BILL ANALYSIS Ó
AB 1839
Page 1
Date of Hearing: March 25, 2013
ASSEMBLY COMMITTEE ON ARTS, ENTERTAINMENT, SPORTS, TOURISM, AND
INTERNET MEDIA
Ian C. Calderon, Chair
AB 1839 (Gatto and Bocanegra) - As Amended: March 19, 2014
SUBJECT : Income taxes: qualified motion pictures.
SUMMARY : Extends for five years the requirement that the
California Film Commission (CFC) annually allocates tax credits
to qualified motion pictures, as specified, continuing through
the 2021-22 fiscal year and would recast these credits as
Personal Income Tax Credits beginning on and after January 2016.
Removes the $75 million dollar cap on the budget for a
qualified motion picture and instead places a cap on the amount
of credits a qualified motion picture is eligible to receive, as
specified. Expands the portion of the program which covers
television series beyond the current cable-TV only eligibility,
to include all television series, as defined, regardless of
broadcast media. Provides a new incentive for productions
located outside of the Los Angeles zone, as specified. Makes
various technical changes. Specifically, this bill :
1)Extends the requirement in law that that CFC annually issue
tax credits to qualifying motion picture productions, as
specified, through the 2021-22 fiscal year. (See Existing Law
for a detailed explanation of the film tax credit program).
2)Declares that the credit shall be 20% of the qualified
expenditures attributable to the production of a qualified
motion picture in California, including, but not limited to:
a) A feature, up to $100,000,000, or;
b) A television series in its second or subsequent years of
receiving a tax credit allocation pursuant to this section.
3)Defines a "Qualified motion picture" to mean a motion picture
that is produced for distribution to the general public,
regardless of medium, that is one of the following:
a) A feature with a minimum production budget of
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$1,000,000.
b) A movie of the week or miniseries with a minimum
production budget of $500,000.
c) A new one-hour television series of episodes longer than
40 minutes each of running time, exclusive of commercials,
that is produced in California, with a minimum production
budget of $1,000,000 per episode.
d) An independent film.
e) A television series that relocated to California.
f) A pilot for a new television series that is longer than
40 minutes of running time, exclusive of commercials, that
is produced in California, and with a minimum production
budget of $1,000,000.
g) Requires the CFC to increase the applicable percentage
by 5%, not to exceed a maximum of 25%, if the qualified
motion picture incurred or paid the qualified expenditures
relating to original photography outside the Los Angeles
zone.
4)Provides the following definitions:
a) "Applicable period" means the period that commences with
preproduction and ends when original photography concludes.
The applicable period includes the time necessary to
strike a remote location and return to the Los Angeles
zone.
b) "Los Angeles zone" means the area within a circle 30
miles in radius from Beverly Boulevard and La Cienaga
Boulevard, Los Angeles, California, and includes Agua
Dulce, Castaic, including Lake Castaic, Leo Carillo State
Beach, Ontario International Airport, Piru, and Pomona,
including the Los Angeles County Fairgrounds. The Metro
Goldwyn Mayer, Inc. Conejo Ranch property is within the Los
Angeles zone.
c) "Original photography" includes principal photography,
additional unit photography, and reshooting original
footage.
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d) "Qualified expenditures relating to original photography
outside the Los Angeles zone" means amounts paid or
incurred during the applicable period for tangible personal
property used or consumed outside the Los Angeles zone and
relating to original photography outside the Los Angeles
zone and qualified wages paid for services performed
outside the Los Angeles zone and relating to original
photography outside the Los Angeles zone.
5)Restructures and increases the allocation from 20% to 25% of
the qualified expenditures relating to music scoring and music
editing attributable to the production of a qualified motion
picture in California.
6)Requires the CFC to set aside the lesser of 10% of the amount
specified in subparagraph (A) of paragraph (1) or $20,000,000
of tax credits each fiscal year for independent films, as
specified.
7)Further requires the CFC to set aside up to $30,000,000 of tax
credit each fiscal year for television series that relocated
to California, as specified.
8)Make various technical changes.
EXISTING LAW :
1) Establishes a motion picture production tax credit, equal
to either:
a) 20% of the qualified expenditures attributable to the
production of a qualified motion picture, or;
b) 25% of the qualified expenditures attributable to the
production of a television series that relocated to
California, or an independent film.
1)Defines "independent film" as a film with a budget between
$1million and $10 million produced by a non-publicly traded
company which is not more than 25% owned by publicly traded
companies.
2)Requires the CFC to administer a motion picture production tax
credit allocation and certification program, as follows:
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a) Taxpayers will first apply to the CFC for a credit
allocation, based on a projected project budget.
b) Upon receiving an allocation, the project must be
completed within 30 months.
c) The taxpayer must then provide the CFC with verification
of completion and documentation of actual qualifying
expenditures.
d) Based on that information, the CFC will issue the
taxpayer a credit certificate up to the amount of the
original allocation.
3)Defines "Qualified motion pictures" as one produced for
general distribution to the public, and include feature films
with budgets between $1 million and $75 million; Movies of the
Week with a minimum budget of $500,000, and new television
series with a minimum production budget of $1 million.
4)Requires that in order to be eligible for the credit, 75% of
the production days must take place within California or 75%
of the production budget is incurred for payment for services
performed within the state and the purchase or rental of
property used within the state.
5)Declares that the credit is not available for commercial
advertising, music videos, motion pictures for non-commercial
use, news and public events programs, talk shows, game shows,
reality programming, documentaries, and pornographic films
6)Requires that the CFC allocate $100 million of credit
authorizations each year during the period 2009-10 through
2015 on a first-come, first-served basis, with 25% of the
allocation reserved for independent films.
7)Declares that any unallocated amounts and any allocation
amounts in excess of certified credits may be carried over and
reallocated by the CFC.
8)Provides that qualifying taxpayers could claim the credit on
their tax return filed with the Franchise Tax Board (FTB)
under either the Personal Income Tax or Corporation Tax.
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9)Provides further that taxpayers may use certified credits in a
number of ways, they may;
a) Claim it directly;
b) Assign it to another member of their unitary group;
c) Sell the credits to other taxpayers, or;
d) Elect to apply the credit against their sales and use
tax liability.
10)Specifies that the CFC will allocate $100 million of credit
authorizations each year during the period starting July 2015
until July 2017 on a first come first served basis.
FISCAL EFFECT : Unknown
COMMENTS :
1)Author's statement : According to the author, "Hollywood is
internationally celebrated as home of the entertainment
industry, having established itself as a film-making locale by
the early 1900s. The entertainment industry creates hundreds
of thousands of good paying middle class jobs and billions in
economic activity throughout California each year, and
hopefuls still flock to the area with dreams of being
'discovered.' Unfortunately, the film industry's last big
peak occurred in 1997, and the steady, local jobs offered by
the industry have been under constant attack.
"Since the late 90s, film production has been lured across
state lines to other states and nations that have sought to
attract the notoriety, tax revenues, and workforce. There are
now more than 40 states and numerous other countries that
offer incentives, almost all of which are substantially larger
than California's. In the last 15 years, film production has
dropped nearly 50% in California. In 2013, 21 of the 23 new
prime time series were filmed outside of California. When
production leaves California, those left jobless are not the
top-tier talent, such as the actors and producers, who are
often shipped to the filming locations. Instead, the below
the line and behind the scenes workers take a hit, as do the
ancillary businesses that serve the production sites and
teams, such as the caterers, hotels, set construction
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companies, restaurants, etc.
"In an effort to combat production flight, in 2009, the
Legislature passed the California Film and Television Tax
Credit Program to promote film production and create and
retain jobs in California. Since 2009, California has
allocated $100 million a year to eligible film and TV
productions that meet specific criteria. To date, more than
270 projects, contributing more than $4.75 billion in economic
activity and creating more than 51,000 jobs, have benefitted
from the program. Tax revenue generated from filming helps to
pay for teachers, police officers and infrastructure
throughout California.
"However, while California's incentive program has been fully
subscribed to, at least 43 other states and international
governments offer tax incentives for film and TV production.
As more and more states create attractive production incentive
programs, filming in California becomes less and less
attractive, and when the production goes elsewhere, so do the
jobs, tax revenue, local spending, and tourism that accompany
it.
"By creating a more robust and better targeted incentive
program, the California Film and Television Job Retention and
Promotion Act will help keep more feature and television
production in the state, guaranteeing thousands of well-paid,
highly-skilled jobs in our local economies."
2)Existing Film Tax Credit Program : In 2009, the Legislature
approved, and Governor Schwarzenegger signed, the California
Film & Television Tax Credit Program (Film Tax Credit Program)
as a part of the 2009 Budget plan to promote film production
and to create and retain jobs in California [SBX3 15
(Calderon), Chapter 17, Statutes of 2009-10 Third
Extraordinary Session, and ABX3 15, (Krekorian), Chapter 10,
Statutes of 2009-10 Third Extraordinary Session].
The CFC allocates $100 million in credits for qualified
production expenditures annually - $10 million of which is set
aside for qualified production expenditures incurred by
independent films. Qualified taxpayers are allowed a credit
against income and/or sales and use taxes, based upon
qualified expenditures. Credits are not refundable, and only
tax credits that are issues to an "independent film" are
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transferrable to an unrelated party.
Qualified expenditures are costs that must be incurred in the
State of California. They include crew and staff salaries,
wages and benefits (not including wages and benefits paid to
writers, directors, music directors/composers/producers, and
actors), cost of rental facilities and equipment, and costs
such as lodging, food, wardrobe and construction.
To apply for the California Film and Television Incentive
Program, a "qualified motion picture" must be one of the
following:
a) Eligible for 20% Tax Credit -
A feature film with a production budget of no less
than $1 million and not more than $75 million.
A movie of the week or miniseries with a production
budget of no less than $500,000.
A new television series licensed for original
distribution on basic cable with a production budget of
$1 million minimum and with a running time of no less
than 60 minutes (including commercials).
b) Eligible for 25% Tax Credit -
A television series, without regard to episode
length or media distribution outlet (basic cable, premium
cable, or network broadcast), that filmed all of its
prior seasons outside of California and that chooses to
relocate to California.
An "independent film" (with a production budget of
at least $1 million and a maximum qualified expenditures
budget of $10 million; must be produced by a company that
is not publicly traded and that publicly traded companies
do not own more than 25% of the producing company).
The film must also have 75% of its production days take place
in or total production budget spent in California.
In an effort to ensure fairness, the oversubscribed program is
operated in a lottery manner. Applications for tax credits are
due to the CFC at the beginning of June, and the CFC holds a
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drawing at the end of the month to select the films that will
be issued credits. The number of applicants for credits far
exceeds the available funds for credits: in 2012, only 27
projects out of the 322 applicants that applied were selected.
After the applications for credits have been received and the
"qualified motion pictures" have been selected for the
available credits, the CFC issues a credit allocation letter
reserving an amount of tax credits to an applicant based upon
projected qualified expenditures. If a project is approved for
a credit, the project must shoot within 6 months and be
completed within 30 months from the date that the application
was approved.
Upon completion of the project, and before the Tax Credit
Certificate is issued, the applicant must provide to the CFC
several documents, including a list of qualified expenditures
that has been reviewed by a trained CPA. The CFC reviews the
documents with the applicant to determine if all criteria has
been met, at which time the CFC will issue the credit
certificate. The credit allows the taxpayer to claim the
credit on their file tax return with the Franchise Tax Board
under the personal income tax or the corporate tax law.
1)Major Changes Proposed to the Film Tax Credit Program Under AB
1839 : As noted above, the current motion picture and
television production incentive provides a 20% tax credit for
feature films with budgets between $1 million and $75 million;
for movies-of-the-week and mini-series with a minimum budget
of $500,000; and for one-hour television series that air on
basic cable channels. The current program provides a 25% tax
credit for any TV series, regardless of where it airs, that
relocates to California. The current program allocates $100
million to qualified production annually, of which up to $10
million is set- aside for productions made by independent (not
publicly traded) companies. The current program has two more
$100 million annual allocations left before it sunsets, on
July 1, 2014 and July 1, 2015.
Currently, eligible applicants can receive a 20% tax credit on
qualified expenditures. Under AB 1839, eligible applicants
will be expanded to include:
a) A feature film with a minimum budget of $1million with
no maximum; qualified expenditures limited to $100 million.
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b) Any television series (with episodes longer than 40
minutes) regardless of how it is distributed (basic cable,
premium pay cable, network, Internet); minimum budget of
$1million per episode.
c) A pilot for a TV series with a minimum $1 million budget
and longer than 40 minutes.
d) A movie of the week or mini-series with a minimum budget
of $500,000.
e) A television series relocating to California can receive
a 25% tax credit for the first year of relocation to
California and a 20% credit for subsequent years (Currently
they receive 25% for the entire run of the series).
f) A qualified production filming outside the Los Angeles
zone can receive a 25% (5% increase) on expenditures
incurred outside the Los Angeles zone.
g) Defines "Los Angeles zone" to mean the area within a
circle 30 miles in radius from Beverly Boulevard and La
Cienega Boulevard, Los Angeles, California and includes
Agua Dulce, Castaic (including Lake Castaic), Leo Carillo
State Beach, Ontario International Airport, Piru and Pomona
(including the Los Angeles County Fair Grounds). The
Metro-Goldwyn-Mayer, Inc. Conejo Ranch property shall be
considered as within the studio zone
h) Music scoring and editing for a qualified production can
receive a 25% (5% increase) on those qualified expenditures
in California.
i) A set aside for relocating TV series of up to $30
million, and;
j) A set aside for independent productions (non-publicly
traded companies) of up to 10% of the allocation or $20
million.
1)Legislative and Oversight Hearings of Arts, Entertainment,
Sports, Tourism & Internet Media (AEST&IM) and Revenue &
Taxation Committees : The issue of film production tax credits
has come before this committee many times, in many years, in
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many versions. (Please see, Comment 9 below). The Committee
has also studied this issue extensively, both alone and with
the Committee on Revenue and Taxation.
On March 21, 2011, a Joint Oversight Hearing of the Assembly
AEST&IM and the Assembly Revenue and Taxation Committees was
held on, "California's Film Credit Under the Spotlight: A
Review of the Film and Television Tax Credit Program." This
was followed by the Revenue and Taxation Committee Oversight
Hearing on "Assessing Tax Expenditure Programs in Light of
California's Fiscal Challenges" on February 22, 2012, where
the Film Tax Credit was again analyzed. On October 9, 2013,
yet another Joint Oversight Hearing of the Assembly AEST&IM
and the Assembly Revenue and Taxation Committees was held,
entitled "A Review of the California Film Tax Program." The
topics of discussion in the many hearings followed the same
general themes. Below is a capsule of some of the findings
which came from these many reviews of the Film Tax Credit
Program.
a) Run-away Production : From the 2011 Joint Informational
Hearing: At the state level, "run-away productions" are
film or television productions that are developed for
initial exhibition or broadcast in California, but that are
actually filmed in another state or country in order to
achieve lower production costs.
A number of other states (forty two at last count) have
adopted or are adopting measures, including tax credits, to
attract film production. Various entities (state & local
governments, non-profits, labor unions and the film
industry, among others) indicate that tax credits and other
incentives to produce films outside California have
resulted in film production moving out of California and
into other states and countries.
According to the Los Angeles Economic Development
Commission (LAEDC):
"Most people think of film production running away to
Canada, though Europe was a quite popular destination for a
while (and Romania is currently). However, run-away
production to other states has become a more significant
challenge to California's film industry. This trend
impacts not only production activities in the Los Angeles
area, but film commissions around the state that have also
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been facing this competition. LAEDC tracked the location
of major photography on feature film production from (2003
to 2005). Two things stood out from this informal survey.
One, when productions leave California, the major studios
still tend to go offshore rather than to other states. In
many cases, these decisions are due to story
considerations, but the financial benefits are still
important components of the decision.
"The second trend is that independent producers are
increasingly going elsewhere in the U.S. Other states have
been busy offering new incentives or increasing the level
of existing incentives for filming in their jurisdictions.
More worrisome are the efforts to develop production
facilities to lure more of the production process. For
example, in New Mexico, there are plans to build a $60
million film, TV, and digital media production facility in
Albuquerque. New York is working on a studio complex.
"LAEDC conducted research for the CFC on the job and state
tax revenue implications of run-away production. On a
"mid-budget" film ($17 million), 304 direct and indirect
jobs were created and $1.2 million state sales and income
taxes were generated. For a "large budget" film ($70
million), 928 direct and indirect jobs were created, while
$10.6 million in state taxes were generated. These were
conservative estimates."
According to the CFC, "In 2003, 66% of studio feature films
were filmed in California. In 2009, only 38% of studio
films were filmed in state. San Francisco film and TV
production employment dropped 43% between 2001 and 2006.
"The Los Angeles region experienced a steady decline in
feature film production days in 11 out of the last 13
years. However, Film L.A., the permitting agency for Los
Angeles, reported that in 2010, feature film production
posted a 28.1% fourth quarter gain and a year-over-year
gain of 8.1%. "The annual increase can be wholly
attributed to California's Film and Television Tax Credit.
The Program attracted dozens of new feature film projects
to Los Angeles, which were responsible for 26% of local
feature production for the year. Were it not for these
projects, 2010 would have been the worst year on record,"
reported Film L.A. in their Jan. 11, 2011 release. These
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numbers are an excellent early indicator that the incentive
program is having an immediate impact on production levels
b) Testimony Presented to the Committees by the CFC
Included the Following Information on the Economic Impacts
of the Current Film Tax Credit Program : To date, $600
million in tax credits have been allocated (reserved)
resulting in: Total aggregate direct spending by Program
projects: $4.7 billion Total wages paid / to be paid by
Program projects: $1.48 billion. (This paragraph was
updated to include current figures).
In addition to the economic figures above, the CFC
presented testimony at the 2011 Joint Informational
hearing, which included the following testimony about the
motion picture industry's general contribution to the
state's economy, "The motion picture industry is an
essential source of economic activity, tax revenue, jobs
and tourism for California contributing $38 billion dollars
annually to our state's economy and supporting nearly
250,000 well-paying direct jobs - with health benefits.
"For instance: An average $70 million dollar feature film
generates $10.6 million in state sales and income taxes.
The average daily shooting costs on a feature film or TV
series range from $100,000 to $250,000 per day. (That's
actual dollars that each production spends on groceries,
hotel rooms, gas, building supplies, props and payroll). A
typical film shooting outside of Los Angeles County will
spend on average $50,000 per day in a local community. The
average salary for production employees is $75,000, well
above the national average."
c) California Research Bureau (CRB) Data Demonstrates That
Loss of Feature Film Productions Drove Down Wages, Even
Though Production Days of Other Categories (Such as Reality
Television) Increased : As background material for the 2011
Joint Oversight Hearing, and in support of their testimony,
the CRB prepared a briefing packet that updated some basic
data on employment, wages, and production in California's
movie and video production industry; surveyed state Movie
Production Incentive (MPI) programs nation-wide; and
surveyed the scholarly and official state literatures on
the operation and effects of MPIs.
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The CRB researchers offered their report with the caveat
that time and staffing constraints limited the
comprehensiveness of our response. The following is
excerpted from that document: "The industry as a whole
showed modest growth over the first half of the decade
through 2004, a flat trend through 2007, declined in
2008-9, followed by a sharp recovery in 2010. In
California outside of Los Angeles County, the industry
peaked in 2002, showed slow employment declines through
2007, and then rebounded in 2008-9.
"However, employment growth in Los Angeles County was
coupled with relative and absolute declines in average
industry wages. Los Angeles County movie industry
employees earned, on average, 27 percent more per month in
2000 than their non-L.A. counterparts ($4,279 - or $5,349
in 2009 dollars, vs. $3,370 - $4,213 in 2009 dollars). In
2009, the average L.A. County industry employee earned 13
percent less per month than his non-L.A. counterpart
($3,754 vs. $4,232). Thus, in real terms, the L.A. average
has dropped 30 percent, declining almost every year,
whereas the non-L.A. County average grew by a scant 0.45
percent for the decade.
"Further, according to this data, feature film production
has declined since the beginning of the 2000s both in
absolute terms as well as in relative terms. Television,
which accounted for 23 percent at the start of the decade,
now takes more than 40 percent of the total production
days."
2)LAO study of the Film Tax Credit Program due in 2016 : In
addition to the bill and Informational Hearing noted above and
below, AB 2026 (Chapter 841, Statutes of 2011), provided that
the LAO must provide to the Assembly Committee on Revenue and
Taxation, the Senate Committee on Governance and Finance, and
the public, on or before January 1, 2016, a report evaluating
the economic effects and administration of the tax credits.
AB 2026 authorized the LAO, in researching the reports, to:
a) Request and receive all information provided to the CFC
pursuant to state law.
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b) Request and receive all information provided to the FTB
relating to the sale or assignment of credits, and;
c) Request and receive all information provided to the
board pursuant to state law.
AB 2026 also required CFC, the board, the FTB, the Employment
Development Department, and all other relevant state agencies
to provide additional information, as specified by the LAO, as
needed to research the reports.
The bill authorized the LAO to publish statistics in
conjunction with the reports required, derived from
information provided to the LAO, if the published statistics
are classified to prevent the identification of particular
taxpayers, reports, and tax returns and the publication of the
percentage of dividends paid by a corporation that is
deductible by the recipient.
1)Recent Private Studies Support but Recommend Improvement of
the Film Tax Credit Program : Private entities have also
studied the California Film Tax Credit Program, including a
UCLA report from the nonprofit think tank the Headway Project,
There's No Place Like Home Bringing Film & Television
Production Back to California, which verifies the positive
economic impact of California's Film & Television Tax Credit
Program, and makes suggested improvements. Key findings
include that there remains a very strong correlation between
tax credits and where film and TV producers go to shoot their
projects, and while tax credits are not the only factor in
deciding where a project should be shot, they appear to be the
most powerful. The authors of the study conclude that the
program "is creating jobs and is likely providing an immediate
economic benefit to the state."
FilmL.A. also released a recent study which found the impacts
of runaway production continue and will worsen without
expansion of the Film Tax Credit Program, see California Ranks
Fourth in Total Live Action Film Project, Job and Spending
Counts. "According to data provided to FilmL.A. by the
California Film Commission, from 2010-2013 a total of 77 film
projects applied for but were not awarded California state
film incentive and then went on to complete production. Most
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of these projects fled the state; more than 66 percent (51
count) of these projects eventually filmed outside of
California in places were (sic) incentives were available?The
loss for the California economy exceeded $914 million." The
report concludes, "California's film and television tax credit
program is a good investment, but needs to be extended and
restructured to keep the entertainment industry from fleeing
the state."
The Milken Institute also recently released a study which was
entitled, "A Hollywood Exit -What California Must Do to Remain
Competitive in Entertainment - and Keep Jobs." In the study,
researchers confirmed that production flight has continued,
despite the presence of the California Film Tax Credit
Program. They also confirmed that California cannot win, and
should not attempt to win, an all-out tax incentive race to
enact the highest incentive program. Rather, Milken
researchers suggest that California build on its strengths of
being the established global leader in film production and
preserve its core employment base and infrastructure. In
order to do this, they make the following recommendations
which track closely with those of the other studies author's:
a) Reduce the uncertainty involved in the filmed production
credit:
i) Increase funding: Raise the total amount of
available annual funds in the state's filmed production
credit to a level that allows for the elimination of the
annual lottery and for the awarding of credits on a
rolling basis throughout the year rather than at one
arbitrary point tied to the state's fiscal calendar.
This level should be high enough to eliminate the need
for the lottery but should also have a clear annual
ceiling to avoid creating unpredictability for the
state's general fund. The newly raised level of funding
should also be divided into specific allocations to
maximize the impact across the economy and allow for
productions not eligible for the current incentives to be
covered.
ii) Remove sunset: California legislators should
eliminate the sunset date of film production incentives
in favor of a periodic review process, similar to that
used by New York, to allow the state to make adjustments
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to the total pool of money (based on economic conditions
and competition) that will take effect after two years.
By establishing certainty in the incentives as well as a
review process that can make rational adjustments, the
state would encourage studios and film companies to make
larger commitments to the local infrastructure and can
avoid the pitfalls of sudden policy reversals seen in
states such as Michigan.
b) Ensure a smooth evaluation process:
Establish an application fee for productions over $3
million that will be dedicated to providing new employees
at the CFC who will handle the evaluation process. The fee
can be weighted to the size of the application, with a
minimum application fee for smaller productions scaled up
somewhat for larger productions. This funding would be
dedicated to the hiring of evaluation staff at the CFC and
could be diverted to the state general fund.
c) Restructure the credit to align with television
schedules:
Dedicate a portion of the fund to hour-long dramatic
television, including miniseries, and ensure that network
television is explicitly included. Establish a rolling
allocation in order to align the fund availability with
television filming schedules, particularly in the period
when networks determine their fall schedules. Strongly
consider emphasizing new productions and eliminating the
provision for relocating ones, while continuing to offer
coverage to existing television shows as long as they are
renewed on a timely basis. In addition, a dedicated pool
of money separate from television funding should be
established for films, as well as movies of the week and
other non-recurring productions.
d) Capture blockbuster productions:
Movies with budgets over $75 million should become eligible
for filmed production incentives. Total credits for larger
productions can be capped to ensure that no one film takes
a disproportionate share. Big-budget films could remain
eligible for the incentives provided they spend a
to-be-determined minimum in the state. This will encourage
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productions to shift a significant portion of high-value
filming to California, and by including visual effects as
recommended below, the state can more readily meet a
threshold for a total percent of the budget spent in the
state.
e) Encourage production across the state:
Productions outside the union-designated 30 Mile Zone
around Los Angeles suffer a clear cost disadvantage. These
projects are exposed to higher costs for on-location
filming or higher union travel rates. To mitigate this
expense, productions that film outside of the zone should
be eligible for an additional 5% credit. This has been
implemented to clearly positive effect in New York to
encourage productions outside the immediate vicinity of New
York City. This will stimulate productions in formerly
busy locations such as San Francisco and encourage scouting
of diverse locales throughout the entire state.
f) Embrace digital effects and innovation:
i) Digital visual effects and animation expenditures
should be made explicitly eligible for filmed production
incentives at the 20 percent rate. This would offset a
cost disadvantage faced by local visual effects companies
- particularly those in the San Francisco Bay area that
do not qualify for the current incentives - and encourage
additional expenditures in the state.
ii) Establish a digital infrastructure investment credit
that is part of the state's research and development tax
credit rather than the filmed production incentive. As
California works to encourage investment in the filmed
production infrastructure, it can also provide a research
and development credit to production.
2)Arguments in Support :
This bill has generated an unusual amount of correspondence.
The Committee received a stack of letters approximately six
inches tall from individuals urging support. In addition many
business and industry related labor organizations have written
urging passage. Therefore, it is impossible to express or
share every aspect of support. Below is a summary of major
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themes.
The bills main supporters come from the entertainment labor
community. Typical of their support is the California Labor
Federation, who write to say, "California's film tax credit
has a proven track record of creating and retaining jobs in
the film industry. According to the CFC, in the first two
years alone, the tax credit program has generated more than
20,000 jobs and $3.8 billion in economic activity since 2009.
There are not just high paid actors and directors the credit
has helped. The majority went to 'below the line' workers,
those who have good, middle-class jobs working on sets, doing
lighting, technical work, hauling props, and setting up
locations. These are the workers who are most hard-hit by job
loss in the industry and the least able to scrape by with no
work."
Other key proponents of the measure are the studios who
produce film and television programming. Their line of
argument for support is well stated by the Motion Picture
Association of America, (MPAA), which claims, "California's
existing incentive has been successful in attracting feature
films with a budget below $75 million and one-hour television
series that air on basic cable channels. The CFC reports that
269 film and television projects have qualified for the tax
credit program, resulting in spending of more than $4.7
billion in California's economy, including $1.48 billion in
wages to California workers.
"But the current program is not open to large budget films and
one-hour television series that are seen on the networks, pay
cable channels and Internet sites. As a result, many of these
projects are produced and the thousands of good paying middle
class jobs they generate are located outside California. For
example, in 2012 and 2013 only one movie, of the 54 released,
with a budget exceeding $75 million was made exclusively in
California. And only 11 of those 54 large budget feature
films shot some of the project in California.
"The situation is similar with regard to television series.
California used to be the filming location for 64% of the
one-hour television series, but the competition from other
states has eroded California's dominance and in 2013, the
state was the location for only 28% of the one-hour series.
AB 1839 addresses this by expanding the incentive program to
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include large budget features, up to $100 million of qualified
expenditures, and to one-hour TV series, regardless of where
they are aired or broadcast.
"And we support the five year extension of the incentive
program contained in your bill. Planning for both motion
picture and television productions can occur several years in
advance, and productions rely on the certainty that the
incentive will be available as location decisions are made."
Small business which cater to the entertainment community
share common concern with the Motion Picture & Television
Mobile Catering Association (MPTMCA), who strongly support AB
1839, saying, "A healthy and strong film industry here in
California is critical to the survival of our businesses and
association. But the reality is that over the past decade we
have watched film and television production 'run away' from
California in favor of tax incentives offered first in Canada,
then in other countries like Australia and the UK, and
finally, and overwhelmingly, to other states. ? Thanks to the
Legislature and the Governor, we do have the current
California production incentive, without which the picture
would be much bleaker. But it is limited in both eligibility
and funding - only about 50 projects a year receive the
credit. In 2013, 348 productions who had applied and wanted
to film in California were waitlisted. Of course, many of
them then had to leave to film elsewhere - taking with them
the vendor contracts, revenue for my business, and jobs from
my employees that would have otherwise have been funneled into
the California economy."
Marin Convention & Visitors Bureau and Film Resource Office,
writes in support, sharing a theme of Northern California
Cities and Counties, sharing "Production work takes place all
over our state. It is not just a Los Angeles-based business.
Wherever a film crew uses locations, it purchases what it
needs from a diverse array of local businesses as well as
paying for permits, police help, fire safety, and more.
Spending takes place at hotels, gas stations, restaurants,
hardware stores, gyms, beauty salons, dry cleaners, department
stores, party rentals, and caterers. And productions
frequently hire local residents as crew and background extras,
and pay film students to be production assistants.
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"Before runaway production, Marin County had a fairly
consistent influx of major film making, whereas now, the
majority of filming is primarily auto commercial and fashion
catalogue still shoots. AB 1839 would expand the current
production incentive program beginning in 2016 to include
one-hour dramas and large budget feature films. There is an
added incentive for filming outside the Los Angeles area to
support increased production for the entire state. It will
help make California - the state known across the globe as the
home of filmmaking - competitive once more."
San Francisco Travel writes to say tourism and filming are
interrelated, another popular issue highlighted by travel
businesses and tourism offices statewide, "The production of
films and television in the state also has a significant
impact on attracting tourist dollars to cities such as San
Francisco. The production teams support hospitality industry
services including lodging, rental cars, catering and
restaurants, to name a few. Secondly, the inclusions of
scenes of San Francisco, and other California cities, are
earned media that help create aspirations throughout the world
to come visit our beautiful state."
3)Argument in opposition : The California Teachers Association
(CTA) opposes AB 1839, stating, "CTA opposes any reduction in
revenue to the State's General Fund which would reduce
Proposition 98 funding. In the last several years, K-12
education alone has taken over $20 billion in cuts. This does
not include cuts that have hit the California Community
Colleges, CSU and the UC systems. Likewise, we must not
forget the cuts that have also hit our social and health
services, safety programs, and many other essential services.
"CTA has been on record opposing tax credits for its own
members (Teacher Tax Credits). Tax credits for special
interest groups, corporations, and others have, over the last
decade, depleted our General Fund of billions of dollars.
California cannot afford to continue giving away tax credits
that deplete the General Fund, because this hurts funding for
our schools"
4)Prior and Related Legislation :
a) AB 286 (Nazarian), of the 2013-14 Legislative Session,
would have expanded the definition of qualified motion
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pictures under the film tax program by removing the cap on
the production budget for feature films and would limit the
amount of qualified expenditures to $75 million. This bill
additionally would have revised the amount of credits
allocated by the CFC per fiscal year for a qualifying
television series, as specified, to provide that the
minimum production budget threshold is met by allowing
aggregation of two fiscal years expenditures. AB 286 was
returned to the Chief Clerk pursuant to Joint Rule 56.
b) AB 1189 (Nazarian), of the 2013-14 Legislative Session,
would have extended for five years the requirement that the
CFC annually allocate tax credits to qualifying motion
pictures, as specified, through the 2021-22 fiscal year and
would also extend and increase the limit on the aggregate
amount of credits that may be allocated through the 2021-22
fiscal year. AB 1189 was returned to the Chief Clerk
pursuant to Joint Rule 56.
c) AB 1435 (Gatto), of the 2013-14 Legislative Session,
would have removed the sunset provisions, thus extending
the credit indefinitely, revise the limit on the aggregate
amount of credits that may be allocated in a fiscal year,
revise how the credit amount is determined for specified
qualified motion pictures, provide that credit amount for
television series shall be 20% of qualified expenditures,
provide that the credit amounts may be increased based on
specified criteria, for a television series and for
specified productions that perform postproduction in the
state. AB 1435 is currently in the possession of this
committee.
d) This bill would also, under both laws for taxable years
beginning on or after January 1, 2014, allow a credit
against tax in an amount as provided in a written agreement
between the California Film Commission and the taxpayer,
not to exceed 5% of an investment made by the taxpayer in a
qualified film and digital media infrastructure project, as
defined, located in this state.
e) AB 2026 (Fuentes), Chapter 841, Statutes of 2012,
extended the film production tax credit program for two
years, until 2017, under terms which are substantially
similar to the measure under current consideration.
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f) SB 1197 (Ron Calderon), Chapter 840, Statutes of 2012,
extended the film production tax credit program for one
year, until 2015, under terms which are substantially
similar to the measure under current consideration.
Chaptered out by AB 2026 (above).
g) AB 1069 (Fuentes), Chapter 731, Statutes of 2011,
extended the film production tax credit program for one
year, until 2015, under terms which are substantially
similar to the measure under current consideration.
h) SB 1197 (Calderon), of the 2009-10 Legislative Session,
deleted the fiscal year limitation on the existing film
production tax credit. SB 1197 was held in Senate Revenue
& Taxation Committee without a hearing.
i) SBX8 55 (Calderon), of the 2009-10 Legislative Session,
deleted the fiscal year limitation in the existing
production tax credit. SB X8 55 was held in Senate Rules
Committee without a hearing.
j) ABX3 15 (Krekorian), Chapter 10, Statutes of the 2009-10
Third Extraordinary Session, established a five year $500M
tax credit for qualified expenditures on qualified
productions. Limited allocations to $100M/year.
aa) AB 855 (Krekorian), of the 2009-10 Legislative Session,
established a film production tax credit. AB 855 was held
at the Assembly Desk.
bb) AB 1696 (Bass), of the 2007-08 Legislative Session,
established a financial assistance program within the CFC
to encourage filming motion pictures and commercials in
California and requires the Business, Transportation &
Housing Agency to report the economic impact of this
program by December, 2011. AB 1696 failed passage on the
Senate Floor.
cc) SB 359 (Runner), of the 2007-08 Legislative Session,
mega tax credit bill which included motion picture
production credit. Part of State Budget negotiations.
Created a credit for a percentage of the wages paid of
amounts paid to purchase or lease tangible personal
property in conjunction with the production of a qualified
motion picture. The credit is certified and allocated by
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the CFC. The bill also allows the credit to be claimed
against the sales and use tax liability of the company in
lieu of the franchise or income tax liability. Finally,
the bill allows the credit to be carried over until
exhausted. SB 359 was held in the Senate Revenue and
Taxation Committee.
dd) AB 832 (Bass), of the 2007-08 Legislative Session,
created unfunded grant program administered by the CFC to
encourage filming motion pictures and commercials in
California. AB 832 was held on the Assembly Appropriations
Committee Suspense File.
ee) SB 740 (Calderon), of the 2007-08 Legislative Session,
created a film production credit equal to 100% of the
direct revenues attributable to the production or 125% of
the revenues of the productions in a TV series that
relocated to California or an independent film as defined.
SB 740 was held in Senate Revenue & Taxation Committee
without a hearing.
ff) AB 777 (Nunez), of the 2005-06 Legislative Session,
authorized qualified motion picture tax credit in an amount
equal to 12% of the qualified production for qualified
wages paid with an additional 3% for qualified motion
pictures. Created refundable credit. AB 777 was held in
Senate Revenue & Taxation Committee without a hearing.
gg) SB 58 (Murray), of the 2005-06 Legislative Session,
granted a refundable income or corporation tax credit equal
to 15% of the amount of qualified wages paid and qualified
property purchased in the production of a qualified motion
picture. SB 58 was held in Senate Revenue & Taxation
Committee.
hh) AB 261 (Koretz), of the 2005-06 Legislative Session,
re-established funding for the Film California First
Program. AB 261 was a gut and amend out in the Assembly
Rules Committee and became a transportation bill.
ii) AB 1830 (Cohn), of the 2003-04 Legislative Session,
authorized tax credits between 2006 and 2012 in an amount
equal to 15% of qualified wages paid or incurred for
services performed, with respect to the production of each
qualified motion picture. AB 1830 was held in this
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Committee without a hearing.
jj) AB 1277 (Cohn), Chapter 662, Statutes of 2003,
transferred administrative authority over the CFC to the
Business, Transportation & Housing Agency. This bill also
created the Film California First Fund, administered by the
CFC, which provided for reimbursements to local governments
for their costs in issuing permits for local filming of
motion pictures. In the last two state budget cycles, no
General Fund monies have been appropriated to operate this
program.
aaa) AB 2410 (Frommer), Chapter 1042, Statutes of 2002,
required the CFC to report annually the number of motion
picture starts that occurred within the State of
California. The bill also required EDD to research and
maintain data on film industry employment, to determine the
economic impact of the film industry, to monitor film
industry employment and activity and competing states and
countries, to examine the ethnic diversity and
representation of minorities in the entertainment industry,
to review the effect of federal, state and local laws on
the filmed entertainment industry and to report that
information to the legislature biannually, provided that
funds are appropriated by the legislature in the annual
Budget Act for these purposes.
bbb) AB 2747 (Wesson), of the 2001-02 Legislative Session,
provided a tax incentive to produce motion pictures within
California. Would offer tax credits to productions with a
total cost of qualified wages between $200,000 and $10
million for 15-25% of wages paid to qualified individuals
during the taxable year with respect to qualified motion
picture production depending on the area. For each motion
picture, the maximum amount of wages per qualified
individual that could be taken into account when computing
the credit was $25,000. AB 2747 failed passage in the
Senate Appropriations Committee.
ccc) SB 2061 (Schiff), Chapter 700, Statutes of 2000, created
the State Theatrical Arts Resources (STAR) partnership
which offers surplus State property to filmmakers, where
unused State properties, such as health facilities and
vacant office structures, are available at no charge or
"almost free" to filmmakers.
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ddd) AB 358 (Wildman & Kuehl), of the 1999-2000 Legislative
Session, provided a refundable income and corporation tax
credit for 10% of eligible wages paid for motion pictures
and TV programs produced in California. AB 358 was held on
the Senate Appropriations Committee Suspense File.
eee) AB 484 (Kuehl), Chapter 699, Statutes of 1999, created
the Film California First program, housed at the California
Film Commission to reimburse certain film costs incurred by
a qualified production company when filming on public
property, but which is currently unfunded.
1) Double referral : Should this bill pass out of this
committee, it will be re-referred to the Assembly Committee
on Revenue and Taxation.
REGISTERED SUPPORT / OPPOSITION :
Support
American Federation of Musicians, Local 47
Association of Talent Agents
California Chamber of Commerce
California Labor Federation
California Teamsters
CBS Television Studios
Chef Robért Catering, Inc.
City of Culver City
City of Hemet
City of Long Beach
City and County of San Francisco
County of Riverside
County of San Bernardino
Directors Guild of America
Entertainment Union Coalition
Fox Entertainment
HBO
Inland Empire Film Commission
International Alliance of Theatrical Stage Employees, Local 729,
Motion Picture Set Painters &
Sign Writers
International Alliance of Theatrical Stage Employees, Local 892,
Costume Designers Guild
Marin County Film Resource Office
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Motion Picture & Television Mobile Catering Association
Motion Picture Association of America
Movie Movers, Inc.
NBC Universal
Nest Studio Rentals
Northern California Production Council
Paramount Pictures
Placer Lake Tahoe Film Office
Producers Guild of America
Sacramento Film Commission
San Francisco Film Commission
San Mateo County/Silicon Valley Film Commission
Santa Barbara County Film Commission
Screen Actors Guild-American Federation of Television and Radio
Artists
State Building and Construction Trades Council of California
The Walt Disney Company
Valley Industry and Commerce Association
Warner Brothers Entertainment, Inc.
1075 private citizens
Opposition
California School Employees Association
California Teachers Association
Analysis Prepared by : Dana Mitchell / A.,E.,S.,T. & I.M. /
(916) 319-3450