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: 8/27/14 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 beginning on or after January 1,
2016, and authorizes the California Film Commission (CFC) to
administer the program and allocate the tax credits, subject to
a $230 million cap in the first year (2015-16) and $330 million
aggregate annual cap for each fiscal year (FY) from the 2016-17
FY through and including the 2019-20 FY.
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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
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 creates a tax credit for qualified expenditures for
the production of qualified motion pictures in California for
taxable years beginning on or after January 1, 2016, and
authorizes the CFC to administer the program and allocate the
tax credits, subject to a $230 million cap in the first year
(2015-16) and $330 million aggregate annual cap for each FY from
the 2016-17 FY through and including the 2019-20 FY.
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This bill:
1. Extends the film tax credit program to cover FYs through
2019-20, down from the 2020-21 FY sunset provided by the
Assembly.
2. Increases the limit upon the aggregate amount of new credits
issued under the film tax credit program to be allocated in
each FY from $100 million provided by the Assembly to $230
million for the 2015-16 FY and $330 million per FY
thereafter, (note that when the $230 million is added to the
$100 million provided in existing law for the 2015-16 FY, the
available funds for all future years under this bill will be
$330 million).
3. Replaces the current once a year lottery allocation process
for distribution of credits to instead provide that credits
would be issued in two or more allocation cycles in amounts
and in the order generated through a computation and ranking
of applicants based on a ratio formula of the number of jobs
created to the tax credit amount, as defined.
4. Requires the CFC to allocate the credit amounts subject to
the following categories in order to insure like productions
compete against each other under the jobs ratio formula:
A. Independent films shall be allocated 5%.
B. Features shall be allocated 35%.
C. A relocating television series shall be allocated 20%.
D. A new television series, pilots for a new television
series, movies of the week, miniseries, and recurring
television series shall be allocated 40%.
1. Requires applicants to include a statement which declares
that the tax credit is a significant factor in the
applicant's choice of location for the qualified motion
picture.
2. Changes the definition of relocating series, to one which
has a minimum production budget of at least $1 million per
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episode.
3. Allows ongoing series to become eligible for the film tax
credits.
4. Ensures any television series, relocating television series,
or any new television series based on a pilot that was issued
a credit a place at the top of the queue for allocations for
the life of that television series, as provided.
5. Requires the CFC to audit final submissions for tax credits
and compare the jobs ratio figures contained in original tax
credit applications to those actual qualified expenditures,
and provides for discrepancies as follows:
A. If the CFC finds a reduction in actual qualified
expenditures of no more than 10% they shall reduce the
amount of credit allowed by an equal percentage, with
limited exception for reasonable cause, as provided.
B. In addition, if the CFC finds a reduction in actual
qualified expenditures by more than 20%, the CFC shall not
accept an application from that qualified taxpayer for one
year, with exceptions for reasonable cause, as provided.
C. Independent films would be treated differently, with
any reduction of 30% or more in actual qualified
expenditures reducing the amount of credit allowed by an
equal percentage, plus subjecting them to a penalty of 10%
of the difference in requested tax credit allowance and
actual expenditures, with exceptions for reasonable cause,
as provided.
1. Requires that or before July 1, 2019, the Legislative
Analyst's Office (LAO) shall provide to the Assembly Revenue
and Taxation Committee, the Senate Governance and Finance
Committee, and the public a report evaluating the economic
effects and administration of the tax credits allowed, as
provided.
2. Urges the U.S. Department of Commerce and the International
Trade Commission to investigate and impose sanctions on
specified motion picture productions and elements of
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production to combat unfair and illegal competition.
3. Makes various findings and declarations related to the
entertainment industry, along with technical, conforming and
chaptering-out amendments.
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,
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Number of production days,
A financing plan for the production,
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.
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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.
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
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o The total amount of qualified expenditures expected to
be spent by the production.
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). NOTE: This bill
was amended following hearing in the Senate Appropriations
Committee to reduce the amount from $400 million down to $230
million for the 2015-16 FY and $330 million per FY thereafter.
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.
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SUPPORT : (Verified 8/28/14)
American Federation of Musicians, Local 47
Annapurna Pictures
Antelope Valley Film Office
Association of Talent Agents
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
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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
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
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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
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 8/28/14)
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,
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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
AB:k 8/28/14 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
**** END ****
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