BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | AB 1839|
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THIRD READING
Bill No: AB 1839
Author: Gatto (D) and Bocanergra (D), et al.
Amended: 8/22/14 in Senate
Vote: 21
SENATE GOVERNANCE & FINANCE COMMITTEE : 6-0, 6/25/14
AYES: Knight, Beall, DeSaulnier, Hernandez, Liu, Walters
NO VOTE RECORDED: Wolk
SENATE APPROPRIATIONS COMMITTEE : 5-0, 8/14/14
AYES: De León, Hill, Lara, Padilla, Steinberg
NO VOTE RECORDED: Walters, Gaines
ASSEMBLY FLOOR : 76-0, 5/28/14 - See last page for vote
SUBJECT : Income taxes: qualified motion pictures
SOURCE : Author
DIGEST : This bill creates a tax credit for qualified
expenditures for the production of qualified motion pictures in
California for taxable years commencing in 2016, and authorizes
the California Film Commission (CFC) to administer the program
and allocate the tax credits. This bill extends the program for
four years and specifies the total amount CFC shall allocate
annually starting in 2015-16 fiscal year (FY) with $200 million
and $400 million in credits for the 2016-17 FY and each FY
thereafter, through and including the 2018-19 FY. CFC can add
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the amount of unallocated from the previous year to the next
year's allocation.
Senate Floor Amendments of 8/22/14 (1) authorize an additional
$100 million in allocations under the current tax credit
program, but reduce the new program's authorization by an equal
amount in the 2015-16 FY; (2) replace the bill's adjustable
credit percentages with a fixed percentage of 20% or 25%; (3)
ensure that CFC increase the credit percentage to 25% for
qualified expenditures relating to original photography outside
the zone during the credit certification process; (4) specify
when CFC must revoke the credit and establish other criteria for
authorizing the tax credits; and (5) make technical and
conforming changes.
ANALYSIS : California law allows various income tax credits,
deductions, and sales and use tax exemptions to provide
incentives to compensate taxpayers that incur certain expenses,
such as child adoption, or to influence behavior, including
business practices and decisions, such as research and
development credits. The Legislature typically enacts such tax
incentives to encourage taxpayers to do something that but for
the tax credit, they would not do. The Department of Finance is
required to annually publish a list of tax expenditures,
currently totaling around $50 billion per year.
In 1985, the Legislature established CFC to co-ordinate state
and local governments' efforts at providing an environment
conducive for the film industry. 21 members of the film
industry, private sector, and state and local governments are
appointed by the Governor, Senate President Pro Tempore, and
Speaker of the Assembly to sit on the CFC board.
In 2009, the Legislature enacted a tax credit for qualified
motion picture production in California as part of the State
Budget Agreement, directing CFC to allocate $100 million in
credits annually (SB 15X3 (Calderon, Chapter 17) and AB 15X3
(Krekorian, Chapter 10) in Third Extraordinary Session). Any
unallocated credit from the previous year may be carried over to
the next year. 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 $1 million
budget could apply to CFC for the credit. 75% of the motion
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picture shooting days must take place in California, or 75% of
the motion production budget must pay for services or the
purchase or rental or property within the state. Both bills
enacting the credit directed CFC to allocate two years of
credits in the first year, so each year's allocation is for the
next FY's credits.
This bill enacts a new motion picture production credit to
replace the current credit, commencing in the 2016 taxable year,
largely similar to the current credit. This bill precludes
taxpayers from claiming both credits for the same expenses.
This bill authorizes an additional $100 million in allocations
under the current tax credit program. This bill extends the
program for four years and specifies the total amount CFC shall
allocate annually starting in 2015-16 FY with $200 million and
$400 million in credits for the 2016-17 FY and each FY
thereafter, through and including the 2018-19 FY. CFC can add
the amount of unallocated from the previous year to the next
year's allocation. CFC can add the amount of unallocated
credits from the previous year to the next year's allocation.
The credit is substantially similar to the current one, with the
following differences:
The credit is equal to 20% of qualified expenditures of a
feature up to $100 million.
A television series that relocated to California must have
filmed at least its first two years outside California to
receive a tax credit allocation.
The credit is equal to 25% of qualified expenditures if it is
an independent film.
CFC must add 5% to the applicable percentage up to 25% when
the film pays or incurs original photography expenses outside
of the Los Angeles zone, as defined.
This bill allows 25% of the expenditures relating to music
scoring and music track recording attributable to motion
picture production in California, and 25% of the expenditures
relating to qualified visual effects attributable to
production of qualified motion picture in California to
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qualify for the credit, so long as 75% or a minimum of $10
million in expenditures is paid or incurred in California.
Allows production of pilots longer than 40 minutes, exclusive
of commercials, shot in California to qualify for the credit.
Removes the current credit's cap of $75 million on production
budgets, making larger-budget movies eligible.
Modifies the definition for eligible television series to
include only new, television series of longer than 40 minutes,
exclusive of commercials, with minimum production budgets of
$1 million per episode; the previous credit only allowed for
new television series licensed for distribution on basic cable
with total production budgets of $1 million.
Allows CFC to increase the jobs ratio based on the amount of
production and postproduction spending in California, the
utilization of production facilities in California, and other
criteria measuring economic impact, according to CFC
regulations.
This bill makes allowances for not commencing principal
photography within 180 days of CFC's credit award to include
death, disability, and disfigurement to the Director, acts of
God as defined. This bill allows CFC to issue emergency
regulations, and states that implementing this bill is an
emergency and necessary for the immediate preservation of the
public peace, health, and safety, or general welfare. This bill
also directs CFC to allocate the new credit more than once per
year; CFC only allocated the old credit once per year.
This bill provides that for independent films, CFC revokes the
credit when it finds that the jobs ratio has been reduced by
20%.
Additionally, CFC need not apply either the application
prohibition or the reduction in credit sanction upon good cause.
This bill further specifies good cause to include the
cancellation of the television series or other circumstances as
determined by CFC.
The new credit is allocated in the same first-come, first-served
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order as the current credit, except that any new one-hour
television series that CFC has approved for a credit is placed
at the top of the queue in each subsequent year in the life of
the television series, as well as any television series based on
a pilot that received the credit. The credit amounts allocated
under this authorization must be deducted from the general
television category. Additionally, CFC shall set aside the
lesser of 10% of its total amount allocated or $20 million for
independent films, and $30 million per FY for television series
relocating to California.
This bill directs CFC to shift unused allocations from the
relocating television series to the general television category.
This bill requires the Governor's Office of Business and
Economic Development (GO-Biz) to approve CFC regulations
regarding the credit allocation, computing the jobs ratio, and
defining reasonable cause.
This bill allows taxpayers to use the new motion picture
production tax credit to reduce tentative minimum tax, and to
apply the credit against any liability under the Sales and Use
Tax Law.
This bill requires the Legislative Analyst's Office (LAO) to
prepare reports, on or before July 1, 2019, relating 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 requires the CFC to provide each city and county in
California with an instructional guide that includes, but is not
limited to, a review of best practices for facilitating motion
picture production in local jurisdictions, resources on hosting
and encouraging motion picture production, and the CFC's Model
Film Ordinance. The CFC shall maintain on its Internet Web site
a list of initiatives by locality that encourage motion picture
production in regions across the state. The list shall be
distributed to each approved applicant for the program to
highlight local jurisdictions that offer incentives to
facilitate film production.
This bill makes legislative findings and declarations to support
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its purpose.
Background
When CFC allocated credits in July 1, 2014, it is for credits in
FY 2015-16. In 2011, the Legislature extended the program for
one year to 2014-15 (AB 1069, Fuentes, Chapter 731), then
extended it for two years until 2016-17 (AB 2026 (Fuentes,
Chapter 841) and SB 1197 (Calderon, Chapter 840). Because of
the front-loading in the initial bills, CFC cannot currently
allocate credits after the planned July 1, 2015 date.
Commercial advertising, music videos, motion pictures for
non-commercial use, news and public events programs, talk shows,
game shows, reality programming, documentaries, or sexually
explicit films are not eligible. Any 5% owner of the qualified
taxpayer, defined as a taxpayer who has paid qualified
expenditures and has received a credit certificate by the CFC,
or any individual related to the taxpayer is ineligible for the
credit.
CFC must set aside $10 million credits each year, for
independent films, defined as a motion picture with a minimum
budget of $1 million and maximum budget of $10 million and is
not publicly traded. The CFC must provide the Franchise Tax
Board (FTB) an annual list of qualified taxpayers and the tax
credit amounts allocated to each qualified taxpayer. The amount
of the tax credit is equal to either:
20% of the qualified production expenditures of a motion
picture; or
25% of the qualified expenditures of an independent film or a
television series that relocated to California.
Taxpayers apply to the CFC for the allocation and submit the
following information:
The motion picture production budget,
Number of production days,
A financing plan for the production,
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The production's financing plan,
Total wages paid and the amount of qualified wages paid to
each qualified individual,
The diversity of the workforce employed by the applicant, and
Any other information the CFC or FTB deems relevant.
CFC establishes criteria for allocating tax credits, then
determines and designates applicant eligibility. CFC processes
and approves, or rejects, applications on a first-come,
first-serve basis. Because of high demand for credits, CFC has
instituted a lottery, where lottery winners receive credit
reservations, and losers do not. If a project is approved for a
credit, the project must shoot within six months and be
completed within 30 months from the date when the application
was approved by the CFC.
Before CFC issues a taxpayer a credit certificate for an amount
not to exceed the original credit allocated, the taxpayer must
provide CFC with verified completion and documentation of actual
qualifying expenditures. Qualified expenditures are amounts
paid or incurred to purchase, or lease, tangible personal
property, wages, or services performed in the state, during the
motion picture production in California.
Before CFC issues a credit certificate, it must establish a
procedure for a qualified taxpayer to report to the CFC the
following information:
If readily available, a list of the states, provinces, or
other jurisdictions in which any member of the applicant's
combined reporting group in the same business unit as the
qualified taxpayer that, in the preceding calendar year, has
produced a qualified motion picture intended for release in
the United States market.
Whether a qualified motion picture was awarded any financial
incentive by the state, province, or other jurisdiction that
was predicated on the performance of primary principal
photography or postproduction in that location.
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CFC must obtain, when possible, the following information from
applicants that do not receive an allocation of credit:
Whether the qualified motion picture that was the subject of
the application was completed.
If an application was completed, which state or foreign
jurisdiction was the primary principal photography completed.
Whether the applicant received any financial incentives from
the state or foreign jurisdiction to make the qualified motion
picture in that location.
CFC must provide the LAO, upon its request, any or all
application materials or any other materials received from, or
submitted by the, applicants, in electronic format when
available. CFC also must annually provide the LAO a list of
qualified taxpayers and the tax credit amounts allocated to each
qualified taxpayer by the CFC. The list shall include the names
and taxpayer identification numbers, including taxpayer
identification numbers of each partner or shareholder, as
applicable, of the qualified taxpayer.
The California Film Office must annually post on its Web site
and make available for public release:
A table, which includes all of the following information:
o A list of qualified taxpayers and the tax credit amounts
allocated to each qualified taxpayer by the CFC,
o The number of production days in California the
qualified taxpayer represented in its application would
occur,
o The number of California jobs that the qualified
taxpayer represented in its application would be directly
created by the production, and
o The total amount of qualified expenditures expected to
be spent by the production.
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A narrative staff summary describing the production of the
qualified taxpayer as well as background information regarding
the qualified taxpayer contained in the qualified taxpayer's
application for the credit.
SB 1197 and AB 2026 required CFC to provide specified
information to the LAO necessary to enable it to report to the
Legislature on or before January 1, 2016 evaluating the economic
effects and administration of the tax credits. The bills
specified that information received by the LAO must be
considered confidential taxpayer information and subject to the
appropriate confidentiality requirements of the participating
state agency.
Since 2009, other states have also enacted tax credits for
motion picture production, including New York, which allocates
nearly half-a-billion annually. Motion picture studios want the
state to increase the amount and scope of the current credit to
maximize the number of motion pictures produced in California.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
According to the Senate Appropriations Committee:
FTB indicates that it will incur a one-time implementation
cost of $132,000 to develop, program, test and create new tax
forms and instructions (General Fund).
$300 million the first FY, 2015-16 and $400 million each FY
thereafter through 2018-19 (General Fund).
CFC will incur increased costs to administer the new tax
credit program, adopt regulations and report to the LAO and
FTB, as specified. These costs are unknown, but likely to be
in the hundreds of thousands of dollars annually.
SUPPORT : (Verified 8/25/14)
American Federation of Musicians, Local 47
Annapurna Pictures
Antelope Valley Film Office
Association of Talent Agents
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Beverly Hills Chamber of Commerce
Brawley Chamber of Commerce
California Attractions and Parks
California Chamber of Commerce
California Federation of Teachers
California Film and Television Production Alliance
California Hotel and Lodging Association
California Labor Federation
California Professional Firefighters
California State Council of Laborers
California Teamsters
CBS Television Studios
Central Cities Association
Century City Chamber of Commerce
Chef Robért Catering, Inc.
Cities of Agoura Hills, Arcata, Bakersfield, Beverly Hills,
Burbank, Calabasas, Camarillo, Carson, Cerritos, Compton,
Culver City, Downey, Duarte, El Segundo, Fresno, Glendale,
Glendora, Hawthorne, Hemet, Hermosa Beach, Inglewood, Irvine,
La Cańada Flintridge, La Puente, Lakewood, Long Beach, Los
Angeles, Malibu, Monrovia, Norwalk, Oakland, Palmdale,
Pasadena, Pico Rivera, Rancho Palos Verdes, Sacramento, San
Dimas, San Fernando, San Jose, Santa Ana, Santa Barbara, Santa
Clarita, Santa Fe Springs, Sierra Madre, South Pasadena,
Torrance, Walnut Creek, and Whittier
City and County of San Francisco
Costume Rentals Corporation
Counties of Riverside and San Bernardino
County of Nevada Board of Supervisors
Directors Guild of America
Entertainment Union Coalition
Film L.A.
Fox Entertainment
Friends of the San Francisco Film Commission
Greater Palm Springs Convention and Visitors Bureau
HBO
High Desert Film Alliance
IATSE Local 16 - San Francisco/Bay Area
IATSE Local 44 - Affiliated Property Craftpersons
IATSE Local 80 - Motion Picture Studio Grips/Crafts Service
IATSE Local 600 - International Cinematographers Guild
IATSE Local 695 - Sound Technicians, Television Engineers,
Video Assist Technicians, and Studio Projectionists
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IATSE Local 700 - Motion Picture Editors Guild
IATSE Local 705 - Motion Picture Costumers
IATSE Local 706 - Make Up Artists & Hair Stylists Guild
IATSE Local 728 - Motion Picture Studio Electrical Lighting
Technicians
IATSE Local 729 - Motion Picture Set Painters & Sign Writers
IATSE Local 767 - Motion Picture Studio First Aid Employees
IATSE Local 800 - Art Directors Guild and Scenic, Title, and
Graphic Artists
IATSE Local 839 - The Animation Guild
IATSE Local 871 - Script Supervisors/Continuity, Accountants
and Allied Production Specialists Guild
IATSE Local 884 - Motion Picture Studio Teachers and Welfare
Workers
IATSE Local 892 - Costume Designers Guild
Imperial Irrigation District
Indio Chamber of Commerce
Inland Empire Film Commission
International Brotherhood of Teamsters, Local 399
JCX Expendables
League of California Cities
Los Angeles Coalition for the Economy & Jobs
Los Angeles Unified School District
Marin County Film Resource Office
Monterey County Film Commission
Motion Picture and Television Mobile Catering Association
Motion Picture Association of America
Movie Movers, Inc.
NBC Universal
Nest Studio Rentals
Northern California Production Council
OddLot Entertainment
Orange County Business Council
Paramount Pictures
Placer Lake Tahoe Film Office
Producers Guild of America
Recording Industry Association of America
Recording Musicians Association
Regional Economic Association Leaders of California
Sacramento Film Commission
Sacramento Hotel Association
Sacramento Metropolitan Chamber of Commerce
San Diego Regional Chamber of Commerce
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San Francisco Chamber of Commerce
San Francisco Film Commission
San Gabriel Valley Economic Partnership
San Jose Silicon Valley Chamber of Commerce
San Mateo County/Silicon Valley Film Commission
Santa Barbara County Film Commission
Screen Actors Guild-American Federation of Television and Radio
Artists
Simi Valley Chamber of Commerce
South Bay Association of Chambers of Commerce
Southwest California Legislative Council
State Building and Construction Trades Council of California
Sunland-Tujunga Chamber of Commerce
Teamsters Local 399 - Studio Transportation Drivers
The Walt Disney Company
Torrance Chamber of Commerce
United Chambers of Commerce
United Teachers of Los Angeles
Valley Industry and Commerce Association
Warner Brothers Entertainment, Inc.
West Hollywood Film
OPPOSITION : (Verified 8/25/14)
American Heart Association
California School Employees Association
California Teachers Association
ASSEMBLY FLOOR : 76-0, 5/28/14
AYES: Achadjian, Alejo, Allen, Ammiano, Bigelow, Bloom,
Bocanegra, Bonilla, Bonta, Bradford, Brown, Buchanan, Ian
Calderon, Campos, Chau, Chávez, Conway, Cooley, Dababneh,
Dahle, Daly, Dickinson, Donnelly, Eggman, Fong, Fox, Beth
Gaines, Garcia, Gatto, Gomez, Gonzalez, Gorell, Gray, Grove,
Hagman, Hall, Harkey, Roger Hernández, Holden, Jones,
Jones-Sawyer, Levine, Linder, Logue, Lowenthal, Maienschein,
Mansoor, Medina, Melendez, Mullin, Muratsuchi, Nazarian,
Nestande, Olsen, Pan, Patterson, Perea, John A. Pérez, V.
Manuel Pérez, Quirk, Quirk-Silva, Rendon, Ridley-Thomas,
Rodriguez, Salas, Skinner, Stone, Ting, Wagner, Waldron,
Weber, Wieckowski, Wilk, Williams, Yamada, Atkins
NO VOTE RECORDED: Chesbro, Frazier, Gordon, Vacancy
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AB:k 8/25/14 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
**** END ****
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