it
will be re-referred to the Assembly Committee on Revenue and
Taxation.
3)Prior and Related Legislation .
a) AB 3 (Bocanegra) of 2013, is a spot bill which would state
the intent of the Legislature to enact legislation to expand or
continue the California Film and Television Tax Credit Program.
Status: Assembly Rules pending referral.
b) AB 286 (Nazarian) of 2013, would expand the definition of
qualified motion pictures by removing the cap on the production
budget for feature films and limit the amount of qualified
expenditures, for purposes of the qualified motion pictures
that are features, to $75,000,000. This bill would additionally
revise the amount of credits allocated per fiscal year to
provide that a minimum threshold is met for allocations to
specified qualified motion pictures. Status: Pending before
the Assembly Committee on Arts, Entertainment, Sports, Tourism
& Internet Media.
c) AB 1189 (Nazarian) of 2013, would extend the requirement to
allocate the tax credits 5 additional years, until July 1,
2022. This bill would also extend and increase the limit on the
aggregate amount of credits that may be allocated through the
2021-22 fiscal year.
Status: Pending before the Assembly Committee on Arts,
Entertainment, Sports, Tourism & Internet Media.
d) AB 2026 (Fuentes), Chapter 841, Statutes of 2012, extended
the operation of the California Motion Picture Tax Credit (Film
Tax Credit) for two years, thereby authorizing the allocation
of an additional $100 million annually in tax credits to
qualified productions from July 1, 2015, until July 1, 2017.
e) AB 1069 (Fuentes), Chapter 731, Statues of 2011, extended
the California Film Commission's requirement to allocate the
tax credits until July 1, 2015. This bill would also extend the
limit on the aggregate amount of credits that may be allocated
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through the 2014-15 fiscal year.
f) SB 1197 (Calderon), of the 2009-10 Legislative Session,
deleted the fiscal year limitation on the existing film
production tax credit. SB 1197 was held in Senate Revenue &
Taxation Committee without a hearing.
g) SBX8 55 (Calderon), of the 2009-10 Legislative Session,
deleted the fiscal year limitation in the existing production
tax credit. SBX8 55 was held in Senate Rules Committee without
a hearing.
h) ABX3 15 (Krekorian), Chapter 10, Statutes of the 2009-10
Third Extraordinary Session, established a five year $500M tax
credit for qualified expenditures on qualified productions.
Limited allocations to $100M/year.
i) AB 855 (Krekorian), of the 2009-10 Legislative Session,
established a film production tax credit. AB 855 was held at
the Assembly Desk.
j) AB 1696 (Bass), of the 2007-08 Legislative Session,
established a financial assistance program within the
California Film Commission (CFC) to encourage filming motion
pictures and commercials in California and requires the
Business, Transportation & Housing Agency to report the
economic impact of this program by December, 2011. AB 1696
failed passage on the Senate Floor.
aa) SB 359 (Runner), of the 2007-08 Legislative Session, mega
tax credit bill which included motion picture production
credit. Part of State Budget negotiations. Created a credit
for a percentage of the wages paid of amounts paid to purchase
or lease tangible personal property in conjunction with the
production of a qualified motion picture. The credit is
certified and allocated by the CFC. The bill also allows the
credit to be claimed against the sales and use tax liability of
the company in lieu of the franchise or income tax liability.
Finally, the bill allows the credit to be carried over until
exhausted. SB 359 was held in the Senate Revenue and Taxation
Committee.
bb) AB 832 (Bass), of the 2007-08 Legislative Session, created
unfunded grant program administered by the CFC to encourage
filming motion pictures and commercials in California. AB 832
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was held on the Assembly Appropriations Committee Suspense
File.
cc) SB 740 (Calderon), of the 2007-08 Legislative Session,
created a film production credit equal to 100% of the direct
revenues attributable to the production or 125% of the revenues
of the productions in a TV series that relocated to California
or an independent film as defined. SB 740 was held in Senate
Revenue & Taxation Committee without a hearing.
dd) AB 777 (Nunez), of the 2005-06 Legislative Session,
authorized qualified motion picture tax credit in an amount
equal to 12% of the qualified production for qualified wages
paid with an additional 3% for qualified motion pictures.
Created refundable credit. AB 777 was held in Senate Revenue &
Taxation Committee without a hearing.
ee) SB 58 (Murray), of the 2005-06 Legislative Session, granted
a refundable income or corporation tax credit equal to 15% of
the amount of qualified wages paid and qualified property
purchased in the production of a qualified motion picture. SB
58 was held in Senate Revenue & Taxation Committee.
ff) AB 261 (Koretz), of the 2005-06 Legislative Session,
re-established funding for the Film California First Program.
AB 261 was gutted and amended in the Assembly Rules Committee
and became a transportation bill.
gg) AB 1830 (Cohn), of the 2003-04 Legislative Session,
authorized tax credits between 2006 and 2012 in an amount equal
to 15% of qualified wages paid or incurred for services
performed, with respect to the production of each qualified
motion picture. AB 1830 was held in the Assembly Committee on
Arts, Entertainment, Sports, Tourism & Internet Media Committee
without a hearing.
hh) AB 1277 (Cohn), Chapter 662, Statutes of 2003, transferred
administrative authority over the CFC to the Business,
Transportation & Housing Agency. This bill also created the
Film California First Fund, administered by the CFC, which
provided for reimbursements to local governments for their
costs in issuing permits for local filming of motion pictures.
In the last two state budget cycles, no General Fund monies
have been appropriated to operate this program.
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ii) AB 2410 (Frommer), Chapter 1042, Statutes of 2002, required
the CFC to report annually the number of motion picture starts
that occurred within the State of California. The bill also
required EDD to research and maintain data on film industry
employment, to determine the economic impact of the film
industry, to monitor film industry employment and activity and
competing states and countries, to examine the ethnic diversity
and representation of minorities in the entertainment industry,
to review the effect of federal, state and local laws on the
filmed entertainment industry and to report that information to
the legislature biannually, provided that funds are
appropriated by the legislature in the annual Budget Act for
these purposes.
jj) AB 2747 (Wesson), of the 2001-02 Legislative Session,
provided a tax incentive to produce motion pictures within
California. Would offer tax credits to productions with a
total cost of qualified wages between $200,000 and $10 million
for 15-25% of wages paid to qualified individuals during the
taxable year with respect to qualified motion picture
production depending on the area. For each motion picture, the
maximum amount of wages per qualified individual that could be
taken into account when computing the credit was $25,000. AB
2747 failed passage in the Senate Appropriations Committee.
aaa) SB 2061 (Schiff), Chapter 700, Statutes of 2000, created the
State Theatrical Arts Resources (STAR) partnership which offers
surplus State property to filmmakers, where unused State
properties, such as health facilities and vacant office
structures, are available at no charge or "almost free" to
filmmakers.
bbb) AB 358 (Wildman & Kuehl), of the 1999-2000 Legislative
Session, provided a refundable income and corporation tax
credit for 10% of eligible wages paid for motion pictures and
TV programs produced in California. AB 358 was held on the
Senate Appropriations Committee Suspense File.
ccc) AB 484 (Kuehl), Chapter 699, Statutes of 1999, created the
Film California First program, housed at the California Film
Commission to reimburse certain film costs incurred by a
qualified production company when filming on public property,
but which is currently unfunded.
REGISTERED SUPPORT / OPPOSITION :
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Support
California Teamsters Public Affairs Council
Directors Guild of America
International Alliance of Theatrical Stage Employees
International Brotherhood of Teamsters, Local 399
Laborers' International Union of North America, Local 724
Motion Picture Association of America
Professional Musicians Local 47
Recording Musicians' Association
SAG-AFTRA
Opposition
None on file
Analysis Prepared by : Dana Mitchell / A.,E.,S.,T. & I.M. / (916)
319-3450