Amended in Senate August 22, 2014

Amended in Senate August 20, 2014

Amended in Senate July 2, 2014

Amended in Senate June 17, 2014

Amended in Assembly May 23, 2014

Amended in Assembly March 19, 2014

California Legislature—2013–14 Regular Session

Assembly BillNo. 1839


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, Morrell, Pavley, Torres, Walters, and Wyland)

February 18, 2014


An act to amendbegin delete Sectionend deletebegin insert Sections 17053.85,end insert 23036begin insert, and 23685end insert 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 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.

begin insert

For those existing credits, this bill would allow an additional $100,000,000 of credits to be allocated over the 2015-16 and 2016-17 fiscal years.

end insert

This bill wouldbegin insert alsoend insert 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 or after January 1, 2015, and before July 1, 2019. 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 $400 million, and would, subject to a computation and ranking of applicants based on the jobs ratio, as defined, require the California Film Commission to allocate credit amounts subject to specified categories of qualified motion pictures. 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.

This bill would also make findings and declarations related to the entertainment industry, and would urge the United States Congress and the International Trade Commission to investigate and impose sanctions on specified motion picture productions and elements of production to combat unfair and illegal competition.

Existing constitutional provisions require that a statute that limits the right of access to the meetings of public bodies or the writings of public officials and agencies be adopted with findings demonstrating the interest protected by the limitation and the need for protecting that interest.

This bill would make legislative findings to that effect.

The bill would state that its provisions are severable.

begin insert

This bill would incorporate additional changes in Section 23036 of the Revenue and Taxation Code, proposed by AB 2754, to be operative only if AB 2754 and this bill are both chaptered and become effective on or before January 1, 2015, and this bill is chaptered last.

end insert

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:

P4    1

SECTION 1.  

The Legislature finds and declares all of the
2following:

3(a) There has been no greater ambassador for the State of
4California than its artistic output, inspiring generations to dream
5about the bounty of this golden state, driving a modern gold rush
6of those who came here to be a part of that California dream, as
7they had done during the Gold Rush and the Dust Bowl migrations
8during previous generations.

9(b) California’s artistic output is manifested in the evolution of
10Hollywood, a locale internationally celebrated as the home of the
11entertainment industry, having established itself as a filmmaking
12locale by the early 1900s.

13(c) Hollywood’s cultural output is a primary reason why
14California emerged as a thought leader in the United States, and
15around the world.

16(d) The benefits of a healthy entertainment industry manifest
17themselves in healthy employment markets, healthy tourism,
18healthy local economies, and healthy family units.

19(e) However, since 1997, other states and nations have sought
20to lure the economic activity, tax revenue, workforce, and renown
21that are concomitant to the industry.

22(f) California’s entertainment workforce has been steadily
23eroding for more than a decade, forcing thousands of Californians
24to temporarily or permanently relocate, leaving their families and
25communities behind.

26(g) The exodus of the film industry has hurt related businesses
27that provide the motion picture industry with specialized services,
28equipment, and facilities.

29(h) The visual effects industry is a highly qualified and highly
30skilled sector of the entertainment industry that is becoming
31increasingly significant as films become more technical in nature.

32(i) In search of subsidy programs that specifically target special
33effects, visual effects, and virtual photography, many
34California-based companies have opened international offices to
35compete for tax incentives offered in those jurisdictions.

36(j) California, and the United States as a whole, is facing
37growing competition from international governments that have
38implemented aggressive tax rebates and initiatives that have lured
P5    1tens of thousands of jobs associated with film production,
2postproduction, visual effects, and music scoring abroad.

3(k) The federal International Trade Commission exercises broad
4authority to investigate the effects of subsidized imports on
5domestic industries, to conduct global safeguard investigations,
6and to protect domestic industries from unfair acts in importation.

7(l) It is the intent of the Legislature to urge the United States
8Congress and the International Trade Commission to investigate
9aggressively and impose sanctions, including tariffs, on productions
10and elements of production, including visual effects, virtual
11photography, and music scoring, that are digitally distributed and
12electronically transmitted, in its definition of “articles” protected
13by the Tariff Act, to combat unfair and illegal competition from
14international parties.

15(m) A central focus of this Legislature has been developing
16policies to help California climb out of the great recession and put
17families back to work. In order to halt the steady outward march
18of jobs and creativity, California must have a robust, smart, and
19efficient tax incentive program that guarantees job growth and
20economic expansion, coupled with strong accountability and
21transparency measures. Towards this end, California’s tax credits
22for film and television must be reformed to ensure that California’s
23taxpayers receive the maximum possible economic return on their
24investment. It is the intent of this legislation to replace the
25program’s current arbitrary lottery system with a competitive and
26accountable system that ranks tax credit applications according to
27net new jobs created and overall positive and sustained economic
28impacts for the entire state.

29

SEC. 2.  

Section 38.9 is added to the Revenue and Taxation
30Code
, to read:

31

38.9.  

(a) On or before July 1, 2019, the Legislative Analyst’s
32Office shall provide to the Assembly Committee on Revenue and
33Taxation, the Senate Committee on Governance and Finance, and
34the public a report evaluating the economic effects and
35administration of the tax credits allowed pursuant to Sections
366902.5, as amended by the act adding this section, 17053.95, and
3723695. In researching the reports, the Legislative Analyst’s Office
38may do all of the following:

P6    1(1) Request and receive all information provided to the
2California Film Commission pursuant to subdivision (g) of Sections
317053.95 and 23695.

4(2) Request and receive all information provided to the Franchise
5Tax Board relating to the sale or assignment of credits pursuant
6to subdivision (c) of Sections 17053.95 and 23695.

7(3) Request and receive all information provided to the board
8pursuant to subdivisions (c) and (g) of Section 6902.5, as amended
9by the act adding this section.

10(b) The California Film Commission, the board, the Franchise
11Tax Board, the Employment Development Department, and all
12other relevant state agencies shall provide additional information,
13as specified by the Legislative Analyst’s Office, as needed to
14research the reports required by this section.

15(c) (1) The information received by the Legislative Analyst’s
16Office pursuant to this section shall be considered confidential
17taxpayer information subject to Sections 7056, 7056.5, and 19542
18of this code and Section 1094 of the Unemployment Insurance
19Code, and shall be subject to the appropriate confidentiality
20requirements of the participating state agency.

21(2) The Legislative Analyst’s Office may publish statistics in
22conjunction with the reports required by this section that are
23derived from information provided to the Legislative Analyst’s
24Office pursuant to this section, if the published statistics are
25classified to prevent the identification of particular taxpayers,
26reports, and tax returns and the publication of the percentage of
27dividends paid by a corporation that is deductible by the recipient
28under Part 11 (commencing with Section 23001) of Division 2.

29

SEC. 3.  

Section 6902.5 of the Revenue and Taxation Code, as
30added by Section 1 of Chapter 10 of the Third Extraordinary
31Session of the Statutes of 2009, is repealed.

32

SEC. 4.  

Section 6902.5 of the Revenue and Taxation Code, as
33added by Section 1 of Chapter 17 of the Third Extraordinary
34Session of the Statutes of 2009, is amended to read:

35

6902.5.  

(a) For the purposes of this section:

36(1) “Qualified taxpayer” means a person who is a qualified
37taxpayer within the meaning of paragraph (17) of subdivision (b)
38of Section 17053.85, 17053.95, 23685, or 23695.

39(2) “Affiliate” means a qualified taxpayer’s affiliated corporation
40that has been assigned any portion of the credit amount by the
P7    1qualified taxpayer pursuant to subdivision (c) of Section 23685 or
2subdivision (c) of Section 23695.

3(3) “Credit amount” means an amount equal to the tax credit
4amount that would otherwise be allowed to a qualified taxpayer
5pursuant to Section 17053.85, 17053.95, 23685, or 23695 but for
6the election made pursuant to this section.

7(4) “Production period” means the production period as defined
8in paragraph (12) of subdivision (b) of Section 17053.85, 17053.95,
923685, or 23695.

10(5) (A) “Qualified sales and use taxes” means any state sales
11and use taxes imposed by Part 1 (commencing with Section 6001),
12on the operative date of the act adding this section.

13(B) Notwithstanding subparagraph (A), “qualified sales and use
14taxes” does not mean taxes imposed by Section 6051.2, 6051.5,
156201.2, 6201.5, Part 1.5 (commencing with Section 7200), Part
161.6 (commencing with Section 7251), or Section 35 of Article XIII
17of the California Constitution.

18(b) (1) A qualified taxpayer may, in lieu of claiming the credit
19allowed by Section 17053.85, 17053.95, 23685, or 23695 make
20an irrevocable election to apply the credit amount against qualified
21sales and use taxes imposed on the qualified taxpayer in accordance
22with this section.

23(2) An affiliate may, in lieu of claiming the assigned portion of
24the credit allowed by Section 23685 or 23695, make an irrevocable
25election to apply the assigned portion of the credit amount against
26qualified sales and use taxes imposed on the affiliate in accordance
27with this section.

28(c) (1) A qualified taxpayer or affiliate shall submit to the board
29an irrevocable election, in a form as prescribed by the board, which
30shall include, but not be limited to, the following information:

31(A) Representation that the claimant is a qualified taxpayer or
32an affiliate.

33(B) Statement of the dates on which the production period began
34and ended.

35(C) The credit amount, and if an affiliate, the portion of the
36credit amount assigned to it and documentation supporting the
37assignment of that portion of the credit amount.

38(D) The amount of qualified sales and use taxes the claimant
39remitted to the board during the period commencing on the first
40day of the calendar quarter commencing immediately before the
P8    1beginning of the production period, and ending on the date the
2claimant was required to file its most recent sales and use tax return
3with the board.

4(E) A copy of the credit certificate issued pursuant to
5subparagraph (C) of paragraph (2) of subdivision (g) of Section
617053.85 or 23685 or subparagraph (D) of paragraphbegin delete (2)end deletebegin insert (3)end insert of
7subdivision (g) of Section 17053.95 or 23695.

8(2) The election shall be filed on or before the date on which
9the qualified taxpayer or affiliate would first be allowed to claim
10a credit pursuant to Section 17053.85, 17053.95, 23685, or 23695
11on its tax return.

12(d) (1) The claimant may elect to obtain a refund of qualified
13sales and use taxes paid during the period described in
14subparagraph (D) of paragraph (1) of subdivision (c). If the
15claimant elects to obtain a refund of qualified sales and use taxes,
16the claimant shall file a claim for refund with the irrevocable
17election described in subdivision (c). The refund amount shall not
18exceed, for a qualified taxpayer, the credit amount, or for an
19affiliate, the portion of the credit amount assigned to it.

20(2) No interest shall be paid on any amount refunded or credited
21pursuant to paragraph (1).

22(e) If the claimant does not elect to obtain a refund or in the
23case where the credit amount, or assigned portion, exceeds the
24amount of its claim for refund for the qualified sales and use taxes,
25the claimant may, for the reporting periods in the five years
26following the last reporting period as described in subparagraph
27(D) of paragraph (1) of subdivision (c), offset any remaining credit
28amount, or assigned portion, against the qualified sales and use
29taxes imposed during those reporting periods.

30(f) Section 6961 shall apply to any refund, or part thereof, that
31is erroneously made and any credit, or part thereof, that is
32erroneously allowed pursuant to this section.

33(g) The board shall provide an annual listing to the Franchise
34Tax Board, in a form and manner agreed upon by the board and
35the Franchise Tax Board, of the qualified taxpayers, or affiliates
36that have been assigned a portion of the credit allowed under
37Section 23685 pursuant to subdivision (c) of Section 23685 or
38Section 23695 pursuant to subdivision (c) of Section 23695, who,
39during the year, have made an irrevocable election pursuant to this
P9    1section and the credit amount, or portion of the credit amount,
2claimed by each qualified taxpayer or affiliate.

3(h) The board may prescribe rules and regulations for the
4administration of this section.

5begin insert

begin insertSEC. 5.end insert  

end insert

begin insertSection 17053.85 of the end insertbegin insertRevenue and Taxation Codeend insert
6begin insert is amended to read:end insert

7

17053.85.  

(a) (1) For taxable years beginning on or after
8January 1, 2011, there shall be allowed to a qualified taxpayer a
9credit against the “net tax,” as defined in Section 17039, in an
10amount equal to the applicable percentage, as specified in
11paragraph (4), of the qualified expenditures for the production of
12a qualified motion picture in California.

13(2) The credit shall be allowed for the taxable year in which the
14California Film Commission issues the credit certificate pursuant
15to subdivision (g) for the qualified motion picture, and shall be for
16the applicable percentage of all qualified expenditures paid or
17incurred by the qualified taxpayer in all taxable years for that
18qualified motion picture.

19(3) The amount of the credit allowed to a qualified taxpayer
20shall be limited to the amount specified in the credit certificate
21issued to the qualified taxpayer by the California Film Commission
22pursuant to subdivision (g).

23(4) For purposes of paragraphs (1) and (2), the applicable
24percentage shall be:

25(A) Twenty percent of the qualified expenditures attributable
26to the production of a qualified motion picture in California.

27(B) Twenty-five percent of the qualified expenditures
28attributable to the production of a qualified motion picture in
29California where the qualified motion picture is a television series
30that relocated to California or an independent film.

31(b) For purposes of this section:

32(1) “Ancillary product” means any article for sale to the public
33that contains a portion of, or any element of, the qualified motion
34picture.

35(2) “Budget” means an estimate of all expenses paid or incurred
36during the production period of a qualified motion picture. It shall
37be the same budget used by the qualified taxpayer and production
38company for all qualified motion picture purposes.

P10   1(3) “Clip use” means a use of any portion of a motion picture,
2other than the qualified motion picture, used in the qualified motion
3picture.

4(4) “Credit certificate” means the certificate issued by the
5California Film Commission pursuant to subparagraph (C) of
6paragraph (2) of subdivision (g).

7(5) (A) “Employee fringe benefits” means the amount allowable
8as a deduction under this part to the qualified taxpayer involved
9in the production of the qualified motion picture, exclusive of any
10amounts contributed by employees, for any year during the
11production period with respect to any of the following:

12(i) Employer contributions under any pension, profit-sharing,
13annuity, or similar plan.

14(ii) Employer-provided coverage under any accident or health
15plan for employees.

16(iii) The employer’s cost of life or disability insurance provided
17to employees.

18(B) Any amount treated as wages under clause (i) of
19subparagraph (A) of paragraph (18) shall not be taken into account
20under this paragraph.

21(6) “Independent film” means a motion picture with a minimum
22budget of one million dollars ($1,000,000) and a maximum budget
23of ten million dollars ($10,000,000) that is produced by a company
24that is not publicly traded and publicly traded companies do not
25own, directly or indirectly, more than 25 percent of the producing
26company.

27(7) “Licensing” means any grant of rights to distribute the
28qualified motion picture, in whole or in part.

29(8) “New use” means any use of a motion picture in a medium
30other than the medium for which it was initially created.

31(9) (A) “Postproduction” means the final activities in a qualified
32motion picture’s production, including editing, foley recording,
33automatic dialogue replacement, sound editing, scoring and music
34editing, beginning and end credits, negative cutting, negative
35processing and duplication, the addition of sound and visual effects,
36soundmixing, film-to-tape transfers, encoding, and color correction.

37(B) “Postproduction” does not include the manufacture or
38shipping of release prints.

39(10) “Preproduction” means the process of preparation for actual
40physical production which begins after a qualified motion picture
P11   1has received a firm agreement of financial commitment, or is
2greenlit, with, for example, the establishment of a dedicated
3production office, the hiring of key crew members, and includes,
4but is not limited to, activities that include location scouting and
5execution of contracts with vendors of equipment and stage space.

6(11) “Principal photography” means the phase of production
7during which the motion picture is actually shot, as distinguished
8from preproduction and postproduction.

9(12) “Production period” means the period beginning with
10preproduction and ending upon completion of postproduction.

11(13) “Qualified entity” means a personal service corporation as
12defined in Section 269A(b)(1) of the Internal Revenue Code, a
13payroll services corporation, or any entity receiving qualified wages
14with respect to services performed by a qualified individual.

15(14) (A) “Qualified individual” means any individual who
16performs services during the production period in an activity related
17to the production of a qualified motion picture.

18(B) “Qualified individual” shall not include either of the
19following:

20(i) Any individual related to the qualified taxpayer as described
21in subparagraph (A), (B), or (C) of Section 51(i)(1) of the Internal
22Revenue Code.

23(ii) Any 5-percent owner, as defined in Section 416(i)(1)(B) of
24the Internal Revenue Code, of the qualified taxpayer.

25(15) (A) “Qualified motion picture” means a motion picture
26that is produced for distribution to the general public, regardless
27of medium, that is one of the following:

28(i) A feature with a minimum production budget of one million
29dollars ($1,000,000) and a maximum production budget of
30seventy-five million dollars ($75,000,000).

31(ii) A movie of the week or miniseries with a minimum
32production budget of five hundred thousand dollars ($500,000).

33(iii) A new television series produced in California with a
34minimum production budget of one million dollars ($1,000,000)
35licensed for original distribution on basic cable.

36(iv) An independent film.

37(v) A television series that relocated to California.

38(B) To qualify as a “qualified motion picture,” all of the
39following conditions shall be satisfied:

P12   1(i) At least 75 percent of the production days occur wholly in
2California or 75 percent of the production budget is incurred for
3payment for services performed within the state and the purchase
4or rental of property used within the state.

5(ii) Production of the qualified motion picture is completed
6within 30 months from the date on which the qualified taxpayer’s
7application is approved by the California Film Commission. For
8purposes of this section, a qualified motion picture is “completed”
9when the process of postproduction has been finished.

10(iii) The copyright for the motion picture is registered with the
11United States Copyright Office pursuant to Title 17 of the United
12States Code.

13(iv) Principal photography of the qualified motion picture
14commences after the date on which the application is approved by
15the California Film Commission, but no later than 180 days after
16the date of that approval.

17(C) For the purposes of subparagraph (A), in computing the
18total wages paid or incurred for the production of a qualified
19motion picture, all amounts paid or incurred by all persons or
20entities that share in the costs of the qualified motion picture shall
21be aggregated.

22(D) “Qualified motion picture” shall not include commercial
23advertising, music videos, a motion picture produced for private
24noncommercial use, such as weddings, graduations, or as part of
25an educational course and made by students, a news program,
26current events or public events program, talk show, game show,
27sporting event or activity, awards show, telethon or other
28production that solicits funds, reality television program, clip-based
29programming if more than 50 percent of the content is comprised
30of licensed footage, documentaries, variety programs, daytime
31dramas, strip shows, one-half hour (air time) episodic television
32shows, or any production that falls within the recordkeeping
33requirements of Section 2257 of Title 18 of the United States Code.

34(16) “Qualified expenditures” means amounts paid or incurred
35to purchase or lease tangible personal property used within this
36state in the production of a qualified motion picture and payments,
37including qualified wages, for services performed within this state
38in the production of a qualified motion picture.

39(17) (A) “Qualified taxpayer” means a taxpayer who has paid
40or incurred qualified expenditures and has been issued a credit
P13   1certificate by the California Film Commission pursuant to
2subdivision (g).

3(B) In the case of any pass-thru entity, the determination of
4whether a taxpayer is a qualified taxpayer under this section shall
5be made at the entity level and any credit under this section is not
6allowed to the pass-thru entity, but shall be passed through to the
7partners or shareholders in accordance with applicable provisions
8of Part 10 (commencing with Section 17001) or Part 11
9(commencing with Section 23001). For purposes of this paragraph,
10“pass-thru entity” means any entity taxed as a partnership or “S”
11corporation.

12(18) (A) “Qualified wages” means all of the following:

13(i) Any wages subject to withholding under Division 6
14(commencing with Section 13000) of the Unemployment Insurance
15Code that were paid or incurred by any taxpayer involved in the
16production of a qualified motion picture with respect to a qualified
17individual for services performed on the qualified motion picture
18production within this state.

19(ii) The portion of any employee fringe benefits paid or incurred
20by any taxpayer involved in the production of the qualified motion
21picture that are properly allocable to qualified wage amounts
22described in clause (i).

23(iii) Any payments made to a qualified entity for services
24performed in this state by qualified individuals within the meaning
25of paragraph (14).

26(iv) Remuneration paid to an independent contractor who is a
27qualified individual for services performed within this state by that
28qualified individual.

29(B) “Qualified wages” shall not include any of the following:

30(i) Expenses, including wages, related to new use, reuse, clip
31use, licensing, secondary markets, or residual compensation, or
32the creation of any ancillary product, including, but not limited to,
33a soundtrack album, toy, game, trailer, or teaser.

34(ii) Expenses, including wages, paid or incurred with respect to
35acquisition, development, turnaround, or any rights thereto.

36(iii) Expenses, including wages, related to financing, overhead,
37marketing, promotion, or distribution of a qualified motion picture.

38(iv) Expenses, including wages, paid per person per qualified
39motion picture for writers, directors, music directors, music
P14   1composers, music supervisors, producers, and performers, other
2than background actors with no scripted lines.

3(19) “Residual compensation” means supplemental
4compensation paid at the time that a motion picture is exhibited
5through new use, reuse, clip use, or in secondary markets, as
6distinguished from payments made during production.

7(20) “Reuse” means any use of a qualified motion picture in the
8same medium for which it was created, following the initial use
9in that medium.

10(21) “Secondary markets” means media in which a qualified
11motion picture is exhibited following the initial media in which it
12is exhibited.

13(22) “Television series that relocated to California” means a
14television series, without regard to episode length or initial media
15exhibition, that filmed all of its prior season or seasons outside of
16California and for which the taxpayer certifies that the credit
17provided pursuant to this section is the primary reason for
18relocating to California.

19(c) (1) Notwithstanding any other law, a qualified taxpayer
20may sell any credit allowed under this section that is attributable
21to an independent film, as defined in paragraph (6) of subdivision
22(b), to an unrelated party.

23(2) The qualified taxpayer shall report to the Franchise Tax
24Board prior to the sale of the credit, in the form and manner
25specified by the Franchise Tax Board, all required information
26regarding the purchase and sale of the credit, including the social
27security or other taxpayer identification number of the unrelated
28party to whom the credit has been sold, the face amount of the
29credit sold, and the amount of consideration received by the
30qualified taxpayer for the sale of the credit.

31(3) In the case where the credit allowed under this section
32exceeds the “net tax,” the excess credit may be carried over to
33reduce the “net tax” in the following taxable year, and succeeding
34five taxable years, if necessary, until the credit has been exhausted.

35(4) A credit shall not be sold pursuant to this subdivision to
36more than one taxpayer, nor may the credit be resold by the
37 unrelated party to another taxpayer or other party.

38(5) A party that has acquired tax credits under this section shall
39be subject to the requirements of this section.

P15   1(6) In no event may a qualified taxpayer assign or sell any tax
2credit to the extent the tax credit allowed by this section is claimed
3on any tax return of the qualified taxpayer.

4(7) In the event that both the taxpayer originally allocated a
5credit under this section by the California Film Commission and
6a taxpayer to whom the credit has been sold both claim the same
7amount of credit on their tax returns, the Franchise Tax Board may
8disallow the credit of either taxpayer, so long as the statute of
9limitations upon assessment remains open.

10(8) Chapter 3.5 (commencing with Section 11340) of Part 1 of
11Division 3 of Title 2 of the Government Code does not apply to
12any standard, criterion, procedure, determination, rule, notice, or
13guideline established or issued by the Franchise Tax Board
14pursuant to this subdivision.

15(9) Subdivision (g) of Section 17039 shall not apply to any
16credit sold pursuant to this subdivision.

17(10) For purposes of this subdivision, the unrelated party or
18parties that purchase a credit pursuant to this subdivision shall be
19treated as a qualified taxpayer pursuant to paragraph (1) of
20subdivision (a).

21(d) No credit shall be allowed pursuant to this section unless
22the qualified taxpayer provides the following to the California
23Film Commission:

24(1) Identification of each qualified individual.

25(2) The specific start and end dates of production.

26(3) The total wages paid.

27(4) The amount of qualified wages paid to each qualified
28individual.

29(5) The copyright registration number, as reflected on the
30certificate of registration issued under the authority of Section 410
31of Title 17 of the United States Code, relating to registration of
32claim and issuance of certificate. The registration number shall be
33provided on the return claiming the credit.

34(6) The total amounts paid or incurred to purchase or lease
35tangible personal property used in the production of a qualified
36motion picture.

37(7) Information to substantiate its qualified expenditures.

38(8) Information required by the California Film Commission
39under regulations promulgated pursuant to subdivision (g)
40necessary to verify the amount of credit claimed.

P16   1(e) The California Film Commission may prescribe rules and
2regulations to carry out the purposes of this section including any
3rules and regulations necessary to establish procedures, processes,
4requirements, and rules identified in or required to implement this
5section. The regulations shall include provisions to set aside a
6percentage of annual credit allocations for independent films.

7(f) If the qualified taxpayer fails to provide the copyright
8registration number as required in paragraph (5) of subdivision
9(d), the credit shall be disallowed and assessed and collected under
10Section 19051 until the procedures are satisfied.

11(g) For purposes of this section, the California Film Commission
12shall do the following:

13(1) On or after July 1, 2009, and before July 1, 2017, allocate
14tax credits to applicants.

15(A) Establish a procedure for applicants to file with the
16California Film Commission a written application, on a form jointly
17prescribed by the California Film Commission and the Franchise
18Tax Board for the allocation of the tax credit. The application shall
19include, but not be limited to, the following information:

20(i) The budget for the motion picture production.

21(ii) The number of production days.

22(iii) A financing plan for the production.

23(iv) The diversity of the workforce employed by the applicant,
24including, but not limited to, the ethnic and racial makeup of the
25individuals employed by the applicant during the production of
26the qualified motion picture, to the extent possible.

27(v) All members of a combined reporting group, if known at
28the time of the application.

29(vi) Financial information, if available, including, but not limited
30to, the most recently produced balance sheets, annual statements
31of profits and losses, audited or unaudited financial statements,
32summary budget projections or results, or the functional equivalent
33of these documents of a partnership or owner of a single member
34limited liability company that is disregarded pursuant to Section
3523038. The information provided pursuant to this clause shall be
36confidential and shall not be subject to public disclosure.

37(vii) The names of all partners in a partnership not publicly
38traded or the names of all members of a limited liability company
39classified as a partnership not publicly traded for California income
40tax purposes that have a financial interest in the applicant’s
P17   1qualified motion picture. The information provided pursuant to
2this clause shall be confidential and shall not be subject to public
3disclosure.

4(viii) Detailed narratives, for use only by the Legislative
5Analyst’s Office in conducting a study of the effectiveness of this
6credit, that describe the extent to which the credit is expected to
7influence or affect filming and other business location decisions,
8hiring decisions, salary decisions, and any other financial matters
9of the applicant.

10(ix) Any other information deemed relevant by the California
11Film Commission or the Franchise Tax Board.

12(B) Establish criteria, consistent with the requirements of this
13section, for allocating tax credits.

14(C) Determine and designate applicants who meet the
15requirements of this section.

16(D) Process and approve, or reject, all applications on a
17first-come-first-served basis.

18(E) Subject to the annual cap established as provided in
19subdivision (i), allocate an aggregate amount of credits under this
20section and Section 23685, and allocate any carryover of
21unallocated credits from prior years.

22(2) Certify tax credits allocated to qualified taxpayers.

23(A) Establish a verification procedure for the amount of qualified
24expenditures paid or incurred by the applicant, including, but not
25limited to, updates to the information in subparagraph (A) of
26paragraph (1) of subdivision (g).

27(B) Establish audit requirements that must be satisfied before
28a credit certificate may be issued by the California Film
29Commission.

30(C) (i) Establish a procedure for a qualified taxpayer to report
31to the California Film Commission, prior to the issuance of a credit
32certificate, the following information:

33(I) If readily available, a list of the states, provinces, or other
34jurisdictions in which any member of the applicant’s combined
35reporting group in the same business unit as the qualified taxpayer
36that, in the preceding calendar year, has produced a qualified
37motion picture intended for release in the United States market.
38For purposes of this clause, “qualified motion picture” shall not
39include any episodes of a television series that were complete or
40in production prior to July 1, 2009.

P18   1(II) Whether a qualified motion picture described in subclause
2(I) was awarded any financial incentive by the state, province, or
3other jurisdiction that was predicated on the performance of
4primary principal photography or postproduction in that location.

5(ii) The California Film Commission may provide that the report
6required by this subparagraph be filed in a single report provided
7on a calendar year basis for those qualified taxpayers that receive
8multiple credit certificates in a calendar year.

9(D) Issue a credit certificate to a qualified taxpayer upon
10completion of the qualified motion picture reflecting the credit
11amount allocated after qualified expenditures have been verified
12under this section. The amount of credit shown in the credit
13certificate shall not exceed the amount of credit allocated to that
14qualified taxpayer pursuant to this section.

15(3) Obtain, when possible, the following information from
16applicants that do not receive an allocation of credit:

17(A) Whether the qualified motion picture that was the subject
18of the application was completed.

19(B) If completed, in which state or foreign jurisdiction was the
20primary principal photography completed.

21(C) Whether the applicant received any financial incentives
22from the state or foreign jurisdiction to make the qualified motion
23picture in that location.

24(4) Provide the Legislative Analyst’s Office, upon request, any
25or all application materials or any other materials received from,
26or submitted by, the applicants, in electronic format when available,
27including, but not limited to, information provided pursuant to
28clauses (i) to (ix), inclusive, of subparagraph (A) of paragraph (1).

29(5) The information provided to the California Film Commission
30pursuant to this section shall constitute confidential tax information
31for purposes of Article 2 (commencing with Section 19542) of
32Chapter 7 of Part 10.2.

33(h) (1) The California Film Commission shall annually provide
34the Legislative Analyst’s Office, the Franchise Tax Board, and the
35board with a list of qualified taxpayers and the tax credit amounts
36allocated to each qualified taxpayer by the California Film
37Commission. The list shall include the names and taxpayer
38identification numbers, including taxpayer identification numbers
39of each partner or shareholder, as applicable, of the qualified
40taxpayer.

P19   1(2) (A) Notwithstanding paragraph (5) of subdivision (g), the
2California Film Commission shall annually post on its Internet
3Web site and make available for public release the following:

4(i) A table which includes all of the following information: a
5list of qualified taxpayers and the tax credit amounts allocated to
6each qualified taxpayer by the California Film Commission, the
7number of production days in California the qualified taxpayer
8represented in its application would occur, the number of California
9jobs that the qualified taxpayer represented in its application would
10be directly created by the production, and the total amount of
11qualified expenditures expected to be spent by the production.

12(ii) A narrative staff summary describing the production of the
13qualified taxpayer as well as background information regarding
14the qualified taxpayer contained in the qualified taxpayer’s
15application for the credit.

16(B) Nothing in this subdivision shall be construed to make the
17information submitted by an applicant for a tax credit under this
18section a public record.

19(i) (1) The aggregate amount of credits that may be allocated
20in any fiscal year pursuant to this section and Section 23685 shall
21be an amount equal to the sum of all of the following:

22(A) One hundred million dollars ($100,000,000) in credits for
23the 2009-10 fiscal year and each fiscal year thereafter, through
24and including thebegin delete 2016-17end deletebegin insert 2014-end insertbegin insert15end insert fiscal year.

begin insert

25(B) In addition to the amounts specified in subparagraph (A),
26one hundred million dollars ($100,000,000) in the aggregate
27amount of credits that may be allocated for the 2015-16 and
282016-17 fiscal years.

end insert
begin delete

29(B)

end delete

30begin insert(C)end insert The unused allocation credit amount, if any, for the
31preceding fiscal year.

begin delete

32(C)

end delete

33begin insert(D)end insert The amount of previously allocated credits not certified.

34(2) If the amount of credits applied for in any particular fiscal
35year exceeds the aggregate amount of tax credits authorized to be
36allocated under this section, such excess shall be treated as having
37been applied for on the first day of the subsequent fiscal year.
38However, credits may not be allocated from a fiscal year other
39than the fiscal year in which the credit was originally applied for
40or the immediately succeeding fiscal year.

P20   1(3) Notwithstanding the foregoing, the California Film
2Commission shall set aside up to ten million dollars ($10,000,000)
3of tax credits each fiscal year for independent films allocated in
4accordance with rules and regulations developed pursuant to
5subdivision (e).

6(4) Any act that reduces the amount that may be allocated
7pursuant to paragraph (1) constitutes a change in state taxes for
8the purpose of increasing revenues within the meaning of Section
93 of Article XIII A of the California Constitution and may be passed
10by not less than two-thirds of all Members elected to each of the
11two houses of the Legislature.

12(j) The California Film Commission shall have the authority to
13allocate tax credits in accordance with this section and in
14accordance with any regulations prescribed pursuant to subdivision
15(e) upon adoption.

16

begin deleteSEC. 5.end delete
17begin insertSEC. 6.end insert  

Section 17053.95 is added to the Revenue and Taxation
18Code
, to read:

19

17053.95.  

(a) (1) For taxable years beginning on or after
20January 1, 2016, there shall be allowed to a qualified taxpayer a
21credit against the “net tax,” as defined in Section 17039, subject
22to a computation and ranking by the California Film Commission
23in subdivision (g) and the allocation amount categories described
24in subdivision (i), in an amountbegin delete not to exceedend deletebegin insert equal to 20 percent
25or 25 percent, whichever isend insert
the applicable credit percentagebegin delete, as
26specifiedend delete
begin insert describedend insert in paragraph (4), of the qualified expenditures
27for the production of a qualified motion picture in California. A
28credit shall not be allowed under this section for any qualified
29expenditures for the production of a motion picture in California
30if a credit has been claimed for those same expenditures under
31Section 17053.85.

32(2) The credit shall be allowed for the taxable year in which the
33California Film Commission issues the credit certificate pursuant
34to subdivision (g) for the qualified motion picture, but in no
35instance prior to July 1, 2016, and shall be for the applicable
36percentage of all qualified expenditures paid or incurred by the
37qualified taxpayer in all taxable years for that qualified motion
38picture.

39(3) The amount of the credit allowed to a qualified taxpayer
40shall be limited to the amount specified in the credit certificate
P21   1issued to the qualified taxpayer by the California Film Commission
2pursuant to subdivision (g).

3(4) For purposes of paragraphs (1) and (2), the applicable credit
4percentage shall be:

5(A) Twenty percent of the qualified expenditures attributable
6to the production of a qualified motion picture in California,
7including, but not limited to, a feature, up to one hundred million
8dollars ($100,000,000) in qualified expenditures, or a television
9series that relocated to California that is in its second or subsequent
10years of receiving a tax credit allocation pursuant to this section
11or Section 17053.85.

12(B) Twenty-five percent of the qualified expenditures
13attributable to the production of a qualified motion picture in
14California where the qualified motion picture is a television series
15that relocated to California in its first year of receiving a tax credit
16allocation pursuant to this section.

17(C) Twenty-five percent of the qualified expenditures, up to ten
18million dollars ($10,000,000), attributable to the production of a
19qualified motion picture that is an independent film.

20(D) (i) In order to carry outbegin delete clause (vii) of subparagraph (D) of
21paragraph (2) of subdivision (g),end delete
begin insert subparagraph (D) of paragraph
22(2) of subdivision (d),end insert
the California Film Commission shall
23increase the applicable credit percentage by 5 percent, not to exceed
24a maximum of 25 percent of qualified expenditures relating to
25original photography outside the Los Angeles zone.

26(ii) For purposes of this subparagraph:

27(I) “Applicable period” means the period that commences with
28preproduction and ends when original photography concludes. The
29applicable period includes the time necessary to strike a remote
30location and return to the Los Angeles zone.

31(II) “Los Angeles zone” means the area within a circle 30 miles
32in radius from Beverly Boulevard and La Cienega Boulevard, Los
33Angeles, California, and includes Agua Dulce, Castaic, including
34Lake Castaic, Leo Carillo State Beach, Ontario International
35Airport, Piru, and Pomona, including the Los Angeles County
36Fairgrounds. The Metro Goldwyn Mayer, Inc. Conejo Ranch
37property is within the Los Angeles zone.

38(III) “Original photography” includes principal photography
39and reshooting original footage.

P22   1(IV) “Qualified expenditures relating to original photography
2outside the Los Angeles zone” means amounts paid or incurred
3during the applicable period for tangible personal property
4purchased or leased and used or consumed outside the Los Angeles
5zone and relating to original photography outside the Los Angeles
6zone and qualified wages paid for services performed outside the
7Los Angeles zone and relating to original photography outside the
8Los Angeles zone.

9(E) Twenty-five percent of the qualified expenditures relating
10to music scoring and music track recording by musicians
11attributable to the production of a qualified motion picture in
12California.

13(F) Twenty-five percent of the qualified expenditures relating
14to qualified visual effects attributable to the production of a
15qualified motion picture in California.

16(b) For purposes of this section:

17(1) “Ancillary product” means any article for sale to the public
18that contains a portion of, or any element of, the qualified motion
19picture.

20(2) “Budget” means an estimate of all expenses paid or incurred
21during the production period of a qualified motion picture. It shall
22be the same budget used by the qualified taxpayer and production
23company for all qualified motion picture purposes.

24(3) “Clip use” means a use of any portion of a motion picture,
25other than the qualified motion picture, used in the qualified motion
26picture.

27(4) “Credit certificate” means the certificate issued by the
28California Film Commission pursuant to subparagraph (C) of
29paragraph (3) of subdivision (g).

30(5) (A) “Employee fringe benefits” means the amount allowable
31as a deduction under this part to the qualified taxpayer involved
32in the production of the qualified motion picture, exclusive of any
33amounts contributed by employees, for any year during the
34production period with respect to any of the following:

35(i) Employer contributions under any pension, profit-sharing,
36annuity, or similar plan.

37(ii) Employer-provided coverage under any accident or health
38plan for employees.

39(iii) The employer’s cost of life or disability insurance provided
40to employees.

P23   1(B) Any amount treated as wages under clause (i) of
2subparagraph (A) of paragraph (21) shall not be taken into account
3under this paragraph.

4(6) “Independent film” means a motion picture with a minimum
5budget of one million dollars ($1,000,000) that is produced by a
6company that is not publicly traded and publicly traded companies
7do not own, directly or indirectly, more than 25 percent of the
8producing company.

9(7) “Jobs ratio” means the amount of qualified wages paid to
10qualified individuals divided by the amount of tax credit, as
11computed by the California Film Commission.

12(8) “Licensing” means any grant of rights to distribute the
13qualified motion picture, in whole or in part.

14(9) “New use” means any use of a motion picture in a medium
15other than the medium for which it was initially created.

16(10) “Pilot for a new television series” means the initial episode
17produced for a proposed television series.

18(11) (A) “Postproduction” means the final activities in a
19qualified motion picture’s production, including editing, foley
20recording, automatic dialogue replacement, sound editing, scoring,
21music track recording by musicians and music editing, beginning
22and end credits, negative cutting, negative processing and
23duplication, the addition of sound and visual effects, sound mixing,
24film-to-tape transfers, encoding, and color correction.

25(B) “Postproduction” does not include the manufacture or
26shipping of release prints or their equivalent.

27(12) “Preproduction” means the process of preparation for actual
28physical production which begins after a qualified motion picture
29has received a firm agreement of financial commitment, or is
30greenlit, with, for example, the establishment of a dedicated
31production office, the hiring of key crew members, and includes,
32but is not limited to, activities that include location scouting and
33execution of contracts with vendors of equipment and stage space.

34(13) “Principal photography” means the phase of production
35during which the motion picture is actually shot, as distinguished
36from preproduction and postproduction.

37(14) “Production period” means the period beginning with
38preproduction and ending upon completion of postproduction.

39(15) “Qualified entity” means a personal service corporation as
40defined in Section 269A(b)(1) of the Internal Revenue Code, a
P24   1payroll services corporation, or any entity receiving qualified wages
2with respect to services performed by a qualified individual.

3(16)  “Qualified expenditures” means amounts paid or incurred
4for tangible personal property purchased or leased, and used, within
5this state in the production of a qualified motion picture and
6payments, including qualified wages, for services performed within
7this state in the production of a qualified motion picture.

8(17) (A) “Qualified individual” means any individual who
9performs services during the production period in an activity related
10to the production of a qualified motion picture.

11(B) “Qualified individual” shall not include either of the
12following:

13(i) Any individual related to the qualified taxpayer as described
14in subparagraph (A), (B), or (C) of Section 51(i)(1) of the Internal
15Revenue Code.

16(ii) Any 5-percent owner, as defined in Section 416(i)(1)(B) of
17the Internal Revenue Code, of the qualified taxpayer.

18(18) (A) “Qualified motion picture” means a motion picture
19that is produced for distribution to the general public, regardless
20of medium, that is one of the following:

21(i) A feature with a minimum production budget of one million
22dollars ($1,000,000).

23(ii) A movie of the week or miniseries with a minimum
24production budget of five hundred thousand dollars ($500,000).

25(iii) A new television series of episodes longer than 40 minutes
26each of running time, exclusive of commercials, that is produced
27in California, with a minimum production budget of one million
28dollars ($1,000,000) per episode.

29(iv) An independent film.

30(v) A television series that relocated to California.

31(vi) A pilot for a new television series that is longer than 40
32minutes of running time, exclusive of commercials, that is produced
33in California, and with a minimum production budget of one
34million dollars ($1,000,000).

35(B) To qualify as a “qualified motion picture,” all of the
36following conditions shall be satisfied:

37(i) At least 75 percent of the principal photography days occur
38wholly in California or 75 percent of the production budget is
39incurred for payment for services performed within the state and
40the purchase or rental of property used within the state.

P25   1(ii) Production of the qualified motion picture is completed
2within 30 months from the date on which the qualified taxpayer’s
3application is approved by the California Film Commission. For
4purposes of this section, a qualified motion picture is “completed”
5when the process of postproduction has been finished.

6(iii) The copyright for the motion picture is registered with the
7United States Copyright Office pursuant to Title 17 of the United
8States Code.

9(iv) Principal photography of the qualified motion picture
10commences after the date on which the application is approved by
11the California Film Commission, but no later than 180 days after
12the date of that approval unless death, disability, or disfigurement
13of the director or of a principal cast member, an act of God,
14including, but not limited to, fire, flood, earthquake, storm,
15hurricane, or other natural disaster, terrorist activities, or
16government sanction has directly prevented a production’s ability
17to begin principal photography within the prescribed 180-day
18commencement period.

19(C) For the purposes of subparagraph (A), in computing the
20total wages paid or incurred for the production of a qualified
21motion picture, all amounts paid or incurred by all persons or
22entities that share in the costs of the qualified motion picture shall
23be aggregated.

24(D) “Qualified motion picture” shall not include commercial
25advertising, music videos, a motion picture produced for private
26noncommercial use, such as weddings, graduations, or as part of
27an educational course and made by students, a news program,
28current events or public events program, talk show, game show,
29sporting event or activity, awards show, telethon or other
30production that solicits funds, reality television program, clip-based
31programming if more than 50 percent of the content is comprised
32of licensed footage, documentaries, variety programs, daytime
33dramas, strip shows, one-half hour (air time) episodic television
34shows, or any production that falls within the recordkeeping
35requirements of Section 2257 of Title 18 of the United States Code.

36(19) (A) “Qualified taxpayer” means a taxpayer who has paid
37or incurred qualified expenditures, participated in the Career
38Readiness requirement, and has been issued a credit certificate by
39the California Film Commission pursuant to subdivision (g).

P26   1(B) In the case of any pass-thru entity, the determination of
2whether a taxpayer is a qualified taxpayer under this section shall
3be made at the entity level and any credit under this section is not
4allowed to the pass-thru entity, but shall be passed through to the
5partners or shareholders in accordance with applicable provisions
6of Part 10 (commencing with Section 17001) or Part 11
7(commencing with Section 23001). For purposes of this paragraph,
8“pass-thru entity” means any entity taxed as a partnership or “S”
9corporation.

10(20) “Qualified visual effects” means visual effects where at
11least 75 percent or a minimum of ten million dollars ($10,000,000)
12of the qualified expenditures for the visual effects is paid or
13incurred in California.

14(21) (A) “Qualified wages” means all of the following:

15(i) Any wages subject to withholding under Division 6
16(commencing with Section 13000) of the Unemployment Insurance
17Code that were paid or incurred by any taxpayer involved in the
18production of a qualified motion picture with respect to a qualified
19individual for services performed on the qualified motion picture
20production within this state.

21(ii) The portion of any employee fringe benefits paid or incurred
22by any taxpayer involved in the production of the qualified motion
23picture that are properly allocable to qualified wage amounts
24described in clauses (i), (iii), and (iv).

25(iii) Any payments made to a qualified entity for services
26performed in this state by qualified individuals within the meaning
27of paragraph (17).

28(iv) Remuneration paid to an independent contractor who is a
29qualified individual for services performed within this state by that
30qualified individual.

31(B) “Qualified wages” shall not include any of the following:

32(i) Expenses, including wages, related to new use, reuse, clip
33use, licensing, secondary markets, or residual compensation, or
34the creation of any ancillary product, including, but not limited to,
35a soundtrack album, toy, game, trailer, or teaser.

36(ii) Expenses, including wages, paid or incurred with respect to
37acquisition, development, turnaround, or any rights thereto.

38(iii) Expenses, including wages, related to financing, overhead,
39marketing, promotion, or distribution of a qualified motion picture.

P27   1(iv) Expenses, including wages, paid per person per qualified
2motion picture for writers, directors, music directors, music
3composers, music supervisors, producers, and performers, other
4than background actors with no scripted lines.

5(22) “Residual compensation” means supplemental
6compensation paid at the time that a motion picture is exhibited
7through new use, reuse, clip use, or in secondary markets, as
8distinguished from payments made during production.

9(23) “Reuse” means any use of a qualified motion picture in the
10same medium for which it was created, following the initial use
11in that medium.

12(24) “Secondary markets” means media in which a qualified
13motion picture is exhibited following the initial media in which it
14is exhibited.

15(25) “Television series that relocated to California” means a
16television series, without regard to episode length or initial media
17exhibition, with a minimum production budget of one million
18dollars ($1,000,000) per episode, that filmed no fewer than its most
19recent two seasons outside of California or has filmed all seasons
20outside of California and for which the taxpayer certifies that the
21credit provided pursuant to this section is the primary reason for
22relocating to California.

23(26) “Visual effects” means the creation, alteration, or
24enhancement of images that cannot be captured on a set or location
25during live action photography and therefore is accomplished in
26postproduction. It includes, but is not limited to, matte paintings,
27animation, set extensions, computer-generated objects, characters
28and environments, compositing (combining two or more elements
29in a final image), and wire removals. “Visual effects” does not
30include fully animated projects, whether created by traditional or
31digital means.

32(c) (1) Notwithstanding any other law, a qualified taxpayer
33may sell any credit allowed under this section that is attributable
34to an independent film, as defined in paragraph (6) of subdivision
35(b), to an unrelated party.

36(2) The qualified taxpayer shall report to the Franchise Tax
37Board prior to the sale of the credit, in the form and manner
38specified by the Franchise Tax Board, all required information
39regarding the purchase and sale of the credit, including the social
40security or other taxpayer identification number of the unrelated
P28   1 party to whom the credit has been sold, the face amount of the
2credit sold, and the amount of consideration received by the
3qualified taxpayer for the sale of the credit.

4(3) In the case where the credit allowed under this section
5exceeds the “net tax,” the excess credit may be carried over to
6reduce the “net tax” in the following taxable year, and succeeding
7five taxable years, if necessary, until the credit has been exhausted.

8(4) A credit shall not be sold pursuant to this subdivision to
9more than one taxpayer, nor may the credit be resold by the
10unrelated party to another taxpayer or other party.

11(5) A party that has acquired tax credits under this subdivision
12shall be subject to the requirements of this section.

13(6) In no event may a qualified taxpayer assign or sell any tax
14credit to the extent the tax credit allowed by this section is claimed
15on any tax return of the qualified taxpayer.

16(7) In the event that both the taxpayer originally allocated a
17credit under this section by the California Film Commission and
18a taxpayer to whom the credit has been sold both claim the same
19amount of credit on their tax returns, the Franchise Tax Board may
20disallow the credit of either taxpayer, so long as the statute of
21limitations upon assessment remains open.

22(8) Chapter 3.5 (commencing with Section 11340) of Part 1 of
23Division 3 of Title 2 of the Government Code does not apply to
24any standard, criterion, procedure, determination, rule, notice, or
25 guideline established or issued by the Franchise Tax Board
26pursuant to this subdivision.

27(9) Subdivision (g) of Section 17039 shall not apply to any
28credit sold pursuant to this subdivision.

29(10) For purposes of this subdivision, the unrelated party or
30parties that purchase a credit pursuant to this subdivision shall be
31treated as a qualified taxpayer pursuant to paragraph (1) of
32subdivision (a).

33(d) (1) No credit shall be allowed pursuant to this section unless
34the qualified taxpayer provides the following to the California
35Film Commission:

36(A) Identification of each qualified individual.

37(B) The specific start and end dates of production.

38(C) The total wages paid.

39(D) The total amount of qualified wages paid to qualified
40individuals.

P29   1(E) The copyright registration number, as reflected on the
2certificate of registration issued under the authority of Section 410
3of Title 17 of the United States Code, relating to registration of
4claim and issuance of certificate. The registration number shall be
5provided on the return claiming the credit.

6(F) The total amounts paid or incurred to purchase or lease
7tangible personal property used in the production of a qualified
8motion picture.

9(G) Information to substantiate its qualified expenditures.

10(H) Information required by the California Film Commission
11under regulations promulgated pursuant to subdivision (g)
12necessary to verify the amount of credit claimed.

13(I) Provides documentation verifying completion of the Career
14Readiness requirement.

15(2) (A) Based on the information provided in paragraph (1),
16the California Film Commission shall recompute the jobs ratio
17previously computed in subdivision (g) and compare this
18recomputed jobs ratio to the jobs ratio that the qualified taxpayer
19previously listed on the application submitted pursuant to
20subdivision (g). If the California Film Commission determines
21that the jobs ratio has been reduced by more than 10 percent, the
22California Film Commission shall reduce the amount of credit
23allowed by an equal percentage, unless the qualified taxpayer
24demonstrates, and the California Film Commission determines,
25that reasonable cause exists for thebegin delete jobend deletebegin insert jobsend insert ratio reduction.

26(B) If the California Film Commission determines that the jobs
27ratio has been reduced by more than 20 percent, the California
28Film Commission shall not accept an application described in
29subdivision (g) from that qualified taxpayer or any member of the
30qualified taxpayer’s controlled group for a period of not less than
31one year from the date of that determination, unless the qualified
32taxpayer demonstrates, and the California Film Commission
33determines, that reasonable cause exists for thebegin delete jobend deletebegin insert jobsend insert ratio
34reduction.

begin insert

35(C) If the California Film Commission determines that the jobs
36ratio has been reduced by more than 20 percent for an independent
37film, the tax credit allocation to the independent film shall be
38revoked unless the qualified taxpayer demonstrates, and the
39California Film Commission determines, that reasonable cause
40exists for the jobs ratio reduction.

end insert
begin insert

P30   1(D) Subject to subparagraph (D) of paragraph (4) of subdivision
2(a), the California Film Commission shall increase the applicable
3credit percentage by 5 percent, not to exceed a maximum of 25
4percent, if the qualified motion picture paid or incurred outside
5the Los Angeles zone the qualified expenditures relating to original
6photography outside the Los Angeles zone.

end insert
begin insert

7(E) For the purposes of this paragraph, “reasonable cause”
8means unforeseen circumstances beyond the control of the qualified
9taxpayer, such as, but not limited to, the cancellation of a television
10series prior to the completion of the scheduled number of episodes
11or other similar circumstances as determined by the California
12Film Commission in regulations to be adopted pursuant to
13subdivision (e).

end insert

14(e) (1) (A) Subject to the Administrative Procedure Act
15(Chapter 3.5 (commencing with Section 11340) of Part 1 of
16Division 3 of Title 2 of the Government Code), the California Film
17Commission shall adopt rules and regulations to implement a
18Career Readiness requirement by which the California Film
19Commission shall identify training and public service opportunities
20that may include, but not be limited to, hiring interns, public service
21announcements, and community outreach and may prescribe rules
22and regulations to carry out the purposes of this section, including,
23begin delete clauses (iv) and (v)end deletebegin insert subparagraph (E) of paragraph (2) of
24subdivision (d) and clause (iv)end insert
of subparagraph (D) of paragraph
25(2) of subdivisionbegin delete (g) and,end deletebegin insert (g), andend insert including any rules and
26regulations necessary to establish procedures, processes,
27requirements, application fee structure, and rules identified in or
28required to implement this section, including credit and logo
29requirements.

30(B) Notwithstanding any other law, prior to preparing a notice
31of proposed actionbegin insert pursuant to Section 11346.4 of the Government
32Codeend insert
and prior to making any revision to the proposed regulation
33other than a change that is nonsubstantial or solely grammatical
34in naturebegin delete pursuant to Article 6 (commencing with Section 11349)
35of Chapter 3.5 of Part 1 of Division 3 of Title 2 of the Government
36Codeend delete
, the Governor’s Office of Business and Economic
37Development shall first approve the proposed regulation or
38proposed change to a proposed regulationbegin insert regarding allocating
39the credit pursuant to subdivision (i), computing the jobs ratio as
40described in subdivisions (d) and (g), and defining “reasonable
P31   1cause” pursuant to subparagraph (E) of paragraph (2) of
2subdivision (d)end insert
.

3(2) (A) Implementation of this section for the 2015-16 fiscal
4year is deemed an emergency and necessary for the immediate
5preservation of the public peace, health, and safety, or general
6welfare and, therefore, the California Film Commission is hereby
7authorized to adopt emergency regulationsbegin delete only as necessaryend delete to
8implement this section during the 2015-16 fiscal year in
9accordance with the rulemaking provisions of the Administrative
10Procedure Act (Chapter 3.5 (commencing with Section 11340) of
11Part 1 of Division 3 of Title 2 of the Government Code).

12(B) Nothing in this paragraph shall be construed to require the
13Governor’s Office of Business and Economic Development to
14approve emergency regulations adopted pursuant to this paragraph.

15(f) If the qualified taxpayer fails to provide the copyright
16registration number as required in subparagraph (E) of paragraph
17(1) of subdivision (d), the credit shall be disallowed and assessed
18and collected under Section 19051 until the procedures are
19satisfied.

20(g) For purposes of this section, the California Film Commission
21shall do the following:

22(1) Subject to the requirements of subparagraphs (A) through
23(E), inclusive, of paragraph (2), on or after January 1, 2015, and
24before July 1, 2016, in one or more allocation periods per fiscal
25year, allocate tax credits to applicants.

26(2) On or after July 1, 2016, and before July 1, 2019, in two or
27more allocation periods per fiscal year, allocate tax credits to
28applicants.

29(A) Establish a procedure for applicants to file with the
30California Film Commission a written application, on a form jointly
31prescribed by the California Film Commission and the Franchise
32Tax Board for the allocation of the tax credit. The application shall
33include, but not be limited to, the following information:

34(i) The budget for the motion picture production.

35(ii) The number of production days.

36(iii) A financing plan for the production.

37(iv) The diversity of the workforce employed by the applicant,
38including, but not limited to, the ethnic and racial makeup of the
39individuals employed by the applicant during the production of
40the qualified motion picture, to the extent possible.

P32   1(v) All members of a combined reporting group, if known at
2the time of the application.

3(vi) Financial information, if available, including, but not limited
4to, the most recently produced balance sheets, annual statements
5of profits and losses, audited or unaudited financial statements,
6summary budget projections or results, or the functional equivalent
7of these documents of a partnership or owner of a single member
8limited liability company that is disregarded pursuant to Section
923038. The information provided pursuant to this clause shall be
10confidential and shall not be subject to public disclosure.

11(vii) The names of all partners in a partnership not publicly
12traded or the names of all members of a limited liability company
13classified as a partnership not publicly traded for California income
14tax purposes that have a financial interest in the applicant’s
15qualified motion picture. The information provided pursuant to
16this clause shall be confidential and shall not be subject to public
17disclosure.

18(viii) The amount of qualified wages the applicant expects to
19pay to qualified individuals.begin delete The information provided pursuant
20to this clause shall be confidential and shall not be subject to public
21disclosure.end delete

22(ix) The amount of tax credit requested not to exceed the
23applicable credit percentage described in paragraph (4) of
24subdivision (a).begin delete The information provided pursuant to this clause
25shall be confidential and shall not be subject to public disclosure.end delete

26(x) A statement establishing that the tax credit described in this
27section is a significant factor in the applicant’s choice of location
28for the qualified motion picture. The statement shall include
29information about whether the qualified motion picture is at risk
30of not being filmed or specify the jurisdiction or jurisdictions in
31which the qualified motion picture will be located in the absence
32of the tax credit. The statement shall be signed by an officer or
33executive of the applicant.

34(xi) Any other information deemed relevant by the California
35Film Commission or the Franchise Tax Board.

36(B) Establish criteria, consistent with the requirements of this
37section, for allocating tax credits.

38(C) Determine and designate applicants who meet the
39requirements of this section.

P33   1(D) (i) For purposes of allocating the credit amounts subject to
2the categories described in subdivision (i) in any fiscal year, the
3California Film Commission shall do all of the following:

4(ii) For each allocation date and for each category, list each
5applicant from highest to lowest according to the jobs ratio as
6computed by the California Film Commission.

7(iii) Subject to the applicable credit percentage, allocate the
8credit to each applicant according to the highest jobs ratio, working
9down the list, until the creditbegin insert amountend insert is exhausted.

begin delete

10(iv) Pursuant to regulations adopted pursuant to subdivision (e),
11the California Film Commission may increase the jobs ratio up to
1210 percent for applications where 75 percent of the principal
13photography days occur wholly in the state and 75 percent of the
14production budget is incurred for payment for services performed
15within the state and the purchase or rental of property used within
16the state.

17(v) Pursuant to regulations adopted pursuant to subdivision (e),
18in addition to the jobs ratio increase authorized by clause (iv), the
19California Film Commission may additionally increase the jobs
20ratio up to 10 percent for applications that will use facilities in the
21state for at least 75 percent of the postproduction.

end delete
begin insert

22(iv) Pursuant to regulations adopted pursuant to subdivision
23(e), the California Film Commission may increase the jobs ratio
24by up to 25 percent if a qualified motion picture increases
25economic activity in California according to criteria developed
26by the California Film Commission that would include, but not be
27limited to, such factors as, the amount of the production and
28postproduction spending in California, the utilization of production
29facilities in California, and other criteria measuring economic
30impact in California as determined by the Film Commission.

end insert
begin delete

31(vi)

end delete

32begin insert(v)end insert Notwithstanding any other provision, any new television
33series, relocating television series, or any new television series
34based on a pilot for a new television seriesbegin delete described in paragraph
35(9) of subdivision (b), where that pilot has been previouslyend delete
begin insert that
36has beenend insert
approved and issued a credit allocation by the California
37Film Commission either under thisbegin delete section orend deletebegin insert section,end insert Section
3823695,begin insert end insertbegin insert17053.85, orend insertbegin insert 23685end insert shall be issued a credit for each
39subsequentbegin delete yearend deletebegin insert year,end insert inbegin insert an amount equal to the prior credit
P34   1amount, forend insert
the life of thatbegin delete television seriesend deletebegin insert qualified motion pictureend insert
2 whenever credits are allocated within a fiscal year.

begin delete

3(vii) Subject to subparagraph (D) of paragraph (4) of subdivision
4(a), the California Film Commission shall increase the applicable
5credit percentage by 5 percent, not to exceed a maximum of 25
6percent, if the qualified motion picture paid or incurred outside
7the Los Angeles zone the qualified expenditures relating to original
8photography outside the Los Angeles zone.

end delete

9(E) Subject to the annual cap and the allocation credit amounts
10based on categories described in subdivision (i), allocate an
11aggregate amount of credits under this section and Section 23695,
12and allocate any carryover of unallocated credits from prior years
13and the amount of any credits reduced pursuant to paragraph (2)
14of subdivision (d).

15(3) Certify tax credits allocated to qualified taxpayers.

16(A) Establish a verification procedure for the amount of qualified
17expenditures paid or incurred by the applicant, including, but not
18limited to, updates to the information in subparagraph (A) of
19paragraph (2) of subdivision (g).

20(B) Establish audit requirements that must be satisfied before
21a credit certificate may be issued by the California Film
22Commission.

23(C) (i) Establish a procedure for a qualified taxpayer to report
24to the California Film Commission, prior to the issuance of a credit
25certificate, the following information:

26(I) If readily available, a list of the states, provinces, or other
27jurisdictions in which any member of the applicant’s combined
28reporting group in the same business unit as the qualified taxpayer
29that, in the preceding calendar year, has produced a qualified
30motion picture intended for release in the United States market.
31For purposes of this clause, “qualified motion picture” shall not
32include any episodes of a television series that were complete or
33in production prior to July 1, 2016.

34(II) Whether a qualified motion picture described in subclause
35(I) was awarded any financial incentive by the state, province, or
36other jurisdiction that was predicated on the performance of
37primary principal photography or postproduction in that location.

38(ii) The California Film Commission may provide that the report
39required by this subparagraph be filed in a single report provided
P35   1on a calendar year basis for those qualified taxpayers that receive
2multiple credit certificates in a calendar year.

3(D) Issue a credit certificate to a qualified taxpayer upon
4completion of the qualified motion picture reflecting the credit
5amount allocated after qualified expenditures have been verified
6and the jobs ratio computed under this section. The amount of
7credit shown in the credit certificate shall not exceed the amount
8of credit allocated to that qualified taxpayer pursuant to this section.

9(4) Obtain, when possible, the following information from
10applicants that do not receive an allocation of credit:

11(A) Whether the qualified motion picture that was the subject
12of the application was completed.

13(B) If completed, in which state or foreign jurisdiction was the
14primary principal photography completed.

15(C) Whether the applicant received any financial incentives
16from the state or foreign jurisdiction to make the qualified motion
17picture in that location.

18(5) Provide the Legislative Analyst’s Office, upon request, any
19or all application materials or any other materials received from,
20or submitted by, the applicants, in electronic format when available,
21including, but not limited to, information provided pursuant to
22clauses (i) to (xi) inclusive, of subparagraph (A) of paragraph (2).

23(6) The information provided to the California Film Commission
24pursuant to this section shall constitute confidential tax information
25for purposes of Article 2 (commencing with Section 19542) of
26Chapter 7 of Part 10.2.

27(h) (1) The California Film Commission shall annually provide
28the Legislative Analyst’s Office, the Franchise Tax Board, and the
29board with a list of qualified taxpayers and the tax credit amounts
30allocated to each qualified taxpayer by the California Film
31Commission. The list shall include the names and taxpayer
32identification numbers, including taxpayer identification numbers
33of each partner or shareholder, as applicable, of the qualified
34taxpayer.

35(2) (A) Notwithstanding paragraph (6) of subdivision (g), the
36California Film Commission shall annually post on its Internet
37Web site and make available for public release the following:

38(i) A table which includes all of the following information: a
39list of qualified taxpayers and the tax credit amounts allocated to
40each qualified taxpayer by the California Film Commission, the
P36   1number of production days in California the qualified taxpayer
2represented in its application would occur, the number of California
3jobs that the qualified taxpayer represented in its application would
4be directly created by the production, and the total amount of
5qualified expenditures expected to be spent by the production.

6(ii) A narrative staff summary describing the production of the
7qualified taxpayer as well as background information regarding
8the qualified taxpayer contained in the qualified taxpayer’s
9application for the credit.

10(B) Nothing in this subdivision shall be construed to make the
11information submitted by an applicant for a tax credit under this
12section a public record.

13(3) The California Film Commission shall provide each city
14and county in California with an instructional guide that includes,
15but is not limited to, a review of best practices for facilitating
16motion picture production in local jurisdictions, resources on
17hosting and encouraging motion picture production, and the
18California Film Commissions’ Model Film Ordinance. The
19California Film Commission shall maintain on its Internet Web
20site a list of initiatives by locality that encourage motion picture
21production in regions across the state. The list shall be distributed
22to each approved applicant for the program to highlight local
23jurisdictions that offer incentives to facilitate film production.

24(i) (1) The aggregate amount of credits that may be allocated
25for any fiscal year pursuant to this section and Section 23695 shall
26be an amount equal to the sum of all of the following:

27(A) begin deleteThree hundred million dollars ($300,000,000) end deletebegin insertTwo hundred
28million dollars ($200,000,000) end insert
in credits for the 2015-16 fiscal
29year.

30(B) Four hundred million dollars ($400,000,000) in credits for
31the 2016-17 fiscal year and each fiscal year thereafter, through
32and including the 2018-19 fiscal year.

33(C) The unused allocation credit amount, if any, for the
34preceding fiscal year.

35(D) The amount of previously allocated credits not certified.

36(E) The amount of any credits reduced pursuant to paragraph
37(2) of subdivision (d).

38(2) (A) Notwithstanding the foregoing, the California Film
39Commission shall allocate the credit amounts subject to the
40following categories:

P37   1(i) Independent films shall be allocated 5 percent of the amount
2specified in paragraph (1).

3(ii) Features shall be allocated 35 percent of the amount specified
4in paragraph (1).

5(iii) begin deleteSubject to clause (vi) of subparagraph (D) of paragraph (2)
6of subdivision (g), a end delete
begin insertAend insertbegin insert end insertrelocating television series shall be allocated
720 percent of the amount specified in paragraph (1).

8(iv) begin deleteend deletebegin deleteSubject to clause (vi) of subparagraph (D) of paragraph
9(2) of subdivision (g), a end delete
begin insertA end insertnew television series, pilots for a new
10television series, movies of the week, miniseries, and recurring
11television series shall be allocated 40 percent of the amount
12specified in paragraph (1).

13(B)begin insertend insertbegin insert(i)end insert Within 60 days after the allocation period, any unused
14amount within a category or categories shall be apportioned to
15another category or categories with a higher demand.

begin insert

16(ii) Notwithstanding the foregoing, at the end of the fiscal year,
17any unused amount within the allocation described in clause (iii)
18of subparagraph (A) shall be reallocated to the allocation
19described in clause (iv) of subparagraph (A).

end insert

20(C) Notwithstanding the foregoing, the California Film
21Commission may increase or decrease an allocation amount in
22subparagraph (A) by 5 percent, if necessary, due to the jobs ratio,
23the number of applications, or the allocation credit amounts
24available by category compared to demand.

begin insert

25(D) With respect to a relocating television series issued a credit
26in a subsequent year pursuant to clause (v) of subparagraph (D)
27of paragraph (2) of subdivision (g), that subsequent credit amount
28shall be paid from the allocation amount described in clause (iv)
29of subparagraph (A).

end insert

30(3) Any act that reduces the amount that may be allocated
31pursuant to paragraph (1) constitutes a change in state taxes for
32the purpose of increasing revenues within the meaning of Section
333 of Article XIII   A of the California Constitution and may be
34passed by not less than two-thirds of all Members elected to each
35of the two houses of the Legislature.

36(j) The California Film Commission shall have the authority to
37allocate tax credits in accordance with this section and in
38accordance with any regulations prescribed pursuant to subdivision
39(e) upon adoption.

P38   1

begin deleteSEC. 6.end delete
2begin insertSEC. 7.end insert  

Section 23036 of the Revenue and Taxation Code is
3amended to read:

4

23036.  

(a) (1) The term “tax” includes any of the following:

5(A) The tax imposed under Chapter 2 (commencing with Section
623101).

7(B) The tax imposed under Chapter 3 (commencing with Section
823501).

9(C) The tax on unrelated business taxable income, imposed
10under Section 23731.

11(D) The tax on “S” corporations imposed under Section 23802.

12(2) The term “tax” does not include any amount imposed under
13paragraph (1) of subdivision (e) of Section 24667 or paragraph (2)
14of subdivision (f) of Section 24667.

15(b) For purposes of Article 5 (commencing with Section 18661)
16of Chapter 2, Article 3 (commencing with Section 19031) of
17Chapter 4, Article 6 (commencing with Section 19101) of Chapter
184, and Chapter 7 (commencing with Section 19501) of Part 10.2,
19and for purposes of Sections 18601, 19001, and 19005, the term
20“tax” also includes all of the following:

21(1) The tax on limited partnerships, imposed under Section
2217935, the tax on limited liability companies, imposed under
23Section 17941, and the tax on registered limited liability
24partnerships and foreign limited liability partnerships imposed
25under Section 17948.

26(2) The alternative minimum tax imposed under Chapter 2.5
27(commencing with Section 23400).

28(3) The tax on built-in gains of “S” corporations, imposed under
29Section 23809.

30(4) The tax on excess passive investment income of “S”
31corporations, imposed under Section 23811.

32(c) Notwithstanding any other provision of this part, credits are
33allowed against the “tax” in the following order:

34(1) Credits that do not contain carryover provisions.

35(2) Credits that, when the credit exceeds the “tax,” allow the
36excess to be carried over to offset the “tax” in succeeding taxable
37years, except for those credits that are allowed to reduce the “tax”
38below the tentative minimum tax, as defined by Section 23455.
39The order of credits within this paragraph shall be determined by
40the Franchise Tax Board.

P39   1(3) The minimum tax credit allowed by Section 23453.

2(4) Credits that are allowed to reduce the “tax” below the
3tentative minimum tax, as defined by Section 23455.

4(5) Credits for taxes withheld under Section 18662.

5(d) Notwithstanding any other provision of this part, each of
6the following applies:

7(1) A credit may not reduce the “tax” below the tentative
8minimum tax (as defined by paragraph (1) of subdivision (a) of
9Section 23455), except the following credits:

10(A) The credit allowed by former Section 23601 (relating to
11solar energy).

12(B) The credit allowed by former Section 23601.4 (relating to
13solar energy).

14(C) The credit allowed by former Section 23601.5 (relating to
15solar energy).

16(D) The credit allowed by Section 23609 (relating to research
17expenditures).

18(E) The credit allowed by former Section 23609.5 (relating to
19clinical testing expenses).

20(F) The credit allowed by Section 23610.5 (relating to
21low-income housing).

22(G) The credit allowed by former Section 23612 (relating to
23sales and use tax credit).

24(H) The credit allowed by Section 23612.2 (relating to enterprise
25zone sales or use tax credit).

26(I) The credit allowed by former Section 23612.6 (relating to
27Los Angeles Revitalization Zone sales tax credit).

28(J) The credit allowed by former Section 23622 (relating to
29enterprise zone hiring credit).

30(K) The credit allowed by Section 23622.7 (relating to enterprise
31zone hiring credit).

32(L) The credit allowed by former Section 23623 (relating to
33program area hiring credit).

34(M) The credit allowed by former Section 23623.5 (relating to
35Los Angeles Revitalization Zone hiring credit).

36(N) The credit allowed by former Section 23625 (relating to
37Los Angeles Revitalization Zone hiring credit).

38(O) The credit allowed by Section 23633 (relating to targeted
39tax area sales or use tax credit).

P40   1(P) The credit allowed by Section 23634 (relating to targeted
2tax area hiring credit).

3(Q) The credit allowed by former Section 23649 (relating to
4qualified property).

5(R) For taxable years beginning on or after January 1, 2011, the
6credit allowed by Section 23685 (relating to qualified motion
7pictures).

8(S) For taxable years beginning on or after January 1, 2016, the
9credit allowed by Section 23695 (relating to qualified motion
10pictures).

11(2) A credit against the tax may not reduce the minimum
12franchise tax imposed under Chapter 2 (commencing with Section
1323101).

14(e) Any credit which is partially or totally denied under
15 subdivision (d) is allowed to be carried over to reduce the “tax”
16in the following year, and succeeding years if necessary, if the
17provisions relating to that credit include a provision to allow a
18carryover of the unused portion of that credit.

19(f) Unless otherwise provided, any remaining carryover from a
20credit that has been repealed or made inoperative is allowed to be
21carried over under the provisions of that section as it read
22immediately prior to being repealed or becoming inoperative.

23(g) Unless otherwise provided, if two or more taxpayers share
24in costs that would be eligible for a tax credit allowed under this
25part, each taxpayer is eligible to receive the tax credit in proportion
26to his or her respective share of the costs paid or incurred.

27(h) Unless otherwise provided, in the case of an “S” corporation,
28 any credit allowed by this part is computed at the “S” corporation
29level, and any limitation on the expenses qualifying for the credit
30or limitation upon the amount of the credit applies to the “S”
31corporation and to each shareholder.

32(i) (1) With respect to any taxpayer that directly or indirectly
33owns an interest in a business entity that is disregarded for tax
34purposes pursuant to Section 23038 and any regulations thereunder,
35the amount of any credit or credit carryforward allowable for any
36taxable year attributable to the disregarded business entity is limited
37in accordance with paragraphs (2) and (3).

38(2) The amount of any credit otherwise allowed under this part,
39including any credit carryover from prior years, that may be applied
40to reduce the taxpayer’s “tax,” as defined in subdivision (a), for
P41   1the taxable year is limited to an amount equal to the excess of the
2taxpayer’s regular tax (as defined in Section 23455), determined
3by including income attributable to the disregarded business entity
4that generated the credit or credit carryover, over the taxpayer’s
5regular tax (as defined in Section 23455), determined by excluding
6the income attributable to that disregarded business entity. A credit
7is not allowed if the taxpayer’s regular tax (as defined in Section
823455), determined by including the income attributable to the
9disregarded business entity is less than the taxpayer’s regular tax
10(as defined in Section 23455), determined by excluding the income
11attributable to the disregarded business entity.

12(3) If the amount of a credit allowed pursuant to the section
13establishing the credit exceeds the amount allowable under this
14subdivision in any taxable year, the excess amount may be carried
15over to subsequent taxable years pursuant to subdivisions (d), (e),
16and (f).

17(j) (1) Unless otherwise specifically provided, in the case of a
18taxpayer that is a partner or shareholder of an eligible pass-thru
19entity described in paragraph (2), any credit passed through to the
20taxpayer in the taxpayer’s first taxable year beginning on or after
21the date the credit is no longer operative may be claimed by the
22taxpayer in that taxable year, notwithstanding the repeal of the
23statute authorizing the credit prior to the close of that taxable year.

24(2) For purposes of this subdivision, “eligible pass-thru entity”
25means any partnership or “S” corporation that files its return on a
26fiscal year basis pursuant to Section 18566, and that is entitled to
27a credit pursuant to this part for the taxable year that begins during
28the last year a credit is operative.

29(3) This subdivision applies to credits that become inoperative
30on or after the operative date of the act adding this subdivision.

31begin insert

begin insertSEC. 7.5.end insert  

end insert

begin insertSection 23036 of the end insertbegin insertRevenue and Taxation Codeend insertbegin insert is
32amended to read:end insert

33

23036.  

(a) (1) The term “tax” includes any of the following:

34(A) The tax imposed under Chapter 2 (commencing with Section
3523101).

36(B) The tax imposed under Chapter 3 (commencing with Section
3723501).

38(C) The tax on unrelated business taxable income, imposed
39under Section 23731.

P42   1(D) The tax onbegin delete Send deletebegin insert “Send insertbegin insertend insert corporations imposed under Section
223802.

3(2) The term “tax” does not include any amount imposed under
4paragraph (1) of subdivision (e) of Section 24667 or paragraph (2)
5of subdivision (f) of Section 24667.

6(b) For purposes of Article 5 (commencing with Section 18661)
7of Chapter 2, Article 3 (commencing with Section 19031) of
8Chapter 4, Article 6 (commencing with Section 19101) of Chapter
94, and Chapter 7 (commencing with Section 19501) of Part 10.2,
10and for purposes of Sections 18601, 19001, and 19005, the term
11“tax” also includes all of the following:

12(1) The tax on limited partnerships, imposed under Section
1317935, the tax on limited liability companies, imposed under
14Section 17941, and the tax on registered limited liability
15partnerships and foreign limited liability partnerships imposed
16under Section 17948.

17(2) The alternative minimum tax imposed under Chapter 2.5
18(commencing with Section 23400).

19(3) The tax on built-in gains ofbegin delete Send deletebegin insert “Send insertbegin insertend insert corporations, imposed
20under Section 23809.

21(4) The tax on excess passive investment income of S
22corporations, imposed under Section 23811.

23(c) Notwithstanding any other provision of this part, credits are
24allowed against the “tax” in the following order:

25(1) Credits that do not contain carryover provisions.

26(2) Credits that, when the credit exceeds the “tax,” allow the
27excess to be carried over to offset the “tax” in succeeding taxable
28years, except for those credits that are allowed to reduce the “tax”
29below the tentative minimum tax, as defined by Section 23455.
30The order of credits within this paragraph shall be determined by
31the Franchise Tax Board.

32(3) The minimum tax credit allowed by Section 23453.

33(4) Credits that are allowed to reduce the “tax” below the
34tentative minimum tax, as defined by Section 23455.

35(5) Credits for taxes withheld under Section 18662.

36(d) Notwithstanding any other provision of this part, each of
37 the following applies:

38(1) A credit may not reduce the “tax” below the tentative
39minimum tax (as defined by paragraph (1) of subdivision (a) of
40Section 23455), except the following credits:

P43   1(A) The credit allowed by former Section 23601 (relating to
2solar energy).

3(B) The credit allowed by former Section 23601.4 (relating to
4solar energy).

5(C) The credit allowed by former Section 23601.5 (relating to
6solar energy).

7(D) The credit allowed by Section 23609 (relating to research
8expenditures).

9(E) The credit allowed by former Section 23609.5 (relating to
10clinical testing expenses).

11(F) The credit allowed by Section 23610.5 (relating to
12low-income housing).

13(G) The credit allowed by former Section 23612 (relating to
14sales and use tax credit).

15(H) The credit allowed by Section 23612.2 (relating to enterprise
16zone sales or use tax credit).

17(I) The credit allowed by former Section 23612.6 (relating to
18Los Angeles Revitalization Zone sales tax credit).

19(J) The credit allowed by former Section 23622 (relating to
20enterprise zone hiring credit).

21(K) The credit allowed by Section 23622.7 (relating to enterprise
22zone hiring credit).

23(L) The credit allowed by former Section 23623 (relating to
24program area hiring credit).

25(M) The credit allowed by former Section 23623.5 (relating to
26Los Angeles Revitalization Zone hiring credit).

27(N) The credit allowed by former Section 23625 (relating to
28Los Angeles Revitalization Zone hiring credit).

29(O) The credit allowed by Section 23633 (relating to targeted
30tax area sales or use tax credit).

31(P) The credit allowed by Section 23634 (relating to targeted
32tax area hiring credit).

33(Q) The credit allowed by former Section 23649 (relating to
34qualified property).

35(R) For taxable years beginning on or after January 1, 2011, the
36credit allowed by Section 23685 (relating to qualified motion
37pictures).

begin insert

38(S) For taxable years beginning on or after January 1, 2014,
39the credit allowed by Section 23689 (relating to GO-Biz California
40Competes Credit).

end insert
begin insert

P44   1(T) For taxable years beginning on or after January 1, 2016,
2the credit allowed by Section 23695 (relating to qualified motion
3pictures).

end insert

4(2) A credit against the tax may not reduce the minimum
5franchise tax imposed under Chapter 2 (commencing with Section
623101).

7(e) Any credit which is partially or totally denied under
8subdivision (d) is allowed to be carried over to reduce the “tax”
9in the following year, and succeeding years if necessary, if the
10provisions relating to that credit include a provision to allow a
11carryover of the unused portion of that credit.

12(f) Unless otherwise provided, any remaining carryover from a
13credit that has been repealed or made inoperative is allowed to be
14carried over under the provisions of that section as it read
15immediately prior to being repealed or becoming inoperative.

16(g) Unless otherwise provided, if two or more taxpayers share
17in costs that would be eligible for a tax credit allowed under this
18part, each taxpayer is eligible to receive the tax credit in proportion
19to his or her respective share of the costs paid or incurred.

20(h) Unless otherwise provided, in the case of anbegin delete Send deletebegin insert “Send insertbegin insertend insert
21 corporation, any credit allowed by this part is computed at thebegin delete Send delete
22begin insert “S”end insert corporation level, and any limitation on the expenses
23qualifying for the credit or limitation upon the amount of the credit
24applies to thebegin delete Send deletebegin insert “S”end insert corporation and to each shareholder.

25(i) (1) With respect to any taxpayer that directly or indirectly
26owns an interest in a business entity that is disregarded for tax
27purposes pursuant to Section 23038 and any regulations thereunder,
28the amount of any credit or credit carryforward allowable for any
29taxable year attributable to the disregarded business entity is limited
30in accordance with paragraphs (2) and (3).

31(2) The amount of any credit otherwise allowed under this part,
32including any credit carryover from prior years, that may be applied
33to reduce the taxpayer’s “tax,” as defined in subdivision (a), for
34the taxable year is limited to an amount equal to the excess of the
35taxpayer’s regular tax (as defined in Section 23455), determined
36by including income attributable to the disregarded business entity
37that generated the credit or credit carryover, over the taxpayer’s
38regular tax (as defined in Section 23455), determined by excluding
39the income attributable to that disregarded business entity. A credit
40is not allowed if the taxpayer’s regular tax (as defined in Section
P45   123455), determined by including the income attributable to the
2disregarded business entity is less than the taxpayer’s regular tax
3(as defined in Section 23455), determined by excluding the income
4attributable to the disregarded business entity.

5(3) If the amount of a credit allowed pursuant to the section
6establishing the credit exceeds the amount allowable under this
7subdivision in any taxable year, the excess amount may be carried
8over to subsequent taxable years pursuant to subdivisions (d), (e),
9and (f).

10(j) (1) Unless otherwise specifically provided, in the case of a
11taxpayer that is a partner or shareholder of an eligible pass-thru
12entity described in paragraph (2), any credit passed through to the
13taxpayer in the taxpayer’s first taxable year beginning on or after
14the date the credit is no longer operative may be claimed by the
15taxpayer in that taxable year, notwithstanding the repeal of the
16statute authorizing the credit prior to the close of that taxable year.

17(2) For purposes of this subdivision, “eligible pass-thru entity”
18means any partnership orbegin delete Send deletebegin insert “S”end insert corporation that files its return on
19a fiscal year basis pursuant to Section 18566, and that is entitled
20to a credit pursuant to this part for the taxable year that begins
21during the last year a credit is operative.

22(3) This subdivision applies to credits that become inoperative
23on or after the operative date of the act adding this subdivision.

24begin insert

begin insertSEC. 8.end insert  

end insert

begin insertSection 23685 of the end insertbegin insertRevenue and Taxation Codeend insertbegin insert is
25amended to read:end insert

26

23685.  

(a) (1) For taxable years beginning on or after January
271, 2011, there shall be allowed to a qualified taxpayer a credit
28against the “tax,” as defined in Section 23036, in an amount equal
29to the applicable percentage, as specified in paragraph (4), of the
30qualified expenditures for the production of a qualified motion
31picture in California.

32(2) The credit shall be allowed for the taxable year in which the
33California Film Commission issues the credit certificate pursuant
34to subdivision (g) for the qualified motion picture, and shall be for
35the applicable percentage of all qualified expenditures paid or
36incurred by the qualified taxpayer in all taxable years for that
37qualified motion picture.

38(3) The amount of the credit allowed to a qualified taxpayer
39shall be limited to the amount specified in the credit certificate
P46   1issued to the qualified taxpayer by the California Film Commission
2pursuant to subdivision (g).

3(4) For purposes of paragraphs (1) and (2), the applicable
4percentage shall be:

5(A) Twenty percent of the qualified expenditures attributable
6to the production of a qualified motion picture in California.

7(B) Twenty-five percent of the qualified expenditures
8attributable to the production of a qualified motion picture in
9California where the qualified motion picture is a television series
10that relocated to California or an independent film.

11(b) For purposes of this section:

12(1) “Ancillary product” means any article for sale to the public
13that contains a portion of, or any element of, the qualified motion
14picture.

15(2) “Budget” means an estimate of all expenses paid or incurred
16during the production period of a qualified motion picture. It shall
17be the same budget used by the qualified taxpayer and production
18company for all qualified motion picture purposes.

19(3) “Clip use” means a use of any portion of a motion picture,
20other than the qualified motion picture, used in the qualified motion
21picture.

22(4) “Credit certificate” means the certificate issued by the
23California Film Commission pursuant to subparagraph (C) of
24paragraph (2) of subdivision (g).

25(5) (A) “Employee fringe benefits” means the amount allowable
26as a deduction under this part to the qualified taxpayer involved
27in the production of the qualified motion picture, exclusive of any
28amounts contributed by employees, for any year during the
29production period with respect to any of the following:

30(i) Employer contributions under any pension, profit-sharing,
31annuity, or similar plan.

32(ii) Employer-provided coverage under any accident or health
33plan for employees.

34(iii) The employer’s cost of life or disability insurance provided
35to employees.

36(B) Any amount treated as wages under clause (i) of
37subparagraph (A) of paragraph (18) shall not be taken into account
38under this paragraph.

39(6) “Independent film” means a motion picture with a minimum
40budget of one million dollars ($1,000,000) and a maximum budget
P47   1of ten million dollars ($10,000,000) that is produced by a company
2that is not publicly traded and publicly traded companies do not
3own, directly or indirectly, more than 25 percent of the producing
4company.

5(7) “Licensing” means any grant of rights to distribute the
6qualified motion picture, in whole or in part.

7(8) “New use” means any use of a motion picture in a medium
8other than the medium for which it was initially created.

9(9) (A) “Postproduction” means the final activities in a qualified
10motion picture’s production, including editing, foley recording,
11automatic dialogue replacement, sound editing, scoring and music
12editing, beginning and end credits, negative cutting, negative
13processing and duplication, the addition of sound and visual effects,
14soundmixing, film-to-tape transfers, encoding, and color correction.

15(B) “Postproduction” does not include the manufacture or
16shipping of release prints.

17(10) “Preproduction” means the process of preparation for actual
18physical production which begins after a qualified motion picture
19has received a firm agreement of financial commitment, or is
20greenlit, with, for example, the establishment of a dedicated
21production office, the hiring of key crew members, and includes,
22but is not limited to, activities that include location scouting and
23execution of contracts with vendors of equipment and stage space.

24(11) “Principal photography” means the phase of production
25during which the motion picture is actually shot, as distinguished
26from preproduction and postproduction.

27(12) “Production period” means the period beginning with
28preproduction and ending upon completion of postproduction.

29(13) “Qualified entity” means a personal service corporation as
30defined in Section 269A(b)(1) of the Internal Revenue Code, a
31payroll services corporation, or any entity receiving qualified wages
32with respect to services performed by a qualified individual.

33(14) (A) “Qualified individual” means any individual who
34performs services during the production period in an activity related
35to the production of a qualified motion picture.

36(B) “Qualified individual” shall not include either of the
37following:

38(i) Any individual related to the qualified taxpayer as described
39in subparagraph (A), (B), or (C) of Section 51(i)(1) of the Internal
40Revenue Code.

P48   1(ii) Any 5-percent owner, as defined in Section 416(i)(1)(B) of
2the Internal Revenue Code, of the qualified taxpayer.

3(15) (A) “Qualified motion picture” means a motion picture
4that is produced for distribution to the general public, regardless
5of medium, that is one of the following:

6(i) A feature with a minimum production budget of one million
7dollars ($1,000,000) and a maximum production budget of
8seventy-five million dollars ($75,000,000).

9(ii) A movie of the week or miniseries with a minimum
10production budget of five hundred thousand dollars ($500,000).

11(iii) A new television series produced in California with a
12minimum production budget of one million dollars ($1,000,000)
13licensed for original distribution on basic cable.

14(iv) An independent film.

15(v) A television series that relocated to California.

16(B) To qualify as a “qualified motion picture,” all of the
17following conditions shall be satisfied:

18(i) At least 75 percent of the production days occur wholly in
19California or 75 percent of the production budget is incurred for
20payment for services performed within the state and the purchase
21or rental of property used within the state.

22(ii) Production of the qualified motion picture is completed
23within 30 months from the date on which the qualified taxpayer’s
24application is approved by the California Film Commission. For
25purposes of this section, a qualified motion picture is “completed”
26when the process of postproduction has been finished.

27(iii) The copyright for the motion picture is registered with the
28United States Copyright Office pursuant to Title 17 of the United
29States Code.

30(iv) Principal photography of the qualified motion picture
31commences after the date on which the application is approved by
32the California Film Commission, but no later than 180 days after
33the date of that approval.

34(C) For the purposes of subparagraph (A), in computing the
35total wages paid or incurred for the production of a qualified
36motion picture, all amounts paid or incurred by all persons or
37entities that share in the costs of the qualified motion picture shall
38be aggregated.

39(D) “Qualified motion picture” shall not include commercial
40advertising, music videos, a motion picture produced for private
P49   1noncommercial use, such as weddings, graduations, or as part of
2an educational course and made by students, a news program,
3current events or public events program, talk show, game show,
4sporting event or activity, awards show, telethon or other
5production that solicits funds, reality television program, clip-based
6programming if more than 50 percent of the content is comprised
7of licensed footage, documentaries, variety programs, daytime
8dramas, strip shows, one-half hour (air time) episodic television
9shows, or any production that falls within the recordkeeping
10requirements of Section 2257 of Title 18 of the United States Code.

11(16) “Qualified expenditures” means amounts paid or incurred
12to purchase or lease tangible personal property used within this
13state in the production of a qualified motion picture and payments,
14including qualified wages, for services performed within this state
15in the production of a qualified motion picture.

16(17) (A) “Qualified taxpayer” means a taxpayer who has paid
17or incurred qualified expenditures and has been issued a credit
18certificate by the California Film Commission pursuant to
19subdivision (g).

20(B) (i) In the case of any pass-thru entity, the determination of
21whether a taxpayer is a qualified taxpayer under this section shall
22be made at the entity level and any credit under this section is not
23allowed to the pass-thru entity, but shall be passed through to the
24partners or shareholders in accordance with applicable provisions
25of Part 10 (commencing with Section 17001) or Part 11
26(commencing with Section 23001). For purposes of this paragraph,
27“pass-thru entity” means any entity taxed as a partnership or “S”
28corporation.

29(ii) In the case of an “S” corporation, the credit allowed under
30this section shall not be used by an “S” corporation as a credit
31against a tax imposed under Chapter 4.5 (commencing with Section
3223800) of Part 11 of Division 2.

33(18) (A) “Qualified wages” means all of the following:

34(i) Any wages subject to withholding under Division 6
35(commencing with Section 13000) of the Unemployment Insurance
36Code that were paid or incurred by any taxpayer involved in the
37production of a qualified motion picture with respect to a qualified
38individual for services performed on the qualified motion picture
39 production within this state.

P50   1(ii) The portion of any employee fringe benefits paid or incurred
2by any taxpayer involved in the production of the qualified motion
3picture that are properly allocable to qualified wage amounts
4described in clause (i).

5(iii) Any payments made to a qualified entity for services
6performed in this state by qualified individuals within the meaning
7of paragraph (14).

8(iv) Remuneration paid to an independent contractor who is a
9qualified individual for services performed within this state by that
10qualified individual.

11(B) “Qualified wages” shall not include any of the following:

12(i) Expenses, including wages, related to new use, reuse, clip
13use, licensing, secondary markets, or residual compensation, or
14the creation of any ancillary product, including, but not limited to,
15a soundtrack album, toy, game, trailer, or teaser.

16(ii) Expenses, including wages, paid or incurred with respect to
17acquisition, development, turnaround, or any rights thereto.

18(iii) Expenses, including wages, related to financing, overhead,
19marketing, promotion, or distribution of a qualified motion picture.

20(iv) Expenses, including wages, paid per person per qualified
21motion picture for writers, directors, music directors, music
22composers, music supervisors, producers, and performers, other
23than background actors with no scripted lines.

24(19) “Residual compensation” means supplemental
25compensation paid at the time that a motion picture is exhibited
26through new use, reuse, clip use, or in secondary markets, as
27distinguished from payments made during production.

28(20) “Reuse” means any use of a qualified motion picture in the
29same medium for which it was created, following the initial use
30in that medium.

31(21) “Secondary markets” means media in which a qualified
32motion picture is exhibited following the initial media in which it
33is exhibited.

34(22) “Television series that relocated to California” means a
35television series, without regard to episode length or initial media
36exhibition, that filmed all of its prior season or seasons outside of
37California and for which the taxpayer certifies that the credit
38provided pursuant to this section is the primary reason for
39relocating to California.

P51   1(c) (1) Notwithstanding subdivision (i) of Section 23036, in
2the case where the credit allowed by this section exceeds the
3taxpayer’s tax liability computed under this part, a qualified
4taxpayer may elect to assign any portion of the credit allowed
5under this section to one or more affiliated corporations for each
6taxable year in which the credit is allowed. For purposes of this
7subdivision, “affiliated corporation” has the meaning provided in
8subdivision (b) of Section 25110, as that section was amended by
9Chapter 881 of the Statutes of 1993, as of the last day of the taxable
10year in which the credit is allowed, except that “100 percent” is
11substituted for “more than 50 percent” wherever it appears in the
12section, and “voting common stock” is substituted for “voting
13stock” wherever it appears in the section.

14(2) The election provided in paragraph (1):

15(A) May be based on any method selected by the qualified
16taxpayer that originally receives the credit.

17(B) Shall be irrevocable for the taxable year the credit is allowed,
18once made.

19(C) May be changed for any subsequent taxable year if the
20election to make the assignment is expressly shown on each of the
21returns of the qualified taxpayer and the qualified taxpayer’s
22affiliated corporations that assign and receive the credits.

23(D) Shall be reported to the Franchise Tax Board, in the form
24and manner specified by the Franchise Tax Board, along with all
25required information regarding the assignment of the credit,
26including the corporation number, the federal employer
27identification number, or other taxpayer identification number of
28the assignee, and the amount of the credit assigned.

29(3) (A) Notwithstanding any other law, a qualified taxpayer
30may sell any credit allowed under this section that is attributable
31to an independent film, as defined in paragraph (6) of subdivision
32(b), to an unrelated party.

33(B) The qualified taxpayer shall report to the Franchise Tax
34Board prior to the sale of the credit, in the form and manner
35specified by the Franchise Tax Board, all required information
36regarding the purchase and sale of the credit, including the social
37security or other taxpayer identification number of the unrelated
38party to whom the credit has been sold, the face amount of the
39credit sold, and the amount of consideration received by the
40qualified taxpayer for the sale of the credit.

P52   1(4) In the case where the credit allowed under this section
2exceeds the “tax,” the excess credit may be carried over to reduce
3the “tax” in the following taxable year, and succeeding five taxable
4years, if necessary, until the credit has been exhausted.

5(5) A credit shall not be sold pursuant to this subdivision to
6more than one taxpayer, nor may the credit be resold by the
7unrelated party to another taxpayer or other party.

8(6) A party that has been assigned or acquired tax credits under
9this paragraph shall be subject to the requirements of this section.

10(7) In no event may a qualified taxpayer assign or sell any tax
11credit to the extent the tax credit allowed by this section is claimed
12on any tax return of the qualified taxpayer.

13(8) In the event that both the taxpayer originally allocated a
14credit under this section by the California Film Commission and
15a taxpayer to whom the credit has been sold both claim the same
16amount of credit on their tax returns, the Franchise Tax Board may
17disallow the credit of either taxpayer, so long as the statute of
18limitations upon assessment remains open.

19(9) Chapter 3.5 (commencing with Section 11340) of Part 1 of
20Division 3 of Title 2 of the Government Code does not apply to
21any standard, criterion, procedure, determination, rule, notice, or
22guideline established or issued by the Franchise Tax Board
23pursuant to this subdivision.

24(10) Subdivision (i) of Section 23036 shall not apply to any
25credit sold pursuant to this subdivision.

26(11) For purposes of this subdivision:

27(A) An affiliated corporation or corporations that are assigned
28a credit pursuant to paragraph (1) shall be treated as a qualified
29taxpayer pursuant to paragraph (1) of subdivision (a).

30(B) The unrelated party or parties that purchase a credit pursuant
31to paragraph (3) shall be treated as a qualified taxpayer pursuant
32to paragraph (1) of subdivision (a).

33(d) No credit shall be allowed pursuant to this section unless
34the qualified taxpayer provides the following to the California
35Film Commission:

36(1) Identification of each qualified individual.

37(2) The specific start and end dates of production.

38(3) The total wages paid.

39(4) The amount of qualified wages paid to each qualified
40individual.

P53   1(5) The copyright registration number, as reflected on the
2certificate of registration issued under the authority of Section 410
3of Title 17 of the United States Code, relating to registration of
4claim and issuance of certificate. The registration number shall be
5provided on the return claiming the credit.

6(6) The total amounts paid or incurred to purchase or lease
7tangible personal property used in the production of a qualified
8motion picture.

9(7) Information to substantiate its qualified expenditures.

10(8) Information required by the California Film Commission
11under regulations promulgated pursuant to subdivision (g)
12necessary to verify the amount of credit claimed.

13(e) The California Film Commission may prescribe rules and
14regulations to carry out the purposes of this section including any
15rules and regulations necessary to establish procedures, processes,
16requirements, and rules identified in or required to implement this
17section. The regulations shall include provisions to set aside a
18percentage of annual credit allocations for independent films.

19(f) If the qualified taxpayer fails to provide the copyright
20registration number as required in paragraph (5) of subdivision
21(d), the credit shall be disallowed and assessed and collected under
22Section 19051 until the procedures are satisfied.

23(g) For purposes of this section, the California Film Commission
24shall do the following:

25(1) On or after July 1, 2009, and before July 1, 2017, allocate
26tax credits to applicants.

27(A) Establish a procedure for applicants to file with the
28California Film Commission a written application, on a form jointly
29prescribed by the California Film Commission and the Franchise
30Tax Board for the allocation of the tax credit. The application shall
31include, but not be limited to, the following information:

32(i) The budget for the motion picture production.

33(ii) The number of production days.

34(iii) A financing plan for the production.

35(iv) The diversity of the workforce employed by the applicant,
36including, but not limited to, the ethnic and racial makeup of the
37individuals employed by the applicant during the production of
38the qualified motion picture, to the extent possible.

39(v) All members of a combined reporting group, if known at
40the time of the application.

P54   1(vi) Financial information, if available, including, but not limited
2to, the most recently produced balance sheets, annual statements
3of profits and losses, audited or unaudited financial statements,
4summary budget projections or results, or the functional equivalent
5of these documents of a partnership or owner of a single member
6limited liability company that is disregarded pursuant to Section
723038. The information provided pursuant to this clause shall be
8confidential and shall not be subject to public disclosure.

9(vii) The names of all partners in a partnership not publicly
10traded or the names of all members of a limited liability company
11classified as a partnership not publicly traded for California income
12tax purposes that have a financial interest in the applicant’s
13qualified motion picture. The information provided pursuant to
14this clause shall be confidential and shall not be subject to public
15disclosure.

16(viii) Detailed narratives, for use only by the Legislative
17Analyst’s Office in conducting a study of the effectiveness of this
18credit, that describe the extent to which the credit is expected to
19influence or affect filming and other business location decisions,
20hiring decisions, salary decisions, and any other financial matters
21of the applicant.

22(ix) Any other information deemed relevant by the California
23Film Commission or the Franchise Tax Board.

24(B) Establish criteria, consistent with the requirements of this
25section, for allocating tax credits.

26(C) Determine and designate applicants who meet the
27requirements of this section.

28(D) Process and approve, or reject, all applications on a
29first-come-first-served basis.

30(E) Subject to the annual cap established as provided in
31subdivision (i), allocate an aggregate amount of credits under this
32section and Section 17053.85, and allocate any carryover of
33unallocated credits from prior years.

34(2) Certify tax credits allocated to qualified taxpayers.

35(A) Establish a verification procedure for the amount of qualified
36expenditures paid or incurred by the applicant, including, but not
37limited to, updates to the information in subparagraph (A) of
38paragraph (1) of subdivision (g).

P55   1(B) Establish audit requirements that must be satisfied before
2a credit certificate may be issued by the California Film
3Commission.

4(C) (i) Establish a procedure for a qualified taxpayer to report
5to the California Film Commission, prior to the issuance of a credit
6certificate, the following information:

7(I) If readily available, a list of the states, provinces, or other
8jurisdictions in which any member of the applicant’s combined
9reporting group in the same business unit as the qualified taxpayer
10that, in the preceding calendar year, has produced a qualified
11motion picture intended for release in the United States market.
12For purposes of this clause, “qualified motion picture” shall not
13include any episodes of a television series that were complete or
14in production prior to July 1, 2009.

15(II) Whether a qualified motion picture described in subclause
16(I) was awarded any financial incentive by the state, province, or
17other jurisdiction that was predicated on the performance of
18primary principal photography or postproduction in that location.

19(ii) The California Film Commission may provide that the report
20required by this subparagraph be filed in a single report provided
21on a calendar year basis for those qualified taxpayers that receive
22multiple credit certificates in a calendar year.

23(D) Issue a credit certificate to a qualified taxpayer upon
24completion of the qualified motion picture reflecting the credit
25amount allocated after qualified expenditures have been verified
26under this section. The amount of credit shown in the credit
27certificate shall not exceed the amount of credit allocated to that
28qualified taxpayer pursuant to this section.

29(3) Obtain, when possible, the following information from
30applicants that do not receive an allocation of credit:

31(A) Whether the qualified motion picture that was the subject
32of the application was completed.

33(B) If completed, in which state or foreign jurisdiction was the
34primary principal photography completed.

35(C) Whether the applicant received any financial incentives
36from the state or foreign jurisdiction to make the qualified motion
37picture in that location.

38(4) Provide the Legislative Analyst’s Office, upon request, any
39or all application materials or any other materials received from,
40or submitted by, the applicants, in electronic format when available,
P56   1including, but not limited to, information provided pursuant to
2clauses (i) to (ix), inclusive, of subparagraph (A) of paragraph (1).

3(5) The information provided to the California Film Commission
4pursuant to this section shall constitute confidential tax information
5for purposes of Article 2 (commencing with Section 19542) of
6Chapter 7 of Part 10.2.

7(h) (1) The California Film Commission shall annually provide
8the Legislative Analyst’s Office, the Franchise Tax Board, and the
9board with a list of qualified taxpayers and the tax credit amounts
10allocated to each qualified taxpayer by the California Film
11Commission. The list shall include the names and taxpayer
12identification numbers, including taxpayer identification numbers
13of each partner or shareholder, as applicable, of the qualified
14taxpayer.

15(2) (A) Notwithstanding paragraph (5) of subdivision (g), the
16California Film Commission shall annually post on its Internet
17Web site and make available for public release the following:

18(i) A table which includes all of the following information: a
19list of qualified taxpayers and the tax credit amounts allocated to
20each qualified taxpayer by the California Film Commission, the
21number of production days in California the qualified taxpayer
22represented in its application would occur, the number of California
23jobs that the qualified taxpayer represented in its application would
24be directly created by the production, and the total amount of
25qualified expenditures expected to be spent by the production.

26(ii) A narrative staff summary describing the production of the
27qualified taxpayer as well as background information regarding
28the qualified taxpayer contained in the qualified taxpayer’s
29application for the credit.

30(B) Nothing in this subdivision shall be construed to make the
31information submitted by an applicant for a tax credit under this
32section a public record.

33(i) (1) The aggregate amount of credits that may be allocated
34in any fiscal year pursuant to this section and Section 17053.85
35shall be an amount equal to the sum of all of the following:

36(A) One hundred million dollars ($100,000,000) in credits for
37the 2009-10 fiscal year and each fiscal year thereafter, through
38and including thebegin delete 2016-17end deletebegin insert 2014-end insertbegin insert15 end insert fiscal year.

begin insert

39(B) In addition to the amounts specified in subparagraph (A),
40one hundred million dollars ($100,000,000) in the aggregate
P57   1amount of credits that may be allocated for the 2015-16 and
22016-17 fiscal years.

end insert
begin delete

3(B)

end delete

4begin insert(C)end insert The unused allocation credit amount, if any, for the
5preceding fiscal year.

begin delete

6(C)

end delete

7begin insert(D)end insert The amount of previously allocated credits not certified.

8(2) If the amount of credits applied for in any particular fiscal
9year exceeds the aggregate amount of tax credits authorized to be
10allocated under this section, such excess shall be treated as having
11been applied for on the first day of the subsequent fiscal year.
12However, credits may not be allocated from a fiscal year other
13than the fiscal year in which the credit was originally applied for
14or the immediately succeeding fiscal year.

15(3) Notwithstanding the foregoing, the California Film
16Commission shall set aside up to ten million dollars ($10,000,000)
17of tax credits each fiscal year for independent films allocated in
18accordance with rules and regulations developed pursuant to
19subdivision (e).

20(4) Any act that reduces the amount that may be allocated
21pursuant to paragraph (1) constitutes a change in state taxes for
22the purpose of increasing revenues within the meaning of Section
233 of Article XIII A of the California Constitution and may be passed
24by not less than two-thirds of all Members elected to each of the
25two houses of the Legislature.

26(j) The California Film Commission shall have the authority to
27allocate tax credits in accordance with this section and in
28accordance with any regulations prescribed pursuant to subdivision
29(e) upon adoption.

30

begin deleteSEC. 7.end delete
31begin insertSEC. 9.end insert  

Section 23695 is added to the Revenue and Taxation
32Code
, to read:

33

23695.  

(a) (1) For taxable years beginning on or after January
341, 2016, there shall be allowed to a qualified taxpayer a credit
35against the “tax,” as defined in Section 23036, subject to a
36computation and ranking by the California Film Commission in
37subdivision (g) and the allocation amount categories described in
38subdivision (i), in an amountbegin delete not to exceedend deletebegin insert equal to 20 percent or
3925 percent, whichever isend insert
the applicable credit percentagebegin delete, as
40specifiedend delete
begin insert describedend insert in paragraph (4), of the qualified expenditures
P58   1for the production of a qualified motion picture in California. A
2credit shall not be allowed under this section for any qualified
3expenditures for the production of a motion picture in California
4if a credit has been claimed for those same expenditures under
5Section 23685.

6(2) The credit shall be allowed for the taxable year in which the
7California Film Commission issues the credit certificate pursuant
8to subdivision (g) for the qualified motion picture, but in no
9instance prior to July 1, 2016, and shall be for the applicable
10percentage of all qualified expenditures paid or incurred by the
11qualified taxpayer in all taxable years for that qualified motion
12picture.

13(3) The amount of the credit allowed to a qualified taxpayer
14shall be limited to the amount specified in the credit certificate
15issued to the qualified taxpayer by the California Film Commission
16pursuant to subdivision (g).

17(4) For purposes of paragraphs (1) and (2), the applicable credit
18percentage shall be:

19(A) Twenty percent of the qualified expenditures attributable
20to the production of a qualified motion picture in California,
21including, but not limited to, a feature, up to one hundred million
22dollars ($100,000,000) in qualified expenditures, or a television
23series that relocated to California that is in its second or subsequent
24years of receiving a tax credit allocation pursuant to this section
25or Section 23685.

26(B) Twenty-five percent of the qualified expenditures
27attributable to the production of a qualified motion picture in
28California where the qualified motion picture is a television series
29that relocated to California in its first year of receiving a tax credit
30allocation pursuant to this section.

31(C) Twenty-five percent of the qualified expenditures, up to ten
32million dollars ($10,000,000), attributable to the production of a
33qualified motion picture that is an independent film.

34(D) (i) In order to carry outbegin delete clause (vii) of subparagraph (D) of
35paragraph (2) of subdivision (g),end delete
begin insert subparagraph (D) of paragraph
36 (2) of subdivision (d),end insert
the California Film Commission shall
37increase the applicable credit percentage by 5 percent, not to exceed
38a maximum of 25 percent of qualified expenditures relating to
39original photography outside the Los Angeles zone.

40(ii) For purposes of this subparagraph:

P59   1(I) “Applicable period” means the period that commences with
2preproduction and ends when original photography concludes. The
3applicable period includes the time necessary to strike a remote
4location and return to the Los Angeles zone.

5(II) “Los Angeles zone” means the area within a circle 30 miles
6in radius from Beverly Boulevard and La Cienega Boulevard, Los
7Angeles, California, and includes Agua Dulce, Castaic, including
8Lake Castaic, Leo Carillo State Beach, Ontario International
9Airport, Piru, and Pomona, including the Los Angeles County
10Fairgrounds. The Metro Goldwyn Mayer, Inc. Conejo Ranch
11property is within the Los Angeles zone.

12(III) “Original photography” includes principal photography
13and reshooting original footage.

14(IV) “Qualified expenditures relating to original photography
15outside the Los Angeles zone” means amounts paid or incurred
16during the applicable period for tangible personal property
17purchased or leased and used or consumed outside the Los Angeles
18zone and relating to original photography outside the Los Angeles
19zone and qualified wages paid for services performed outside the
20Los Angeles zone and relating to original photography outside the
21Los Angeles zone.

22(E) Twenty-five percent of the qualified expenditures relating
23to music scoring and music track recording by musicians
24attributable to the production of a qualified motion picture in
25California.

26(F) Twenty-five percent of the qualified expenditures relating
27to qualified visual effects attributable to the production of a
28qualified motion picture in California.

29(b) For purposes of this section:

30(1) “Ancillary product” means any article for sale to the public
31that contains a portion of, or any element of, the qualified motion
32picture.

33(2) “Budget” means an estimate of all expenses paid or incurred
34during the production period of a qualified motion picture. It shall
35be the same budget used by the qualified taxpayer and production
36company for all qualified motion picture purposes.

37(3) “Clip use” means a use of any portion of a motion picture,
38other than the qualified motion picture, used in the qualified motion
39picture.

P60   1(4) “Credit certificate” means the certificate issued by the
2California Film Commission pursuant to subparagraph (C) of
3paragraph (3) of subdivision (g).

4(5) (A) “Employee fringe benefits” means the amount allowable
5as a deduction under this part to the qualified taxpayer involved
6in the production of the qualified motion picture, exclusive of any
7amounts contributed by employees, for any year during the
8production period with respect to any of the following:

9(i) Employer contributions under any pension, profit-sharing,
10annuity, or similar plan.

11(ii) Employer-provided coverage under any accident or health
12plan for employees.

13(iii) The employer’s cost of life or disability insurance provided
14to employees.

15(B) Any amount treated as wages under clause (i) of
16subparagraph (A) of paragraph (21) shall not be taken into account
17under this paragraph.

18(6) “Independent film” means a motion picture with a minimum
19budget of one million dollars ($1,000,000) that is produced by a
20company that is not publicly traded and publicly traded companies
21do not own, directly or indirectly, more than 25 percent of the
22producing company.

23(7) “Jobs ratio” means the amount of qualified wages paid to
24qualified individuals divided by the amount of tax credit, as
25computed by the California Film Commission.

26(8) “Licensing” means any grant of rights to distribute the
27qualified motion picture, in whole or in part.

28(9) “New use” means any use of a motion picture in a medium
29other than the medium for which it was initially created.

30(10) “Pilot for a new television series” means the initial episode
31produced for a proposed television series.

32(11) (A) “Postproduction” means the final activities in a
33qualified motion picture’s production, including editing, foley
34recording, automatic dialogue replacement, sound editing, scoring,
35music track recording by musicians and music editing, beginning
36and end credits, negative cutting, negative processing and
37duplication, the addition of sound and visual effects, sound mixing,
38film-to-tape transfers, encoding, and color correction.

39(B) “Postproduction” does not include the manufacture or
40shipping of release prints or their equivalent.

P61   1(12) “Preproduction” means the process of preparation for actual
2physical production which begins after a qualified motion picture
3has received a firm agreement of financial commitment, or is
4greenlit, with, for example, the establishment of a dedicated
5production office, the hiring of key crew members, and includes,
6but is not limited to, activities that include location scouting and
7execution of contracts with vendors of equipment and stage space.

8(13) “Principal photography” means the phase of production
9during which the motion picture is actually shot, as distinguished
10from preproduction and postproduction.

11(14) “Production period” means the period beginning with
12preproduction and ending upon completion of postproduction.

13(15) “Qualified entity” means a personal service corporation as
14defined in Section 269A(b)(1) of the Internal Revenue Code, a
15payroll services corporation, or any entity receiving qualified wages
16with respect to services performed by a qualified individual.

17(16) “Qualified expenditures” means amounts paid or incurred
18for tangible personal property purchased or leased, and used, within
19this state in the production of a qualified motion picture and
20payments, including qualified wages, for services performed within
21this state in the production of a qualified motion picture.

22(17) (A) “Qualified individual” means any individual who
23performs services during the production period in an activity related
24to the production of a qualified motion picture.

25(B) “Qualified individual” shall not include either of the
26following:

27(i) Any individual related to the qualified taxpayer as described
28in subparagraph (A), (B), or (C) of Section 51(i)(1) of the Internal
29Revenue Code.

30(ii) Any 5-percent owner, as defined in Section 416(i)(1)(B) of
31the Internal Revenue Code, of the qualified taxpayer.

32(18) (A) “Qualified motion picture” means a motion picture
33that is produced for distribution to the general public, regardless
34of medium, that is one of the following:

35(i) A feature with a minimum production budget of one million
36dollars ($1,000,000).

37(ii) A movie of the week or miniseries with a minimum
38production budget of five hundred thousand dollars ($500,000).

39(iii) A new television series of episodes longer than 40 minutes
40each of running time, exclusive of commercials, that is produced
P62   1in California, with a minimum production budget of one million
2dollars ($1,000,000) per episode.

3(iv) An independent film.

4(v) A television series that relocated to California.

5(vi) A pilot for a new television series that is longer than 40
6minutes of running time, exclusive of commercials, that is produced
7in California, and with a minimum production budget of one
8million dollars ($1,000,000).

9(B) To qualify as a “qualified motion picture,” all of the
10following conditions shall be satisfied:

11(i) At least 75 percent of the principal photography days occur
12wholly in California or 75 percent of the production budget is
13incurred for payment for services performed within the state and
14the purchase or rental of property used within the state.

15(ii) Production of the qualified motion picture is completed
16within 30 months from the date on which the qualified taxpayer’s
17application is approved by the California Film Commission. For
18purposes of this section, a qualified motion picture is “completed”
19when the process of postproduction has been finished.

20(iii) The copyright for the motion picture is registered with the
21United States Copyright Office pursuant to Title 17 of the United
22States Code.

23(iv) Principal photography of the qualified motion picture
24commences after the date on which the application is approved by
25the California Film Commission, but no later than 180 days after
26the date of that approval unless death, disability, or disfigurement
27of the director or of a principal cast member, an act of God,
28including, but not limited to, fire, flood, earthquake, storm,
29hurricane, or other natural disaster, terrorist activities, or
30government sanction has directly prevented a production’s ability
31to begin principal photography within the prescribed 180-day
32commencement period.

33(C) For the purposes of subparagraph (A), in computing the
34total wages paid or incurred for the production of a qualified
35motion picture, all amounts paid or incurred by all persons or
36entities that share in the costs of the qualified motion picture shall
37be aggregated.

38(D) “Qualified motion picture” shall not include commercial
39advertising, music videos, a motion picture produced for private
40noncommercial use, such as weddings, graduations, or as part of
P63   1an educational course and made by students, a news program,
2current events or public events program, talk show, game show,
3sporting event or activity, awards show, telethon or other
4production that solicits funds, reality television program, clip-based
5programming if more than 50 percent of the content is comprised
6of licensed footage, documentaries, variety programs, daytime
7dramas, strip shows, one-half hour (air time) episodic television
8shows, or any production that falls within the recordkeeping
9requirements of Section 2257 of Title 18 of the United States Code.

10(19) (A) “Qualified taxpayer” means a taxpayer who has paid
11or incurred qualified expenditures, participated in the Career
12Readiness requirement, and has been issued a credit certificate by
13the California Film Commission pursuant to subdivision (g).

14(B) (i) In the case of any pass-thru entity, the determination of
15whether a taxpayer is a qualified taxpayer under this section shall
16be made at the entity level and any credit under this section is not
17allowed to the pass-thru entity, but shall be passed through to the
18partners or shareholders in accordance with applicable provisions
19of Part 10 (commencing with Section 17001) or Part 11
20(commencing with Section 23001). For purposes of this paragraph,
21“pass-thru entity” means any entity taxed as a partnership or “S”
22corporation.

23(ii) In the case of an “S” corporation, the credit allowed under
24this section shall not be used by an “S” corporation as a credit
25against a tax imposed under Chapter 4.5 (commencing with Section
2623800) of Part 11 of Division 2.

27(20) “Qualified visual effects” means visual effects where at
28least 75 percent or a minimum of ten million dollars ($10,000,000)
29of the qualified expenditures for the visual effects is paid or
30incurred in California.

31(21) (A) “Qualified wages” means all of the following:

32(i) Any wages subject to withholding under Division 6
33(commencing with Section 13000) of the Unemployment Insurance
34Code that were paid or incurred by any taxpayer involved in the
35production of a qualified motion picture with respect to a qualified
36individual for services performed on the qualified motion picture
37production within this state.

38(ii) The portion of any employee fringe benefits paid or incurred
39by any taxpayer involved in the production of the qualified motion
P64   1picture that are properly allocable to qualified wage amounts
2described in clauses (i), (iii), and (iv).

3(iii) Any payments made to a qualified entity for services
4performed in this state by qualified individuals within the meaning
5of paragraph (17).

6(iv) Remuneration paid to an independent contractor who is a
7qualified individual for services performed within this state by that
8qualified individual.

9(B) “Qualified wages” shall not include any of the following:

10(i) Expenses, including wages, related to new use, reuse, clip
11use, licensing, secondary markets, or residual compensation, or
12the creation of any ancillary product, including, but not limited to,
13a soundtrack album, toy, game, trailer, or teaser.

14(ii) Expenses, including wages, paid or incurred with respect to
15acquisition, development, turnaround, or any rights thereto.

16(iii) Expenses, including wages, related to financing, overhead,
17marketing, promotion, or distribution of a qualified motion picture.

18(iv) Expenses, including wages, paid per person per qualified
19motion picture for writers, directors, music directors, music
20composers, music supervisors, producers, and performers, other
21than background actors with no scripted lines.

22(22) “Residual compensation” means supplemental
23compensation paid at the time that a motion picture is exhibited
24through new use, reuse, clip use, or in secondary markets, as
25distinguished from payments made during production.

26(23) “Reuse” means any use of a qualified motion picture in the
27same medium for which it was created, following the initial use
28in that medium.

29(24) “Secondary markets” means media in which a qualified
30motion picture is exhibited following the initial media in which it
31is exhibited.

32(25) “Television series that relocated to California” means a
33television series, without regard to episode length or initial media
34exhibition, with a minimum production budget of one million
35dollars ($1,000,000) per episode, that filmed no fewer than its most
36recent two seasons outside of California or has filmed all seasons
37outside of California and for which the taxpayer certifies that the
38credit provided pursuant to this section is the primary reason for
39relocating to California.

P65   1(26) “Visual effects” means the creation, alteration, or
2enhancement of images that cannot be captured on a set or location
3during live action photography and therefore is accomplished in
4postproduction. It includes, but is not limited to, matte paintings,
5animation, set extensions, computer-generated objects, characters
6and environments, compositing (combining two or more elements
7in a final image), and wire removals. “Visual effects” does not
8include fully animated projects, whether created by traditional or
9digital means.

10(c) (1) Notwithstanding subdivision (i) of Section 23036, in
11the case where the credit allowed by this section exceeds the
12taxpayer’s tax liability computed under this part, a qualified
13taxpayer may elect to assign any portion of the credit allowed
14under this section to one or more affiliated corporations for each
15taxable year in which the credit is allowed. For purposes of this
16subdivision, “affiliated corporation” has the meaning provided in
17subdivision (b) of Section 25110, as that section was amended by
18 Chapter 881 of the Statutes of 1993, as of the last day of the taxable
19year in which the credit is allowed, except that “100 percent” is
20substituted for “more than 50 percent” wherever it appears in the
21section, and “voting common stock” is substituted for “voting
22stock” wherever it appears in the section.

23(2) The election provided in paragraph (1):

24(A) May be based on any method selected by the qualified
25taxpayer that originally receives the credit.

26(B) Shall be irrevocable for the taxable year the credit is allowed,
27once made.

28(C) May be changed for any subsequent taxable year if the
29election to make the assignment is expressly shown on each of the
30returns of the qualified taxpayer and the qualified taxpayer’s
31affiliated corporations that assign and receive the credits.

32(D) Shall be reported to the Franchise Tax Board, in the form
33and manner specified by the Franchise Tax Board, along with all
34required information regarding the assignment of the credit,
35including the corporation number, the federal employer
36identification number, or other taxpayer identification number of
37the assignee, and the amount of the credit assigned.

38(3) (A) Notwithstanding any other law, a qualified taxpayer
39may sell any credit allowed under this section that is attributable
P66   1to an independent film, as defined in paragraph (6) of subdivision
2(b), to an unrelated party.

3(B) The qualified taxpayer shall report to the Franchise Tax
4Board prior to the sale of the credit, in the form and manner
5specified by the Franchise Tax Board, all required information
6regarding the purchase and sale of the credit, including the social
7security or other taxpayer identification number of the unrelated
8party to whom the credit has been sold, the face amount of the
9credit sold, and the amount of consideration received by the
10qualified taxpayer for the sale of the credit.

11(4) In the case where the credit allowed under this section
12exceeds the “tax,” the excess credit may be carried over to reduce
13the “tax” in the following taxable year, and succeeding five taxable
14years, if necessary, until the credit has been exhausted.

15(5) A credit shall not be sold pursuant to this subdivision to
16more than one taxpayer, nor may the credit be resold by the
17unrelated party to another taxpayer or other party.

18(6) A party that has been assigned or acquired tax credits under
19this subdivision shall be subject to the requirements of this section.

20(7) In no event may a qualified taxpayer assign or sell any tax
21credit to the extent the tax credit allowed by this section is claimed
22on any tax return of the qualified taxpayer.

23(8) In the event that both the taxpayer originally allocated a
24credit under this section by the California Film Commission and
25a taxpayer to whom the credit has been sold both claim the same
26amount of credit on their tax returns, the Franchise Tax Board may
27disallow the credit of either taxpayer, so long as the statute of
28limitations upon assessment remains open.

29(9) Chapter 3.5 (commencing with Section 11340) of Part 1 of
30Division 3 of Title 2 of the Government Code does not apply to
31any standard, criterion, procedure, determination, rule, notice, or
32guideline established or issued by the Franchise Tax Board
33pursuant to this subdivision.

34(10) Subdivision (i) of Section 23036 shall not apply to any
35credit sold pursuant to this subdivision.

36(11) For purposes of this subdivision:

37(A) An affiliated corporation or corporations that are assigned
38a credit pursuant to paragraph (1) shall be treated as a qualified
39taxpayer pursuant to paragraph (1) of subdivision (a).

P67   1(B) The unrelated party or parties that purchase a credit pursuant
2to paragraphs (3) to (10), inclusive, shall be treated as a qualified
3taxpayer pursuant to paragraph (1) of subdivision (a).

4(d) (1) No credit shall be allowed pursuant to this section unless
5the qualified taxpayer provides the following to the California
6Film Commission:

7(A) Identification of each qualified individual.

8(B) The specific start and end dates of production.

9(C) The total wages paid.

10(D) The total amount of qualified wages paid to qualified
11individuals.

12(E) The copyright registration number, as reflected on the
13certificate of registration issued under the authority of Section 410
14of Title 17 of the United States Code, relating to registration of
15claim and issuance of certificate. The registration number shall be
16provided on the return claiming the credit.

17(F) The total amounts paid or incurred to purchase or lease
18tangible personal property used in the production of a qualified
19motion picture.

20(G) Information to substantiate its qualified expenditures.

21(H) Information required by the California Film Commission
22under regulations promulgated pursuant to subdivision (g)
23necessary to verify the amount of credit claimed.

24(I) Provides documentationbegin delete certifyingend deletebegin insert verifyingend insert completion of
25the Career Readiness requirement.

26(2) (A) Based on the information provided in paragraph (1),
27the California Film Commission shall recompute the jobs ratio
28previously computed in subdivision (g) and compare this
29recomputed jobs ratio to the jobs ratio that the qualified taxpayer
30previously listed on the application submitted pursuant to
31subdivision (g). If the California Film Commission determines
32that the jobs ratio has been reduced by more than 10 percent, the
33California Film Commission shall reduce the amount of credit
34allowed by an equal percentage, unless the qualified taxpayer
35demonstrates, and the California Film Commission determines,
36that reasonable cause exists for thebegin delete jobend deletebegin insert jobsend insert ratio reduction.

37(B) If the California Film Commission determines that the jobs
38ratio has been reduced by more than 20 percent, the California
39Film Commission shall not accept an application described in
40subdivision (g) from that qualified taxpayer or any member of the
P68   1qualified taxpayer’s controlled group for a period of not less than
2one year from the date of that determination, unless the qualified
3taxpayer demonstrates, and the California Film Commission
4determines, that reasonable cause exists for thebegin delete jobend deletebegin insert jobsend insert ratio
5reduction.

begin insert

6(C) If the California Film Commission determines that the jobs
7ratio has been reduced by more than 20 percent for an independent
8film, the tax credit allocation to the independent film shall be
9revoked unless the qualified taxpayer demonstrates, and the
10California Film Commission determines, that reasonable cause
11exists for the jobs ratio reduction.

end insert
begin insert

12(D) Subject to subparagraph (D) of paragraph (4) of subdivision
13(a), the California Film Commission shall increase the applicable
14credit percentage by 5 percent, not to exceed a maximum of 25
15percent, if the qualified motion picture paid or incurred outside
16the Los Angeles zone the qualified expenditures relating to original
17photography outside the Los Angeles zone.

end insert
begin insert

18(E) For the purposes of this paragraph, “reasonable cause”
19means unforeseen circumstances beyond the control of the qualified
20taxpayer, such as, but not limited to, the cancellation of a television
21series prior to the completion of the scheduled number of episodes
22or other similar circumstances as determined by the California
23Film Commission in regulations to be adopted pursuant to
24subdivision (e).

end insert

25(e) (1) (A) Subject to the Administrative Procedure Act
26(Chapter 3.5 (commencing with Section 11340) of Part 1 of
27Division 3 of Title 2 of the Government Code), the California Film
28Commission shall adopt rules and regulations to implement a
29Career Readiness requirement by which the California Film
30Commission shall identify training and public service opportunities
31that may include, but not be limited to, hiring interns, public service
32announcements, and community outreach and may prescribe rules
33and regulations to carry out the purposes of this section, including,
34begin delete clauses (iv) and (v)end deletebegin insert subparagraph (E) of paragraph (2) of
35subdivision (d) and clause (iv)end insert
of subparagraph (D) of paragraph
36(2) of subdivisionbegin delete (g) and,end deletebegin insert (g), andend insert including any rules and
37regulations necessary to establish procedures, processes,
38requirements, application fee structure, and rules identified in or
39required to implement this section, including credit and logo
40requirements.

P69   1(B) Notwithstanding any other law, prior to preparing a notice
2of proposed actionbegin insert pursuant to Section 11346.4 of the Government
3Codeend insert
and prior to making any revision to the proposed regulation
4 other than a change that is nonsubstantial or solely grammatical
5in naturebegin delete pursuant to Article 6 (commencing with Section 11349)
6of Chapter 3.5 of Part 1 of Division 3 of Title 2 of the Government
7Codeend delete
, the Governor’s Office of Business and Economic
8Development shall first approve the proposed regulation or
9proposed change to a proposed regulationbegin insert regarding allocating
10the credit pursuant to subdivision (i), computing the jobs ratio as
11described in subdivisions (d) and (g), and defining “reasonable
12cause” pursuant to subparagraph (E) of paragraph (2) of
13subdivision (d)end insert
.

14(2) (A) Implementation of this section for the 2015-16 fiscal
15year is deemed an emergency and necessary for the immediate
16preservation of the public peace, health, and safety, or general
17welfare and, therefore, the California Film Commission is hereby
18authorized to adopt emergency regulationsbegin delete only as necessaryend delete to
19implement this section during the 2015-16 fiscal year in
20accordance with the rulemaking provisions of the Administrative
21 Procedure Act (Chapter 3.5 (commencing with Section 11340) of
22Part 1 of Division 3 of Title 2 of the Government Code).

23(B) Nothing in this paragraph shall be construed to require the
24Governor’s Office of Business and Economic Development to
25approve emergency regulations adopted pursuant to this paragraph.

26(f) If the qualified taxpayer fails to provide the copyright
27registration number as required in subparagraph (E) of paragraph
28(1) of subdivision (d), the credit shall be disallowed and assessed
29and collected under Section 19051 until the procedures are
30satisfied.

31(g) For purposes of this section, the California Film Commission
32shall do the following:

33(1) Subject to the requirements of subparagraphs (A) through
34(E), inclusive, of paragraph (2), on or after January 1, 2015, and
35before July 1, 2016, in one or more allocation periods per fiscal
36year, allocate tax credits to applicants.

37(2) On or after July 1, 2016, and before July 1, 2019, in two or
38more allocation periods per fiscal year, allocate tax credits to
39applicants.

P70   1(A) Establish a procedure for applicants to file with the
2California Film Commission a written application, on a form jointly
3prescribed by the California Film Commission and the Franchise
4Tax Board for the allocation of the tax credit. The application shall
5include, but not be limited to, the following information:

6(i) The budget for the motion picture production.

7(ii) The number of production days.

8(iii) A financing plan for the production.

9(iv) The diversity of the workforce employed by the applicant,
10including, but not limited to, the ethnic and racial makeup of the
11individuals employed by the applicant during the production of
12the qualified motion picture, to the extent possible.

13(v) All members of a combined reporting group, if known at
14the time of the application.

15(vi) Financial information, if available, including, but not limited
16to, the most recently produced balance sheets, annual statements
17of profits and losses, audited or unaudited financial statements,
18summary budget projections or results, or the functional equivalent
19of these documents of a partnership or owner of a single member
20limited liability company that is disregarded pursuant to Section
2123038. The information provided pursuant to this clause shall be
22confidential and shall not be subject to public disclosure.

23(vii) The names of all partners in a partnership not publicly
24traded or the names of all members of a limited liability company
25classified as a partnership not publicly traded for California income
26tax purposes that have a financial interest in the applicant’s
27qualified motion picture. The information provided pursuant to
28this clause shall be confidential and shall not be subject to public
29disclosure.

30(viii) The amount of qualified wages the applicant expects to
31pay to qualified individuals.begin delete The information provided pursuant
32to this clause shall be confidential and shall not be subject to public
33disclosure.end delete

34(ix) The amount of tax credit requested not to exceed the
35applicable credit percentage described in paragraph (4) of
36subdivision (a).begin delete The information provided pursuant to this clause
37shall be confidential and shall not be subject to public disclosure.end delete

38(x) A statement establishing that the tax credit described in this
39section is a significant factor in the applicant’s choice of location
40for the qualified motion picture. The statement shall include
P71   1information about whether the qualified motion picture is at risk
2of not being filmed or specify the jurisdiction or jurisdictions in
3which the qualified motion picture will be located in the absence
4of the tax credit. The statement shall be signed by an officer or
5executive of the applicant.

6(xi) Any other information deemed relevant by the California
7Film Commission or the Franchise Tax Board.

8(B) Establish criteria, consistent with the requirements of this
9section, for allocating tax credits.

10(C) Determine and designate applicants who meet the
11requirements of this section.

12(D) (i) For purposes of allocating the credit amounts subject to
13the categories described in subdivision (i) in any fiscal year, the
14California Film Commission shall do all of the following:

15(ii) For each allocation date and for each category, list each
16applicant from highest to lowest according to the jobs ratio as
17computed by the California Film Commission.

18(iii) Subject to the applicable credit percentage, allocate the
19credit to each applicant according to the highest jobs ratio, working
20down the list, until the credit amount is exhausted.

begin delete

21(iv) Pursuant to regulations adopted pursuant to subdivision (e),
22the California Film Commission may increase the jobs ratio up to
2310 percent for applications where 75 percent of the principal
24photography days occur wholly in the state and 75 percent of the
25production budget is incurred for payment for services performed
26within the state and the purchase or rental of property used within
27the state.

end delete
begin delete

28(v) Pursuant to regulations adopted pursuant to subdivision (e),
29in addition to the jobs ratio increase authorized by clause (iv), the
30California Film Commission may additionally increase the jobs
31ratio up to 10 percent for applications that will use facilities in the
32state for at least 75 percent of the postproduction.

end delete
begin insert

33(iv) Pursuant to regulations adopted pursuant to subdivision
34(e), the California Film Commission may increase the jobs ratio
35by up to 25 percent if a qualified motion picture increases
36economic activity in California according to criteria developed
37by the California Film Commission that would include, but not be
38limited to, such factors as, the amount of the production and
39postproduction spending in California, the utilization of production
P72   1facilities in California, and other criteria measuring economic
2impact in California as determined by the Film Commission.

end insert
begin delete

3(vi)

end delete

4begin insert(v)end insert Notwithstanding any other provision, any new television
5series, relocating television series, or any new television series
6based on a pilot for a new television seriesbegin delete described in paragraph
7(9) of subdivision (b), where that pilot has been previouslyend delete
begin insert that
8has been end insert
approved and issued a credit allocation by the California
9Film Commission either under thisbegin delete section orend deletebegin insert section,end insert Section
1017053.95,begin insert end insertbegin insert17053.85, orend insertbegin insert 23685end insert shall be issued a credit for each
11subsequentbegin delete yearend deletebegin insert year,end insert inbegin insert an end insertbegin insertamount equal to the prior credit
12amount, forend insert
the life of that begin deletetelevision seriesend deletebegin insert qualified motion pictureend insert
13 whenever credits are allocated within a fiscal year.

begin delete

14(vii) Subject to subparagraph (D) of paragraph (4) of subdivision
15(a), the California Film Commission shall increase the applicable
16credit percentage by 5 percent, not to exceed a maximum of 25
17percent, if the qualified motion picture paid or incurred outside
18the Los Angeles zone the qualified expenditures relating to original
19photography outside the Los Angeles zone.

end delete

20(E) Subject to the annual cap and the allocation credit amounts
21based on categories described in subdivision (i), allocate an
22aggregate amount of credits under this section and Section
2317053.95, and allocate any carryover of unallocated credits from
24prior years and the amount of any credits reduced pursuant to
25paragraph (2) of subdivision (d).

26(3) Certify tax credits allocated to qualified taxpayers.

27(A) Establish a verification procedure for the amount of qualified
28expenditures paid or incurred by the applicant, including, but not
29limited to, updates to the information in subparagraph (A) of
30paragraph (2) of subdivision (g).

31(B) Establish audit requirements that must be satisfied before
32a credit certificate may be issued by the California Film
33Commission.

34(C) (i) Establish a procedure for a qualified taxpayer to report
35to the California Film Commission, prior to the issuance of a credit
36certificate, the following information:

37(I) If readily available, a list of the states, provinces, or other
38jurisdictions in which any member of the applicant’s combined
39reporting group in the same business unit as the qualified taxpayer
40that, in the preceding calendar year, has produced a qualified
P73   1motion picture intended for release in the United States market.
2For purposes of this clause, “qualified motion picture” shall not
3include any episodes of a television series that were complete or
4in production prior to July 1, 2016.

5(II) Whether a qualified motion picture described in subclause
6(I) was awarded any financial incentive by the state, province, or
7other jurisdiction that was predicated on the performance of
8primary principal photography or postproduction in that location.

9(ii) The California Film Commission may provide that the report
10required by this subparagraph be filed in a single report provided
11on a calendar year basis for those qualified taxpayers that receive
12multiple credit certificates in a calendar year.

13(D) Issue a credit certificate to a qualified taxpayer upon
14completion of the qualified motion picture reflecting the credit
15amount allocated after qualified expenditures have been verified
16and the jobs ratio computed under this section. The amount of
17credit shown in the credit certificate shall not exceed the amount
18of credit allocated to that qualified taxpayer pursuant to this section.

19(4) Obtain, when possible, the following information from
20applicants that do not receive an allocation of credit:

21(A) Whether the qualified motion picture that was the subject
22of the application was completed.

23(B) If completed, in which state or foreign jurisdiction was the
24primary principal photography completed.

25(C) Whether the applicant received any financial incentives
26from the state or foreign jurisdiction to make the qualified motion
27picture in that location.

28(5) Provide the Legislative Analyst’s Office, upon request, any
29or all application materials or any other materials received from,
30or submitted by, the applicants, in electronic format when available,
31including, but not limited to, information provided pursuant to
32clauses (i) to (xi) inclusive, of subparagraph (A) of paragraph (2).

33(6) The information provided to the California Film Commission
34pursuant to this section shall constitute confidential tax information
35for purposes of Article 2 (commencing with Section 19542) of
36Chapter 7 of Part 10.2.

37(h) (1) The California Film Commission shall annually provide
38the Legislative Analyst’s Office, the Franchise Tax Board, and the
39board with a list of qualified taxpayers and the tax credit amounts
40allocated to each qualified taxpayer by the California Film
P74   1Commission. The list shall include the names and taxpayer
2identification numbers, including taxpayer identification numbers
3of each partner or shareholder, as applicable, of the qualified
4taxpayer.

5(2) (A) Notwithstanding paragraph (6) of subdivision (g), the
6California Film Commission shall annually post on its Internet
7Web site and make available for public release the following:

8(i) A table which includes all of the following information: a
9list of qualified taxpayers and the tax credit amounts allocated to
10each qualified taxpayer by the California Film Commission, the
11number of production days in California the qualified taxpayer
12represented in its application would occur, the number of California
13jobs that the qualified taxpayer represented in its application would
14be directly created by the production, and the total amount of
15qualified expenditures expected to be spent by the production.

16(ii) A narrative staff summary describing the production of the
17qualified taxpayer as well as background information regarding
18the qualified taxpayer contained in the qualified taxpayer’s
19application for the credit.

20(B) Nothing in this subdivision shall be construed to make the
21information submitted by an applicant for a tax credit under this
22section a public record.

23(3) The California Film Commission shall provide each city
24and county in California with an instructional guide that includes,
25but is not limited to, a review of best practices for facilitating
26motion picture production in local jurisdictions, resources on
27hosting and encouraging motion picture production, and the
28California Film Commissions’ Model Film Ordinance. The
29California Film Commission shall maintain on its Internet Web
30site a list of initiatives by locality that encourage motion picture
31production in regions across the state. The list shall be distributed
32to each approved applicant for the program to highlight local
33 jurisdictions that offer incentives to facilitate film production.

34(i) (1) The aggregate amount of credits that may be allocated
35 for any fiscal year pursuant to this section and Section 17053.95
36shall be an amount equal to the sum of all of the following:

37(A) begin deleteThree hundred million dollars ($300,000,000) end deletebegin insertTwo hundred
38million dollars ($200,000,000) end insert
in credits for the 2015-16 fiscal
39year.

P75   1(B) Four hundred million dollars ($400,000,000) in credits for
2the 2016-17 fiscal year and each fiscal year thereafter, through
3and including the 2018-19 fiscal year.

4(C) The unused allocation credit amount, if any, for the
5preceding fiscal year.

6(D) The amount of previously allocated credits not certified.

7(E) The amount of any credits reduced pursuant to paragraph
8(2) of subdivision (d).

9(2) (A) Notwithstanding the foregoing, the California Film
10Commission shall allocate the credit amounts subject to the
11following categories:

12(i) Independent films shall be allocated 5 percent of the amount
13specified in paragraph (1).

14(ii) Features shall be allocated 35 percent of the amount specified
15in paragraph (1).

16(iii)  begin delete Subject to clause (vi) of subparagraph (D) of paragraph
17(2) of subdivision (g), a end delete
begin insertA end insertrelocating television series shall be
18allocated 20 percent of the amount specified in paragraph (1).

19(iv)  begin deleteSubject to clause (vi) of subparagraph (D) of paragraph
20(2) of subdivision (g), a end delete
begin insertA end insertnew television series, pilots for a new
21television series, movies of the week, miniseries, and recurring
22television series shall be allocated 40 percent of the amount
23specified in paragraph (1).

24(B) begin insert(i)end insertbegin insertend insert Within 60 days after the allocation period, any unused
25amount within a category or categories shall be apportioned to
26another category or categories with a higher demand.

begin insert

27(ii) Notwithstanding the foregoing, at the end of the fiscal year,
28any unused amount within the allocation described in clause (iii)
29of subparagraph (A) shall be reallocated to the allocation
30described in clause (iv) of subparagraph (A).

end insert

31(C) Notwithstanding the foregoing, the California Film
32Commission may increase or decrease an allocation amount in
33subparagraph (A) by 5 percent, if necessary, due to the jobs ratio,
34the number of applications, or the allocation credit amounts
35available by category compared to demand.

begin insert

36(D) With respect to a relocating television series issued a credit
37in a subsequent year pursuant to clause (v) of subparagraph (D)
38of paragraph (2) of subdivision (g), that subsequent credit amount
39shall be paid from the allocation amount described in clause (iv)
40of subparagraph (A).

end insert

P76   1(3) Any act that reduces the amount that may be allocated
2pursuant to paragraph (1) constitutes a change in state taxes for
3the purpose of increasing revenues within the meaning of Section
43 of Article XIII   A of the California Constitution and may be
5passed by not less than two-thirds of all Members elected to each
6of the two houses of the Legislature.

7(j) The California Film Commission shall have the authority to
8allocate tax credits in accordance with this section and in
9accordance with any regulations prescribed pursuant to subdivision
10(e) upon adoption.

11

begin deleteSEC. 8.end delete
12begin insertSEC. 10.end insert  

The Legislature finds and declares that Sections 5
13and 7 of this act impose a limitation on the public’s right of access
14to the meetings of public bodies or the writings of public officials
15and agencies within the meaning of Section 3 of Article I of the
16California Constitution. Pursuant to that constitutional provision,
17the Legislature makes the following findings to demonstrate the
18interest protected by this limitation and the need for protecting
19that interest:

20In order to allow the California Film Commission to fully
21accomplish its goals, it is imperative to protect the interests of
22those persons submitting information to the California Film
23Commission to ensure that any personal or sensitive business
24information that this act requires those persons to submit is
25protected as confidential information.

26

begin deleteSEC. 9.end delete
27begin insertSEC. 11.end insert  

The provisions of this act are severable. If any
28provision of this act or its application is held invalid, that invalidity
29shall not affect other provisions or applications that can be given
30effect without the invalid provision or application.

31begin insert

begin insertSEC. 12.end insert  

end insert
begin insert

Section 7.5 of this bill incorporates amendments to
32Section 23036 of the Revenue and Taxation Code proposed by
33both this bill and Assembly Bill 2754. It shall only become
34operative if (1) both bills are enacted and become effective on or
35before January 1, 2015, but this bill becomes operative first, (2)
36each bill amends Section 23036 of the Revenue and Taxation Code,
37and (3) this bill is enacted after Assembly Bill 2754, in which case
38Section 23036 of the Revenue and Taxation Code, as amended by
39Section 7 of this bill, shall remain operative only until the operative
P77   1date of Assembly Bill 2754, at which time Section 7.5 of this bill
2shall become operative.

end insert
3

begin deleteSEC. 10.end delete
4begin insertSEC. 13.end insert  

This act provides for a tax levy within the meaning
5of Article IV of the Constitution and shall go into immediate effect.



O

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