BILL NUMBER: AB 1839 AMENDED
BILL TEXT
AMENDED IN SENATE JULY 2, 2014
AMENDED IN SENATE JUNE 17, 2014
AMENDED IN ASSEMBLY MAY 23, 2014
AMENDED IN ASSEMBLY MARCH 19, 2014
INTRODUCED BY Assembly Members Gatto and Bocanegra
(Principal coauthors: Assembly Members Allen, Bloom, Bonta, Brown,
Ian Calderon, Campos, Dababneh, Garcia, Gorell, Hall, Muratsuchi, V.
Manuel Pérez, Rendon, and Wilk)
(Principal coauthors: Senators Lieu and Padilla)
(Coauthors: Assembly Members Achadjian, Alejo, Ammiano, Bigelow,
Bradford, Chávez, Cooley, Dahle, Daly, Dickinson, Fox, Beth Gaines,
Gonzalez, Gray, Hagman, Harkey, Roger Hernández, Holden, Jones,
Jones-Sawyer, Levine, Linder, Logue, Lowenthal, Maienschein, Medina,
Melendez, Mullin, Nestande, Pan, Patterson, Perea, Quirk,
Quirk-Silva, Rodriguez, Ting, Waldron, Weber, Wieckowski, and
Williams)
(Coauthors: Senators Berryhill, Correa, Gaines, Galgiani, Huff,
Knight, Liu, Pavley, Torres, Walters, and Wyland)
FEBRUARY 18, 2014
An act to amend Section 23036 of, to add Sections 38.9,
17053.95 , and 23695 to, and to repeal and amend Section
6902.5 of, the Revenue and Taxation Code, relating to taxation, to
take effect immediately, tax levy.
LEGISLATIVE COUNSEL'S DIGEST
AB 1839, as amended, Gatto. Income taxes: qualified motion
pictures.
The Personal Income Tax Law and the Corporation Tax Law allow
various credits against the taxes imposed by those laws, including a
credit against those taxes for taxable years beginning on or after
January 1, 2011, in an amount equal to an applicable percentage of
either 20% or 25%, respectively, of the qualified expenditures, as
defined, attributable to the production of a qualified motion picture
in California, or, where the qualified motion picture is a
television series that relocated to California or is an independent
film, as provided. Existing law imposes specified duties on the
California Film Commission related to the administration of the
credits, including a requirement to allocate the tax credits until
July 1, 2017, and limits the aggregate amount of credits that may be
allocated to qualified motion pictures in any fiscal year to
$100,000,000 through the 2016-17 fiscal year. Existing law, for
taxable years beginning on or after January 1, 2011, in lieu of the
credits authorized under the Personal Income Tax Law and the
Corporation Tax Law for qualified motion pictures described above,
also allows a credit against qualified state sales and use taxes, as
provided.
Existing law, including the Corporation Tax Law, provides for a
tentative minimum tax and further provides that, except for specified
credits, no other credit shall reduce the tax imposed below the
tentative minimum tax.
This bill would establish similar credits under the Personal
Income Tax Law and the Corporation Tax Law for taxable years
beginning on or after January 1, 2016, to be allocated by the
California Film Commission on and after January 1, 2015, and before
July 1, 2021. This bill would, as compared to the existing tax
credits, extend the scope of the credits for a qualified motion
picture to the applicable percentage of qualified expenditures up to
$100,000,000, would extend the credit to qualified expenditures for
television pilot episodes, qualified expenditures for qualified
visual effects, and qualified expenditures relating to music scoring
and music track recording by musicians, would provide limited credit
allocation priority for specified television series, and would
determine an applicable percentage of 25% or 20% for qualified
expenditures for television series relocating to California based on
the number of years the series has received the credit since
relocation to California and where in California photography occurs.
This bill would limit the aggregate amount of these new credits to be
allocated in each fiscal year to an unspecified amount, and would
also set aside specific credit allocation amounts for each fiscal
year for independent films and for television series that relocate to
California. This bill would, for taxable years beginning on or after
January 1, 2016, in lieu of the credits authorized under the
Personal Income Tax Law and the Corporation Tax Law for qualified
motion pictures described above, allow a credit against qualified
state sales and use taxes, as provided. This bill would also
require the Legislative Analyst's Office to prepare reports related
to the effectiveness and administration of the qualified motion
picture credit under the Sales and Use Tax Law, the Personal Income
Tax Law, and the Corporation Tax Law.
This bill would, for taxable years, beginning on or after January
1, 2016, additionally allow the credit under the Corporation Tax Law
for qualified expenditures for the production of qualified motion
pictures to reduce the tentative minimum tax.
The bill would state that its provisions are severable.
This bill would take effect immediately as a tax levy.
Vote: majority. Appropriation: no. Fiscal committee: yes.
State-mandated local program: no.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. Section 38.9 is added to the
Revenue and Taxation Code , to read:
38.9. (a) On or before July 1, 2019, the Legislative Analyst's
Office shall provide to the Assembly Committee on Revenue and
Taxation, the Senate Committee on Governance and Finance, and the
public a report evaluating the economic effects and administration of
the tax credits allowed pursuant to Sections 6902.5, as amended by
the act adding this section, 17053.95, and 23695. In researching the
reports, the Legislative Analyst's Office may do all of the
following:
(1) Request and receive all information provided to the California
Film Commission pursuant to subdivision (g) of Sections 17053.95 and
23695.
(2) Request and receive all information provided to the Franchise
Tax Board relating to the sale or assignment of credits pursuant to
subdivision (c) of Sections 17053.95 and 23695.
(3) Request and receive all information provided to the board
pursuant to subdivisions (c) and (g) of Section 6902.5, as amended by
the act adding this section.
(b) The California Film Commission, the board, the Franchise Tax
Board, the Employment Development Department, and all other relevant
state agencies shall provide additional information, as specified by
the Legislative Analyst's Office, as needed to research the reports
required by this section.
(c) (1) The information received by the Legislative Analyst's
Office pursuant to this section shall be considered confidential
taxpayer information subject to Sections 7056, 7056.5, and 19542 of
this code and Section 1094 of the Unemployment Insurance Code, and
shall be subject to the appropriate confidentiality requirements of
the participating state agency.
(2) The Legislative Analyst's Office may publish statistics in
conjunction with the reports required by this section that are
derived from information provided to the Legislative Analyst's Office
pursuant to this section, if the published statistics are classified
to prevent the identification of particular taxpayers, reports, and
tax returns and the publication of the percentage of dividends paid
by a corporation that is deductible by the recipient under Part 11
(commencing with Section 23001) of Division 2.
SECTION 1. SEC. 2. Section 6902.5 of
the Revenue and Taxation Code, as added by Section 1 of Chapter 10
of the Third Extraordinary Session of the Statutes of 2009, is
repealed.
SEC. 2. SEC. 3. Section 6902.5 of
the Revenue and Taxation Code, as added by Section 1 of Chapter 17 of
the Third Extraordinary Session of the Statutes of 2009, is amended
to read:
6902.5. (a) For the purposes of this section:
(1) "Qualified taxpayer" means a person who is a qualified
taxpayer within the meaning of paragraph (17) of subdivision (b) of
Section 17053.85, 17053.95, 23685, or 23695.
(2) "Affiliate" means a qualified taxpayer's affiliated
corporation that has been assigned any portion of the credit amount
by the qualified taxpayer pursuant to subdivision (c) of Section
23685 or subdivision (c) of Section 23695.
(3) "Credit amount" means an amount equal to the tax credit amount
that would otherwise be allowed to a qualified taxpayer pursuant to
Section 17053.85, 17053.95, 23685, or 23695 but for the election made
pursuant to this section.
(4) "Production period" means the production period as defined in
paragraph (12) of subdivision (b) of Section 17053.85, 17053.95,
23685, or 23695.
(5) (A) "Qualified sales and use taxes" means any state sales and
use taxes imposed by Part 1 (commencing with Section 6001), on the
operative date of the act adding this section.
(B) Notwithstanding subparagraph (A), "qualified sales and use
taxes" does not mean taxes imposed by Section 6051.2, 6051.5, 6201.2,
6201.5, Part 1.5 (commencing with Section 7200), Part 1.6
(commencing with Section 7251), or Section 35 of Article XIII of the
California Constitution.
(b) (1) A qualified taxpayer may, in lieu of claiming the credit
allowed by Section 17053.85, 17053.95, 23685, or 23695 make an
irrevocable election to apply the credit amount against qualified
sales and use taxes imposed on the qualified taxpayer in accordance
with this section.
(2) An affiliate may, in lieu of claiming the assigned portion of
the credit allowed by Section 23685 or 23695, make an irrevocable
election to apply the assigned portion of the credit amount against
qualified sales and use taxes imposed on the affiliate in accordance
with this section.
(c) (1) A qualified taxpayer or affiliate shall submit to the
board an irrevocable election, in a form as prescribed by the board,
which shall include, but not be limited to, the following
information:
(A) Representation that the claimant is a qualified taxpayer or an
affiliate.
(B) Statement of the dates on which the production period began
and ended.
(C) The credit amount, and if an affiliate, the portion of the
credit amount assigned to it and documentation supporting the
assignment of that portion of the credit amount.
(D) The amount of qualified sales and use taxes the claimant
remitted to the board during the period commencing on the first day
of the calendar quarter commencing immediately before the beginning
of the production period, and ending on the date the claimant was
required to file its most recent sales and use tax return with the
board.
(E) A copy of the credit certificate issued pursuant to
subparagraph (C) of paragraph (2) of subdivision (g) of Section
17053.85 or 23685 or subparagraph (D) of paragraph (2) of subdivision
(g) of Section 17053.95 or 23695.
(2) The election shall be filed on or before the date on which the
qualified taxpayer or affiliate would first be allowed to claim a
credit pursuant to Section 17053.85, 17053.95, 23685, or 23695 on its
tax return.
(d) (1) The claimant may elect to obtain a refund of qualified
sales and use taxes paid during the period described in subparagraph
(D) of paragraph (1) of subdivision (c). If the claimant elects to
obtain a refund of qualified sales and use taxes, the claimant shall
file a claim for refund with the irrevocable election described in
subdivision (c). The refund amount shall not exceed, for a qualified
taxpayer, the credit amount, or for an affiliate, the portion of the
credit amount assigned to it.
(2) No interest shall be paid on any amount refunded or credited
pursuant to paragraph (1).
(e) If the claimant does not elect to obtain a refund or in the
case where the credit amount, or assigned portion, exceeds the amount
of its claim for refund for the qualified sales and use taxes, the
claimant may, for the reporting periods in the five years following
the last reporting period as described in subparagraph (D) of
paragraph (1) of subdivision (c), offset any remaining credit amount,
or assigned portion, against the qualified sales and use taxes
imposed during those reporting periods.
(f) Section 6961 shall apply to any refund, or part thereof, that
is erroneously made and any credit, or part thereof, that is
erroneously allowed pursuant to this section.
(g) The board shall provide an annual listing to the Franchise Tax
Board, in a form and manner agreed upon by the board and the
Franchise Tax Board, of the qualified taxpayers, or affiliates that
have been assigned a portion of the credit allowed under Section
23685 pursuant to subdivision (c) of Section 23685 or Section 23695
pursuant to subdivision (c) of Section 23695, who, during the year,
have made an irrevocable election pursuant to this section and the
credit amount, or portion of the credit amount, claimed by each
qualified taxpayer or affiliate.
(h) The board may prescribe rules and regulations for the
administration of this section.
SEC. 3. SEC. 4. Section 17053.95 is
added to the Revenue and Taxation Code, to read:
17053.95. (a) (1) For taxable years beginning on or after January
1, 2016, there shall be allowed to a qualified taxpayer a credit
against the "net tax," as defined in Section 17039, in an amount
equal to the applicable percentage, as specified in paragraph (4), of
the qualified expenditures for the production of a qualified motion
picture in California. A credit shall not be allowed under this
section for any qualified expenditures for the production of a motion
picture in California if a credit has been claimed for those same
expenditures under Section 17053.85.
(2) The credit shall be allowed for the taxable year in which the
California Film Commission issues the credit certificate pursuant to
subdivision (g) for the qualified motion picture, but in no instance
prior to July 1, 2016, and shall be for the applicable percentage of
all qualified expenditures paid or incurred by the qualified taxpayer
in all taxable years for that qualified motion picture.
(3) The amount of the credit allowed to a qualified taxpayer shall
be limited to the amount specified in the credit certificate issued
to the qualified taxpayer by the California Film Commission pursuant
to subdivision (g).
(4) For purposes of paragraphs (1) and (2), the applicable
percentage shall be:
(A) Twenty percent of the qualified expenditures attributable to
the production of a qualified motion picture in California,
including, but not limited to, a feature, up to one hundred million
dollars ($100,000,000) in qualified expenditures, or a television
series that relocated to California that is in its second or
subsequent years of receiving a tax credit allocation pursuant to
this section or Section 17053.85.
(B) Twenty-five percent of the qualified expenditures attributable
to the production of a qualified motion picture in California where
the qualified motion picture is a television series that relocated to
California in its first year of receiving a tax credit allocation
pursuant to this section.
(C) Twenty-five percent of the qualified expenditures, up to ten
million dollars ($10,000,000), attributable to the production of a
qualified motion picture that is an independent film.
(D) (i) The California Film Commission shall increase the
applicable percentage by 5 percent, not to exceed a maximum of 25
percent, if the qualified motion picture paid or incurred outside the
Los Angeles zone the qualified expenditures relating to original
photography outside the Los Angeles zone.
(ii) For purposes of this subparagraph:
(I) "Applicable period" means the period that commences with
preproduction and ends when original photography concludes. The
applicable period includes the time necessary to strike a remote
location and return to the Los Angeles zone.
(II) "Los Angeles zone" means the area within a circle 30 miles in
radius from Beverly Boulevard and La Cienega Boulevard, Los Angeles,
California, and includes Agua Dulce, Castaic, including Lake
Castaic, Leo Carillo State Beach, Ontario International Airport,
Piru, and Pomona, including the Los Angeles County Fairgrounds. The
Metro Goldwyn Mayer, Inc. Conejo Ranch property is within the Los
Angeles zone.
(III) "Original photography" includes principal photography and
reshooting original footage.
(IV) "Qualified expenditures relating to original photography
outside the Los Angeles zone" means amounts paid or incurred during
the applicable period for tangible personal property purchased or
leased and used or consumed outside the Los Angeles zone and relating
to original photography outside the Los Angeles zone and qualified
wages paid for services performed outside the Los Angeles zone and
relating to original photography outside the Los Angeles zone.
(E) Twenty-five percent of the qualified expenditures relating to
music scoring and music track recording by musicians attributable to
the production of a qualified motion picture in California.
(F) Twenty-five percent of the qualified expenditures relating to
qualified visual effects.
(b) For purposes of this section:
(1) "Ancillary product" means any article for sale to the public
that contains a portion of, or any element of, the qualified motion
picture.
(2) "Budget" means an estimate of all expenses paid or incurred
during the production period of a qualified motion picture. It shall
be the same budget used by the qualified taxpayer and production
company for all qualified motion picture purposes.
(3) "Clip use" means a use of any portion of a motion picture,
other than the qualified motion picture, used in the qualified motion
picture.
(4) "Credit certificate" means the certificate issued by the
California Film Commission pursuant to subparagraph (C) of paragraph
(2) of subdivision (g).
(5) (A) "Employee fringe benefits" means the amount allowable as a
deduction under this part to the qualified taxpayer involved in the
production of the qualified motion picture, exclusive of any amounts
contributed by employees, for any year during the production period
with respect to any of the following:
(i) Employer contributions under any pension, profit-sharing,
annuity, or similar plan.
(ii) Employer-provided coverage under any accident or health plan
for employees.
(iii) The employer's cost of life or disability insurance provided
to employees.
(B) Any amount treated as wages under clause (i) of subparagraph
(A) of paragraph (20) shall not be taken into account under this
paragraph.
(6) "Independent film" means a motion picture with a minimum
budget of one million dollars ($1,000,000) that is produced by a
company that is not publicly traded and publicly traded companies do
not own, directly or indirectly, more than 25 percent of the
producing company.
(7) "Licensing" means any grant of rights to distribute the
qualified motion picture, in whole or in part.
(8) "New use" means any use of a motion picture in a medium other
than the medium for which it was initially created.
(9) "Pilot for a new television series" means the initial episode
produced for a proposed television series.
(10) (A) "Postproduction" means the final activities in a
qualified motion picture's production, including editing, foley
recording, automatic dialogue replacement, sound editing, scoring,
music track recording by musicians and music editing, beginning and
end credits, negative cutting, negative processing and duplication,
the addition of sound and visual effects, sound mixing, film-to-tape
transfers, encoding, and color correction.
(B) "Postproduction" does not include the manufacture or shipping
of release prints or their equivalent.
(11) "Preproduction" means the process of preparation for actual
physical production which begins after a qualified motion picture has
received a firm agreement of financial commitment, or is greenlit,
with, for example, the establishment of a dedicated production
office, the hiring of key crew members, and includes, but is not
limited to, activities that include location scouting and execution
of contracts with vendors of equipment and stage space.
(12) "Principal photography" means the phase of production during
which the motion picture is actually shot, as distinguished from
preproduction and postproduction.
(13) "Production period" means the period beginning with
preproduction and ending upon completion of postproduction.
(14) "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.
(15) "Qualified expenditures" means amounts paid or incurred for
tangible personal property purchased or leased, and used, within this
state in the production of a qualified motion picture and payments,
including qualified wages, for services performed within this state
in the production of a qualified motion picture.
(16) (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.
(B) "Qualified individual" shall not include either of the
following:
(i) Any individual related to the qualified taxpayer as 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.
(17) (A) "Qualified motion picture" means a motion picture that is
produced for distribution to the general public, regardless of
medium, that is one of the following:
(i) A feature with a minimum production budget of one million
dollars ($1,000,000).
(ii) A movie of the week or miniseries with a minimum production
budget of five hundred thousand dollars ($500,000).
(iii) A new television series of episodes longer than 40 minutes
each of running time, exclusive of commercials, that is produced in
California, with a minimum production budget of one million dollars
($1,000,000) per episode.
(iv) An independent film.
(v) A television series that relocated to California.
(vi) A pilot for a new television series that is longer than 40
minutes of running time, exclusive of commercials, that is produced
in California, and with a minimum production budget of one million
dollars ($1,000,000).
(B) To qualify as a "qualified motion picture," all of the
following conditions shall be satisfied:
(i) At least 75 percent of the principal photography days occur
wholly in California or 75 percent of the production budget is
incurred for payment for services performed within the state and the
purchase or rental of property used within the state.
(ii) Production of the qualified motion picture is completed
within 30 months from the date on which the qualified taxpayer's
application is approved by the California Film Commission. For
purposes of this section, a qualified motion picture is "completed"
when the process of postproduction has been finished.
(iii) The copyright for the motion picture is registered with the
United States Copyright Office pursuant to Title 17 of the United
States Code.
(iv) Principal photography of the qualified motion picture
commences after the date on which the application is approved by the
California Film Commission, but no later than 180 days after the date
of that approval unless death, disability, or disfigurement of the
director or of a principal cast member, an act of God, including, but
not limited to, fire, flood, earthquake, storm, hurricane, or other
natural disaster, terrorist activities, or government sanction has
directly prevented a production's ability to begin principal
photography within the prescribed 180-day commencement period.
(C) For the purposes of subparagraph (A), 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.
(D) "Qualified motion picture" shall not include commercial
advertising, music videos, a motion picture produced for private
noncommercial use, such as weddings, graduations, or as part of an
educational course and made by students, a news program, current
events or public events program, talk show, game show, sporting event
or activity, awards show, telethon or other production that solicits
funds, reality television program, clip-based programming if more
than 50 percent of the content is comprised of licensed footage,
documentaries, variety programs, daytime dramas, strip shows,
one-half hour (air time) episodic television shows, or any production
that falls within the recordkeeping requirements of Section 2257 of
Title 18 of the United States Code.
(18) (A) "Qualified taxpayer" means a taxpayer who has paid or
incurred qualified expenditures and has been issued a credit
certificate by the California Film Commission pursuant to subdivision
(g).
(B) In the case of any pass-thru entity, the determination of
whether a taxpayer is a qualified taxpayer under this section shall
be made at the entity level and any credit under this section is not
allowed to the pass-thru entity, but shall be passed through to the
partners or shareholders in accordance with applicable provisions of
Part 10 (commencing with Section 17001) or Part 11 (commencing with
Section 23001). For purposes of this paragraph, "pass-thru entity"
means any entity taxed as a partnership or "S" corporation.
(19) "Qualified visual effects" means visual effects where at
least 75 percent or a minimum of ten million dollars ($10,000,000) of
the qualified expenditures for the visual effects is paid or
incurred in California.
(20) (A) "Qualified wages" means all of the following:
(i) Any wages subject to withholding under Division 6 (commencing
with Section 13000) of the Unemployment Insurance Code that were paid
or incurred by any taxpayer involved in the production of a
qualified motion picture with respect to a qualified individual for
services performed on the qualified motion picture production 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 clauses (i), (iii), and (iv).
(iii) Any payments made to a qualified entity for services
performed in this state by qualified individuals within the meaning
of paragraph (16).
(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" shall not include any of the following:
(i) Expenses, including wages, related to new use, reuse, clip
use, licensing, secondary markets, or residual compensation, or the
creation of any ancillary product, including, but not limited to, a
soundtrack album, toy, game, trailer, or teaser.
(ii) Expenses, including wages, paid or incurred with respect to
acquisition, development, turnaround, or any rights thereto.
(iii) Expenses, including wages, related to financing, overhead,
marketing, promotion, or distribution of a qualified motion picture.
(iv) Expenses, including wages, paid per person per qualified
motion picture for writers, directors, music directors, music
composers, music supervisors, producers, and performers, other than
background actors with no scripted lines.
(21) "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.
(22) "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.
(23) "Secondary markets" means media in which a qualified motion
picture is exhibited following the initial media in which it is
exhibited.
(24) "Television series that relocated to California" means a
television series, without regard to episode length or initial media
exhibition, with a minimum production budget of one million dollars
($1,000,000) per episode, that filmed no fewer than its most recent
two seasons outside of California and for which the taxpayer
certifies that the credit provided pursuant to this section is the
primary reason for relocating to California.
(25) "Visual effects" means the creation, alteration, or
enhancement of images that cannot be captured on a set or location
during live action photography and therefore is accomplished in
postproduction. It includes, but is not limited to, matte paintings,
animation, set extensions, computer-generated objects, characters and
environments, compositing (combining two or more elements in a final
image), and wire removals. "Visual effects" does not include fully
animated projects, whether created by traditional or digital means.
(c) (1) Notwithstanding any other law, a qualified taxpayer may
sell any credit allowed under this section that is attributable to an
independent film, as defined in paragraph (6) of subdivision (b), to
an unrelated party.
(2) The qualified taxpayer shall report to the Franchise Tax Board
prior to the sale of the credit, in the form and manner specified by
the Franchise Tax Board, all required information regarding the
purchase and sale of the credit, including the social security or
other taxpayer identification number of the unrelated party to whom
the credit has been sold, the face amount of the credit sold, and the
amount of consideration received by the qualified taxpayer for the
sale of the credit.
(3) In the case where the credit allowed under this section
exceeds the "net tax," the excess credit may be carried over to
reduce the "net tax" in the following taxable year, and succeeding
five taxable years, if necessary, until the credit has been
exhausted.
(4) A credit shall not be sold pursuant to this subdivision to
more than one taxpayer, nor may the credit be resold by the unrelated
party to another taxpayer or other party.
(5) A party that has acquired tax credits under this section shall
be subject to the requirements of this section.
(6) In no event may a qualified taxpayer assign or sell any tax
credit to the extent the tax credit allowed by this section is
claimed on any tax return of the qualified taxpayer.
(7) In the event that both the taxpayer originally allocated a
credit under this section by the California Film Commission and a
taxpayer to whom the credit has been sold both claim the same amount
of credit on their tax returns, the Franchise Tax Board may disallow
the credit of either taxpayer, so long as the statute of limitations
upon assessment remains open.
(8) Chapter 3.5 (commencing with Section 11340) of Part 1 of
Division 3 of Title 2 of the Government Code does not apply to any
standard, criterion, procedure, determination, rule, notice, or
guideline established or issued by the Franchise Tax Board pursuant
to this subdivision.
(9) Subdivision (g) of Section 17039 shall not apply to any credit
sold pursuant to this subdivision.
(10) For purposes of this subdivision, the unrelated party or
parties that purchase a credit pursuant to this subdivision shall be
treated as a qualified taxpayer pursuant to paragraph (1) of
subdivision (a).
(d) No credit shall be allowed pursuant to this section
unless the qualified taxpayer provides the following to the
California Film Commission:
(1) Identification of each qualified individual.
(2) The specific start and end dates of production.
(3) The total wages paid.
(4) The amount of qualified wages paid to each qualified
individual.
(5) 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 on the return claiming the credit.
(6) The total amounts paid or incurred to purchase or lease
tangible personal property used in the production of a qualified
motion picture.
(7) Information to substantiate its qualified expenditures.
(8) Information required by the California Film Commission under
regulations promulgated pursuant to subdivision (g) necessary to
verify the amount of credit claimed.
(e) (1) The California Film Commission may prescribe rules and
regulations to carry out the purposes of this section including any
rules and regulations necessary to establish procedures, processes,
requirements, application fee structure, and rules identified in or
required to implement this section, including credit and logo
requirements. The regulations shall include provisions to set aside a
percentage of annual credit allocations for independent films and
television series relocating to California, pursuant to subdivision
(i).
(2) Implementation of this section is deemed an emergency and
necessary for the immediate preservation of the public peace, health,
and safety, or general welfare and, therefore, the California Film
Commission is hereby authorized to adopt emergency regulations
necessary to implement this section during the 2014-15 fiscal year in
accordance with the rulemaking provisions of the Administrative
Procedure Act (Chapter 3.5 (commencing with Section 11340) of Part 1
of Division 3 of Title 2 of the Government Code).
(f) If the qualified taxpayer fails to provide the copyright
registration number as required in paragraph (5) of subdivision (d),
the credit shall be disallowed and assessed and collected under
Section 19051 until the procedures are satisfied.
(g) For purposes of this section, the California Film Commission
shall do the following:
(1) On or after January 1, 2015, and before July 1, 2021, in one
or more allocation periods per fiscal year, allocate tax credits to
applicants.
(A) Establish a procedure for applicants to file with the
California Film Commission a written application, on a form jointly
prescribed by the California Film Commission and the Franchise Tax
Board for the allocation of the tax credit. The application shall
include, but not be limited to, the following information:
(i) The budget for the motion picture production.
(ii) The number of production days.
(iii) A financing plan for the production.
(iv) The diversity of the workforce employed by the applicant,
including, but not limited to, the ethnic and racial makeup of the
individuals employed by the applicant during the production of the
qualified motion picture, to the extent possible.
(v) All members of a combined reporting group, if known at the
time of the application.
(vi) Financial information, if available, including, but not
limited to, the most recently produced balance sheets, annual
statements of profits and losses, audited or unaudited financial
statements, summary budget projections or results, or the functional
equivalent of these documents of a partnership or owner of a single
member limited liability company that is disregarded pursuant to
Section 23038. The information provided pursuant to this clause shall
be confidential and shall not be subject to public disclosure.
(vii) The names of all partners in a partnership not publicly
traded or the names of all members of a limited liability company
classified as a partnership not publicly traded for California income
tax purposes that have a financial interest in the applicant's
qualified motion picture. The information provided pursuant to this
clause shall be confidential and shall not be subject to public
disclosure.
(viii) Detailed narratives, for use only by the Legislative
Analyst's Office in conducting a study of the effectiveness of this
credit, that describe the extent to which the credit is expected to
influence or affect filming and other business location decisions,
hiring decisions, salary decisions, and any other financial matters
of the applicant.
(ix) Any other information deemed relevant by the California Film
Commission or the Franchise Tax Board.
(B) Establish criteria, consistent with the requirements of this
section, for allocating tax credits.
(C) Determine and designate applicants who meet the requirements
of this section.
(D) (i) Except as provided in clauses (ii) and (iii), process and
approve, or reject, all applications on a first-come-first-served
basis.
(ii) Any new television series, as described in clause (iii) of
subparagraph (A) of paragraph (17) of subdivision (b), and any
television series that relocated to California, as described in
clause (v) of subparagraph (A) of paragraph (17) of subdivision (b),
that has been approved and issued a credit allocation by the
California Film Commission either under this section or Section
17053.85 shall be placed at the top of the queue for an open
allocation period once in each subsequent year in the life of that
television series whenever credits are allocated within a fiscal
year.
(iii) Any new television series based on a pilot for a new
television series described in paragraph (9) of subdivision (b),
where that pilot has been previously approved and issued a credit
allocation by the California Film Commission under this section or
Section 17053.85, shall be placed at the top of the queue for an open
allocation period once in the initial and in each subsequent year in
the life of that television series whenever credits are allocated
within a fiscal year.
(E) Subject to the annual cap established as provided in
subdivision (i), allocate an aggregate amount of credits under this
section and Section 23695, and allocate any carryover of unallocated
credits from prior years.
(2) Certify tax credits allocated to qualified taxpayers.
(A) Establish a verification procedure for the amount of qualified
expenditures paid or incurred by the applicant, including, but not
limited to, updates to the information in subparagraph (A) of
paragraph (1) of subdivision (g).
(B) Establish audit requirements that must be satisfied before a
credit certificate may be issued by the California Film Commission.
(C) (i) Establish a procedure for a qualified taxpayer to report
to the California Film Commission, prior to the issuance of a credit
certificate, the following information:
(I) If readily available, a list of the states, provinces, or
other jurisdictions in which any member of the applicant's combined
reporting group in the same business unit as the qualified taxpayer
that, in the preceding calendar year, has produced a qualified motion
picture intended for release in the United States market. For
purposes of this clause, "qualified motion picture" shall not include
any episodes of a television series that were complete or in
production prior to July 1, 2016.
(II) Whether a qualified motion picture described in subclause (I)
was awarded any financial incentive by the state, province, or other
jurisdiction that was predicated on the performance of primary
principal photography or postproduction in that location.
(ii) The California Film Commission may provide that the report
required by this subparagraph be filed in a single report provided on
a calendar year basis for those qualified taxpayers that receive
multiple credit certificates in a calendar year.
(D) Issue a credit certificate to a qualified taxpayer upon
completion of the qualified motion picture reflecting the credit
amount allocated after qualified expenditures have been verified
under this section. The amount of credit shown in the credit
certificate shall not exceed the amount of credit allocated to that
qualified taxpayer pursuant to this section.
(3) Obtain, when possible, the following information from
applicants that do not receive an allocation of credit:
(A) Whether the qualified motion picture that was the subject of
the application was completed.
(B) If completed, in which state or foreign jurisdiction was the
primary principal photography completed.
(C) Whether the applicant received any financial incentives from
the state or foreign jurisdiction to make the qualified motion
picture in that location.
(4) Provide the Legislative Analyst's Office, upon request, any or
all application materials or any other materials received from, or
submitted by, the applicants, in electronic format when available,
including, but not limited to, information provided pursuant to
clauses (i) to (ix), inclusive, of subparagraph (A) of paragraph (1).
(5) The information provided to the California Film Commission
pursuant to this section shall constitute confidential tax
information for purposes of Article 2 (commencing with Section 19542)
of Chapter 7 of Part 10.2.
(h) (1) The California Film Commission shall annually provide the
Legislative Analyst's Office, the Franchise Tax Board, and the board
with a list of qualified taxpayers and the tax credit amounts
allocated to each qualified taxpayer by the California Film
Commission. The list shall include the names and taxpayer
identification numbers, including taxpayer identification numbers of
each partner or shareholder, as applicable, of the qualified
taxpayer.
(2) (A) Notwithstanding paragraph (5) of subdivision (g), the
California Film Commission shall annually post on its Internet Web
site and make available for public release the following:
(i) A table which includes all of the following information: a
list of qualified taxpayers and the tax credit amounts allocated to
each qualified taxpayer by the California Film Commission, the number
of production days in California the qualified taxpayer represented
in its application would occur, the number of California jobs that
the qualified taxpayer represented in its application would be
directly created by the production, and the total amount of qualified
expenditures expected to be spent by the production.
(ii) A narrative staff summary describing the production of the
qualified taxpayer as well as background information regarding the
qualified taxpayer contained in the qualified taxpayer's application
for the credit.
(B) Nothing in this subdivision shall be construed to make the
information submitted by an applicant for a tax credit under this
section a public record.
(3) The California Film Commission shall provide each city and
county in California with an instructional guide that includes, but
is not limited to, a review of best practices for facilitating motion
picture production in local jurisdictions, resources on hosting and
encouraging motion picture production, and the California Film
Commissions' Model Film Ordinance. The California Film Commission
shall maintain on its Internet Web site a list of initiatives by
locality that encourage motion picture production in regions across
the state. The list shall be distributed to each approved applicant
for the program to highlight local jurisdictions that offer
incentives to facilitate film production.
(i) (1) The aggregate amount of credits that may be allocated in
any fiscal year pursuant to this section and Section 23695 shall be
an amount equal to the sum of all of the following:
(A) ____dollars ($____) in credits for the 2016-17 fiscal year and
each fiscal year thereafter, through and including the 2020-21
fiscal year.
(B) The unused allocation credit amount, if any, for the preceding
fiscal year.
(C) The amount of previously allocated credits not certified.
(2) (A) Notwithstanding the foregoing, the California Film
Commission shall set aside the lesser of 10 percent of the amount
specified in subparagraph (A) of paragraph (1) or twenty million
dollars ($20,000,000) of tax credits each fiscal year for independent
films allocated in accordance with rules and regulations developed
pursuant to subdivision (e).
(B) Notwithstanding the foregoing, the California Film Commission
shall set aside up to thirty million dollars ($30,000,000) of tax
credit each fiscal year for television series that relocated to
California in its first year of receiving a tax credit allocation
pursuant to this section allocated in accordance with rules and
regulations developed pursuant to subdivision (e).
(3) Any act that reduces the amount that may be allocated pursuant
to paragraph (1) constitutes a change in state taxes for the purpose
of increasing revenues within the meaning of Section 3 of Article
XIII A of the California Constitution and may be passed by not less
than two-thirds of all Members elected to each of the two houses of
the Legislature.
(j) The California Film Commission shall have the authority to
allocate tax credits in accordance with this section and in
accordance with any regulations prescribed pursuant to subdivision
(e) upon adoption.
SEC. 4. SEC. 5. 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" also includes all of
the following:
(1) The tax on limited partnerships, imposed under Section 17935,
the tax on limited liability companies, imposed under Section 17941,
and the tax on registered limited liability partnerships and foreign
limited liability partnerships imposed under Section 17948.
(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 are
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.
(d) Notwithstanding any other provision of this part, each of the
following applies:
(1) A credit may not 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 former Section 23601.5 (relating to
solar energy).
(D) The credit allowed by Section 23609 (relating to research
expenditures).
(E) The credit allowed by former 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 former 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) The credit allowed by former Section 23623.5 (relating to Los
Angeles Revitalization Zone hiring credit).
(N) The credit allowed by former 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 former Section 23649 (relating to
qualified property).
(R) For taxable years beginning on or after January 1, 2011, the
credit allowed by Section 23685 (relating to qualified motion
pictures).
(S) For taxable years beginning on or after January 1, 2016, the
credit allowed by Section 23695 (relating to qualified motion
pictures).
(2) A credit against the tax may not 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) is 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 is 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 is eligible to receive the tax credit in
proportion to his or her 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 is computed at the "S" corporation
level, and any limitation on the expenses qualifying for the credit
or limitation upon the amount of the credit applies 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 is
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 is 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. A credit
is not 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-thru
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-thru 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 applies to credits that become inoperative on
or after the operative date of the act adding this subdivision.
SEC. 5. SEC. 6. Section 23695 is
added to the Revenue and Taxation Code, to read:
23695. (a) (1) For taxable years beginning on or after January 1,
2016, there shall be allowed to a qualified taxpayer a credit
against the "tax," as defined in Section 23036, in an amount equal to
the applicable percentage, as specified in paragraph (4), of the
qualified expenditures for the production of a qualified motion
picture in California. A credit shall not be allowed under this
section for any qualified expenditures for the production of a motion
picture in California if a credit has been claimed for those same
expenditures under Section 23685.
(2) The credit shall be allowed for the taxable year in which the
California Film Commission issues the credit certificate pursuant to
subdivision (g) for the qualified motion picture, but in no instance
prior to July 1, 2016, and shall be for the applicable percentage of
all qualified expenditures paid or incurred by the qualified taxpayer
in all taxable years for that qualified motion picture.
(3) The amount of the credit allowed to a qualified taxpayer shall
be limited to the amount specified in the credit certificate issued
to the qualified taxpayer by the California Film Commission pursuant
to subdivision (g).
(4) For purposes of paragraphs (1) and (2), the applicable
percentage shall be:
(A) Twenty percent of the qualified expenditures attributable to
the production of a qualified motion picture in California,
including, but not limited to, a feature, up to one hundred million
dollars ($100,000,000) in qualified expenditures, or a television
series that relocated to California that is in its second or
subsequent years of receiving a tax credit allocation pursuant to
this section or Section 23685.
(B) Twenty-five percent of the qualified expenditures attributable
to the production of a qualified motion picture in California where
the qualified motion picture is a television series that relocated to
California in its first year of receiving a tax credit allocation
pursuant to this section.
(C) Twenty-five percent of the qualified expenditures, up to ten
million dollars ($10,000,000), attributable to the production of a
qualified motion picture that is an independent film.
(D) (i) The California Film Commission shall increase the
applicable percentage by 5 percent, not to exceed a maximum of 25
percent, if the qualified motion picture paid or incurred outside the
Los Angeles zone the qualified expenditures relating to original
photography outside the Los Angeles zone.
(ii) For purposes of this subparagraph:
(I) "Applicable period" means the period that commences with
preproduction and ends when original photography concludes. The
applicable period includes the time necessary to strike a remote
location and return to the Los Angeles zone.
(II) "Los Angeles zone" means the area within a circle 30 miles in
radius from Beverly Boulevard and La Cienega Boulevard, Los Angeles,
California, and includes Agua Dulce, Castaic, including Lake
Castaic, Leo Carillo State Beach, Ontario International Airport,
Piru, and Pomona, including the Los Angeles County Fairgrounds. The
Metro Goldwyn Mayer, Inc. Conejo Ranch property is within the Los
Angeles zone.
(III) "Original photography" includes principal photography and
reshooting original footage.
(IV) "Qualified expenditures relating to original photography
outside the Los Angeles zone" means amounts paid or incurred during
the applicable period for tangible personal property purchased or
leased and used or consumed outside the Los Angeles zone and relating
to original photography outside the Los Angeles zone and qualified
wages paid for services performed outside the Los Angeles zone and
relating to original photography outside the Los Angeles zone.
(E) Twenty-five percent of the qualified expenditures relating to
music scoring and music track recording by musicians attributable to
the production of a qualified motion picture in California.
(F) Twenty-five percent of the qualified expenditures relating to
qualified visual effects.
(b) For purposes of this section:
(1) "Ancillary product" means any article for sale to the public
that contains a portion of, or any element of, the qualified motion
picture.
(2) "Budget" means an estimate of all expenses paid or incurred
during the production period of a qualified motion picture. It shall
be the same budget used by the qualified taxpayer and production
company for all qualified motion picture purposes.
(3) "Clip use" means a use of any portion of a motion picture,
other than the qualified motion picture, used in the qualified motion
picture.
(4) "Credit certificate" means the certificate issued by the
California Film Commission pursuant to subparagraph (C) of paragraph
(2) of subdivision (g).
(5) (A) "Employee fringe benefits" means the amount allowable as a
deduction under this part to the qualified taxpayer involved in the
production of the qualified motion picture, exclusive of any amounts
contributed by employees, for any year during the production period
with respect to any of
the following:
(i) Employer contributions under any pension, profit-sharing,
annuity, or similar plan.
(ii) Employer-provided coverage under any accident or health plan
for employees.
(iii) The employer's cost of life or disability insurance provided
to employees.
(B) Any amount treated as wages under clause (i) of subparagraph
(A) of paragraph (20) shall not be taken into account under this
paragraph.
(6) "Independent film" means a motion picture with a minimum
budget of one million dollars ($1,000,000) that is produced by a
company that is not publicly traded and publicly traded companies do
not own, directly or indirectly, more than 25 percent of the
producing company.
(7) "Licensing" means any grant of rights to distribute the
qualified motion picture, in whole or in part.
(8) "New use" means any use of a motion picture in a medium other
than the medium for which it was initially created.
(9) "Pilot for a new television series" means the initial episode
produced for a proposed television series.
(10) (A) "Postproduction" means the final activities in a
qualified motion picture's production, including editing, foley
recording, automatic dialogue replacement, sound editing, scoring,
music track recording by musicians and music editing, beginning and
end credits, negative cutting, negative processing and duplication,
the addition of sound and visual effects, sound mixing, film-to-tape
transfers, encoding, and color correction.
(B) "Postproduction" does not include the manufacture or shipping
of release prints or their equivalent.
(11) "Preproduction" means the process of preparation for actual
physical production which begins after a qualified motion picture has
received a firm agreement of financial commitment, or is greenlit,
with, for example, the establishment of a dedicated production
office, the hiring of key crew members, and includes, but is not
limited to, activities that include location scouting and execution
of contracts with vendors of equipment and stage space.
(12) "Principal photography" means the phase of production during
which the motion picture is actually shot, as distinguished from
preproduction and postproduction.
(13) "Production period" means the period beginning with
preproduction and ending upon completion of postproduction.
(14) "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.
(15) "Qualified expenditures" means amounts paid or incurred for
tangible personal property purchased or leased, and used, within this
state in the production of a qualified motion picture and payments,
including qualified wages, for services performed within this state
in the production of a qualified motion picture.
(16) (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.
(B) "Qualified individual" shall not include either of the
following:
(i) Any individual related to the qualified taxpayer as 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.
(17) (A) "Qualified motion picture" means a motion picture that is
produced for distribution to the general public, regardless of
medium, that is one of the following:
(i) A feature with a minimum production budget of one million
dollars ($1,000,000).
(ii) A movie of the week or miniseries with a minimum production
budget of five hundred thousand dollars ($500,000).
(iii) A new television series of episodes longer than 40 minutes
each of running time, exclusive of commercials, that is produced in
California, with a minimum production budget of one million dollars
($1,000,000) per episode.
(iv) An independent film.
(v) A television series that relocated to California.
(vi) A pilot for a new television series that is longer than 40
minutes of running time, exclusive of commercials, that is produced
in California, and with a minimum production budget of one million
dollars ($1,000,000).
(B) To qualify as a "qualified motion picture," all of the
following conditions shall be satisfied:
(i) At least 75 percent of the principal photography days occur
wholly in California or 75 percent of the production budget is
incurred for payment for services performed within the state and the
purchase or rental of property used within the state.
(ii) Production of the qualified motion picture is completed
within 30 months from the date on which the qualified taxpayer's
application is approved by the California Film Commission. For
purposes of this section, a qualified motion picture is "completed"
when the process of postproduction has been finished.
(iii) The copyright for the motion picture is registered with the
United States Copyright Office pursuant to Title 17 of the United
States Code.
(iv) Principal photography of the qualified motion picture
commences after the date on which the application is approved by the
California Film Commission, but no later than 180 days after the date
of that approval unless death, disability, or disfigurement of the
director or of a principal cast member, an act of God, including, but
not limited to, fire, flood, earthquake, storm, hurricane, or other
natural disaster, terrorist activities, or government sanction has
directly prevented a production's ability to begin principal
photography within the prescribed 180-day commencement period.
(C) For the purposes of subparagraph (A), 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.
(D) "Qualified motion picture" shall not include commercial
advertising, music videos, a motion picture produced for private
noncommercial use, such as weddings, graduations, or as part of an
educational course and made by students, a news program, current
events or public events program, talk show, game show, sporting event
or activity, awards show, telethon or other production that solicits
funds, reality television program, clip-based programming if more
than 50 percent of the content is comprised of licensed footage,
documentaries, variety programs, daytime dramas, strip shows,
one-half hour (air time) episodic television shows, or any production
that falls within the recordkeeping requirements of Section 2257 of
Title 18 of the United States Code.
(18) (A) "Qualified taxpayer" means a taxpayer who has paid or
incurred qualified expenditures and has been issued a credit
certificate by the California Film Commission pursuant to subdivision
(g).
(B) (i) In the case of any pass-thru entity, the determination of
whether a taxpayer is a qualified taxpayer under this section shall
be made at the entity level and any credit under this section is not
allowed to the pass-thru entity, but shall be passed through to the
partners or shareholders in accordance with applicable provisions of
Part 10 (commencing with Section 17001) or Part 11 (commencing with
Section 23001). For purposes of this paragraph, "pass-thru entity"
means any entity taxed as a partnership or "S" corporation.
(ii) In the case of an "S" corporation, the credit allowed under
this section shall not be used by an "S" corporation as a credit
against a tax imposed under Chapter 4.5 (commencing with Section
23800) of Part 11 of Division 2.
(19) "Qualified visual effects" means visual effects where at
least 75 percent or a minimum of ten million dollars ($10,000,000) of
the qualified expenditures for the visual effects is paid or
incurred in California.
(20) (A) "Qualified wages" means all of the following:
(i) Any wages subject to withholding under Division 6 (commencing
with Section 13000) of the Unemployment Insurance Code that were paid
or incurred by any taxpayer involved in the production of a
qualified motion picture with respect to a qualified individual for
services performed on the qualified motion picture production 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 clauses (i), (iii), and (iv).
(iii) Any payments made to a qualified entity for services
performed in this state by qualified individuals within the meaning
of paragraph (16).
(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" shall not include any of the following:
(i) Expenses, including wages, related to new use, reuse, clip
use, licensing, secondary markets, or residual compensation, or the
creation of any ancillary product, including, but not limited to, a
soundtrack album, toy, game, trailer, or teaser.
(ii) Expenses, including wages, paid or incurred with respect to
acquisition, development, turnaround, or any rights thereto.
(iii) Expenses, including wages, related to financing, overhead,
marketing, promotion, or distribution of a qualified motion picture.
(iv) Expenses, including wages, paid per person per qualified
motion picture for writers, directors, music directors, music
composers, music supervisors, producers, and performers, other than
background actors with no scripted lines.
(21) "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.
(22) "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.
(23) "Secondary markets" means media in which a qualified motion
picture is exhibited following the initial media in which it is
exhibited.
(24) "Television series that relocated to California" means a
television series, without regard to episode length or initial media
exhibition, with a minimum production budget of one million dollars
($1,000,000) per episode, that filmed no fewer than its most recent
two seasons outside of California and for which the taxpayer
certifies that the credit provided pursuant to this section is the
primary reason for relocating to California.
(25) "Visual effects" means the creation, alteration, or
enhancement of images that cannot be captured on a set or location
during live action photography and therefore is accomplished in
postproduction. It includes, but is not limited to, matte paintings,
animation, set extensions, computer-generated objects, characters and
environments, compositing (combining two or more elements in a final
image), and wire removals. "Visual effects" does not include fully
animated projects, whether created by traditional or digital means.
(c) (1) Notwithstanding subdivision (i) of Section 23036, in the
case where the credit allowed by this section exceeds the taxpayer's
tax liability computed under this part, a qualified taxpayer may
elect to assign any portion of the credit allowed under this section
to one or more affiliated corporations for each taxable year in which
the credit is allowed. For purposes of this subdivision, "affiliated
corporation" has the meaning provided in subdivision (b) of Section
25110, as that section was amended by Chapter 881 of the Statutes of
1993, as of the last day of the taxable year in which the credit is
allowed, except that "100 percent" is substituted for "more than 50
percent" wherever it appears in the section, and "voting common stock"
is substituted for "voting stock" wherever it appears in the
section.
(2) The election provided in paragraph (1):
(A) May be based on any method selected by the qualified taxpayer
that originally receives the credit.
(B) Shall be irrevocable for the taxable year the credit is
allowed, once made.
(C) May be changed for any subsequent taxable year if the election
to make the assignment is expressly shown on each of the returns of
the qualified taxpayer and the qualified taxpayer's affiliated
corporations that assign and receive the credits.
(D) Shall be reported to the Franchise Tax Board, in the form and
manner specified by the Franchise Tax Board, along with all required
information regarding the assignment of the credit, including the
corporation number, the federal employer identification number, or
other taxpayer identification number of the assignee, and the amount
of the credit assigned.
(3) (A) Notwithstanding any other law, a qualified taxpayer may
sell any credit allowed under this section that is attributable to an
independent film, as defined in paragraph (6) of subdivision (b), to
an unrelated party.
(B) The qualified taxpayer shall report to the Franchise Tax Board
prior to the sale of the credit, in the form and manner specified by
the Franchise Tax Board, all required information regarding the
purchase and sale of the credit, including the social security or
other taxpayer identification number of the unrelated party to whom
the credit has been sold, the face amount of the credit sold, and the
amount of consideration received by the qualified taxpayer for the
sale of the credit.
(4) In the case where the credit allowed under this section
exceeds the "tax," the excess credit may be carried over to reduce
the "tax" in the following taxable year, and succeeding five taxable
years, if necessary, until the credit has been exhausted.
(5) A credit shall not be sold pursuant to this subdivision to
more than one taxpayer, nor may the credit be resold by the unrelated
party to another taxpayer or other party.
(6) A party that has been assigned or acquired tax credits under
this paragraph shall be subject to the requirements of this section.
(7) In no event may a qualified taxpayer assign or sell any tax
credit to the extent the tax credit allowed by this section is
claimed on any tax return of the qualified taxpayer.
(8) In the event that both the taxpayer originally allocated a
credit under this section by the California Film Commission and a
taxpayer to whom the credit has been sold both claim the same amount
of credit on their tax returns, the Franchise Tax Board may disallow
the credit of either taxpayer, so long as the statute of limitations
upon assessment remains open.
(9) Chapter 3.5 (commencing with Section 11340) of Part 1 of
Division 3 of Title 2 of the Government Code does not apply to any
standard, criterion, procedure, determination, rule, notice, or
guideline established or issued by the Franchise Tax Board pursuant
to this subdivision.
(10) Subdivision (i) of Section 23036 shall not apply to any
credit sold pursuant to this subdivision.
(11) For purposes of this subdivision:
(A) An affiliated corporation or corporations that are assigned a
credit pursuant to paragraph (1) shall be treated as a qualified
taxpayer pursuant to paragraph (1) of subdivision (a).
(B) The unrelated party or parties that purchase a credit pursuant
to paragraph (3) shall be treated as a qualified taxpayer pursuant
to paragraph (1) of subdivision (a).
(d) No credit shall be allowed pursuant to this section unless the
qualified taxpayer provides the following to the California Film
Commission:
(1) Identification of each qualified individual.
(2) The specific start and end dates of production.
(3) The total wages paid.
(4) The amount of qualified wages paid to each qualified
individual.
(5) 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 on the return claiming the credit.
(6) The total amounts paid or incurred to purchase or lease
tangible personal property used in the production of a qualified
motion picture.
(7) Information to substantiate its qualified expenditures.
(8) Information required by the California Film Commission under
regulations promulgated pursuant to subdivision (g) necessary to
verify the amount of credit claimed.
(e) (1) The California Film Commission may prescribe rules and
regulations to carry out the purposes of this section including any
rules and regulations necessary to establish procedures, processes,
requirements, application fee structure, and rules identified in or
required to implement this section, including credit and logo
requirements. The regulations shall include provisions to set aside a
percentage of annual credit allocations for independent films and
television series relocating to California, pursuant to subdivision
(i).
(2) Implementation of this section is deemed an emergency and
necessary for the immediate preservation of the public peace, health,
and safety, or general welfare and, therefore, the California Film
Commission is hereby authorized to adopt emergency regulations
necessary to implement this section during the 2014-15 fiscal year in
accordance with the rulemaking provisions of the Administrative
Procedures Act (Chapter 3.5 (commencing with Section 11340) of Part 1
of Division 3 of Title 2 of the Government Code).
(f) If the qualified taxpayer fails to provide the copyright
registration number as required in paragraph (5) of subdivision (d),
the credit shall be disallowed and assessed and collected under
Section 19051 until the procedures are satisfied.
(g) For purposes of this section, the California Film Commission
shall do the following:
(1) On or after January 1, 2015, and before July 1, 2021, in one
or more allocation periods per fiscal year, allocate tax credits to
applicants.
(A) Establish a procedure for applicants to file with the
California Film Commission a written application, on a form jointly
prescribed by the California Film Commission and the Franchise Tax
Board for the allocation of the tax credit. The application shall
include, but not be limited to, the following information:
(i) The budget for the motion picture production.
(ii) The number of production days.
(iii) A financing plan for the production.
(iv) The diversity of the workforce employed by the applicant,
including, but not limited to, the ethnic and racial makeup of the
individuals employed by the applicant during the production of the
qualified motion picture, to the extent possible.
(v) All members of a combined reporting group, if known at the
time of the application.
(vi) Financial information, if available, including, but not
limited to, the most recently produced balance sheets, annual
statements of profits and losses, audited or unaudited financial
statements, summary budget projections or results, or the functional
equivalent of these documents of a partnership or owner of a single
member limited liability company that is disregarded pursuant to
Section 23038. The information provided pursuant to this clause shall
be confidential and shall not be subject to public disclosure.
(vii) The names of all partners in a partnership not publicly
traded or the names of all members of a limited liability company
classified as a partnership not publicly traded for California income
tax purposes that have a financial interest in the applicant's
qualified motion picture. The information provided pursuant to this
clause shall be confidential and shall not be subject to public
disclosure.
(viii) Detailed narratives, for use only by the Legislative
Analyst's Office in conducting a study of the effectiveness of this
credit, that describe the extent to which the credit is expected to
influence or affect filming and other business location decisions,
hiring decisions, salary decisions, and any other financial matters
of the applicant.
(ix) Any other information deemed relevant by the California Film
Commission or the Franchise Tax Board.
(B) Establish criteria, consistent with the requirements of this
section, for allocating tax credits.
(C) Determine and designate applicants who meet the requirements
of this section.
(D) (i) Except as provided in clauses (ii) and (iii), process and
approve, or reject, all applications on a first-come-first-served
basis.
(ii) Any new television series, as described in clause (iii) of
subparagraph (A) of paragraph (17) of subdivision (b), and any
television series that relocated to California, as described in
clause (v) of subparagraph (A) of paragraph (17) of subdivision (b),
that has been approved and issued a credit allocation by the
California Film Commission either under this section or Section 23685
shall be placed at the top of the queue for an open allocation
period once in each subsequent year in the life of that television
series whenever credits are allocated within a fiscal year.
(iii) Any new television series based on a pilot for a new
television series described in paragraph (9) of subdivision (b),
where that pilot has been previously approved and issued a credit
allocation by the California Film Commission under this section or
Section 23685, shall be placed at the top of the queue for an open
allocation period once in the initial and in each subsequent year in
the life of that television series whenever credits are allocated
within a fiscal year.
(E) Subject to the annual cap established as provided in
subdivision (i), allocate an aggregate amount of credits under this
section and Section 17053.95, and allocate any carryover of
unallocated credits from prior years.
(2) Certify tax credits allocated to qualified taxpayers.
(A) Establish a verification procedure for the amount of qualified
expenditures paid or incurred by the applicant, including, but not
limited to, updates to the information in subparagraph (A) of
paragraph (1) of subdivision (g).
(B) Establish audit requirements that must be satisfied before a
credit certificate may be issued by the California Film Commission.
(C) (i) Establish a procedure for a qualified taxpayer to report
to the California Film Commission, prior to the issuance of a credit
certificate, the following information:
(I) If readily available, a list of the states, provinces, or
other jurisdictions in which any member of the applicant's combined
reporting group in the same business unit as the qualified taxpayer
that, in the preceding calendar year, has produced a qualified motion
picture intended for release in the United States market. For
purposes of this clause, "qualified motion picture" shall not include
any episodes of a television series that were complete or in
production prior to July 1, 2016.
(II) Whether a qualified motion picture described in subclause (I)
was awarded any financial incentive by the state, province, or other
jurisdiction that was predicated on the performance of primary
principal photography or postproduction in that location.
(ii) The California Film Commission may provide that the report
required by this subparagraph be filed in a single report provided on
a calendar year basis for those qualified taxpayers that receive
multiple credit certificates in a calendar year.
(D) Issue a credit certificate to a qualified taxpayer upon
completion of the qualified motion picture reflecting the credit
amount allocated after qualified expenditures have been verified
under this section. The amount of credit shown in the credit
certificate shall not exceed the amount of credit allocated to that
qualified taxpayer pursuant to this section.
(3) Obtain, when possible, the following information from
applicants that do not receive an allocation of credit:
(A) Whether the qualified motion picture that was the subject of
the application was completed.
(B) If completed, in which state or foreign jurisdiction was the
primary principal photography completed.
(C) Whether the applicant received any financial incentives from
the state or foreign jurisdiction to make the qualified motion
picture in that location.
(4) Provide the Legislative Analyst's Office, upon request, any or
all application materials or any other materials received from, or
submitted by, the applicants, in electronic format when available,
including, but not limited to, information provided pursuant to
clauses (i) to (ix), inclusive, of subparagraph (A) of paragraph (1).
(5) The information provided to the California Film Commission
pursuant to this section shall constitute confidential tax
information for purposes of Article 2 (commencing with Section 19542)
of Chapter 7 of Part 10.2.
(h) (1) The California Film Commission shall annually provide the
Legislative Analyst's Office, the Franchise Tax Board, and the board
with a list of qualified taxpayers and the tax credit amounts
allocated to each qualified taxpayer by the California Film
Commission. The list shall include the names and taxpayer
identification numbers, including taxpayer identification numbers of
each partner or shareholder, as applicable, of the qualified
taxpayer.
(2) (A) Notwithstanding paragraph (5) of subdivision (g), the
California Film Commission shall annually post on its Internet Web
site and make available for public release the following:
(i) A table which includes all of the following information: a
list of qualified taxpayers and the tax credit amounts allocated to
each qualified taxpayer by the California Film Commission, the number
of production days in California the qualified taxpayer represented
in its application would occur, the number of California jobs that
the qualified taxpayer represented in its application would be
directly created by the production, and the total amount of qualified
expenditures expected to be spent by the production.
(ii) A narrative staff summary describing the production of the
qualified taxpayer as well as background information regarding the
qualified taxpayer contained in the qualified taxpayer's application
for the credit.
(B) Nothing in this subdivision shall be construed to make the
information submitted by an applicant for a tax credit under this
section a public record.
(3) The California Film Commission shall provide each city and
county in California with an instructional guide that includes, but
is not limited to, a review of best practices for facilitating motion
picture production in local jurisdictions,
resources on hosting and encouraging motion picture
production, and the California Film Commissions' Model Film
Ordinance. The California Film Commission shall maintain on its
Internet Web site a list of initiatives by locality that encourage
motion picture production in regions across the state. The list shall
be distributed to each approved applicant for the program to
highlight local jurisdictions that offer incentives to facilitate
film production.
(i) (1) The aggregate amount of credits that may be allocated in
any fiscal year pursuant to this section and Section 17053.95 shall
be an amount equal to the sum of all of the following:
(A) ____dollars ($____) in credits for the 2016-17 fiscal year and
each fiscal year thereafter, through and including the 2020-21
fiscal year.
(B) The unused allocation credit amount, if any, for the preceding
fiscal year.
(C) The amount of previously allocated credits not certified.
(2) (A) Notwithstanding the foregoing, the California Film
Commission shall set aside the lesser of 10 percent of the amount
specified in subparagraph (A) of paragraph (1) or twenty million
dollars ($20,000,000) of tax credits each fiscal year for independent
films allocated in accordance with rules and regulations developed
pursuant to subdivision (e).
(B) Notwithstanding the foregoing, the California Film Commission
shall set aside up to thirty million dollars ($30,000,000) of tax
credit each fiscal year for television series that relocated to
California in its first year of receiving a tax credit allocation
pursuant to this section allocated in accordance with rules and
regulations developed pursuant to subdivision (e).
(3) Any act that reduces the amount that may be allocated pursuant
to paragraph (1) constitutes a change in state taxes for the purpose
of increasing revenues within the meaning of Section 3 of Article
XIII A of the California Constitution and may be passed by not less
than two-thirds of all Members elected to each of the two houses of
the Legislature.
(j) The California Film Commission shall have the authority to
allocate tax credits in accordance with this section and in
accordance with any regulations prescribed pursuant to subdivision
(e) upon adoption.
SEC. 6. SEC. 7. 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. 7. SEC. 8. This act provides
for a tax levy within the meaning of Article IV of the Constitution
and shall go into immediate effect.