Amended in Senate April 8, 2013

Senate Bill No. 370

Introduced by Senator Lieu

February 20, 2013

begin delete An act to relating to state government. end delete begin insert An act to add Sections 17053.89, 17053.90, 23680, and 23681 to the Revenue and Taxation Code, relating to taxation, and making an appropriation therefor. end insert

LEGISLATIVE COUNSEL’S DIGEST

SB 370, as amended, Lieu. begin delete State government: incentives for production of commercials. end delete begin insert Income tax: credits: qualified commercial production. end insert

begin insert

The Personal Income Tax Law and the Corporation Tax Law allow various credits against the taxes imposed by those laws.

end insert begin insert

This bill would, for each taxable year beginning on or after January 1, 2013, allow credits under both laws in an amount equal to 15% of a specified amount paid or incurred by a qualified taxpayer, as defined, for the production of a qualified commercial, as defined, inside or outside of the studio zone, not to exceed $13,000,000 annually for credits for qualified commercials produced within a studio zone and not to exceed $2,000,000 annually for credits for qualified commercials produced outside of a studio zone in California, as specified. This bill would give the qualified taxpayer the option to carry over the credit or receive a refund, as specified. This bill would make a continuous appropriation from the General Fund to the Franchise Tax Board in the amount allowed for refunds for the purpose of making those refunds.

end insert begin delete

Existing law authorizes the state and local agencies to provide incentives to businesses that engage in specified activities within specified geographic areas.

end delete begin delete

This bill would express the intent of the Legislature to enact legislation that would strengthen the California economy and stimulate job growth by providing incentives for the production of commercials.

end delete

Vote:  begin delete majority end delete begin insert ²⁄₃ end insert . Appropriation:  begin delete no end delete begin insert yes end insert . Fiscal committee:  begin delete no end delete begin insert yes end insert . State-mandated local program: no.

The people of the State of California do enact as follows:

begin insert

begin insert SECTION 1. end insert   

end insert

begin insert Section 17053.89 is added to the end insert begin insert Revenue and
Taxation Code end insert begin insert , to read: end insert

begin insert

begin insert 17053.89. end insert   

(a) For taxable years beginning on or after January
1, 2013, there shall be allowed to a qualified taxpayer a credit
against the “net tax,” as defined in Section 17039, an amount
equal to 15 percent, except as otherwise provided, of the qualified
expenditures credit base for the production of a qualified
commercial within the studio zone.

(b) For purposes of this section:

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

(i) Qualified taxpayer contributions under any pension,
profit-sharing, annuity, or similar plan.

(ii) Qualified taxpayer-provided coverage under any accident
or health plan for employees.

(iii) The qualified taxpayer’s cost of life or disability insurance
provided to employees.

(B) Any amount treated as wages under clause (i) of
subparagraph (A) of paragraph (7) shall not be taken into account
under this paragraph.

(C) For the purposes of this paragraph, “employee” means a
qualified individual.

(2) (A) “Qualified commercial” means a commercial or
advertisement composed of moving images and sounds that is
recorded on film, videotape, or other digital medium, created for
display on a network, regional channel, cable, or interactive media,
including, but not limited to, the Internet, mobile devices, in-game
advertising, and experiential advertising where at least 75 percent
of the total qualified expenditures occur wholly within the studio
zone. For purposes of this paragraph, mobile devices include
cellphones, smartphones, personal digital assistants, and other
portable devices with a screen.

(B) “Qualified commercial” shall not include any
program-length production with an advertising component in
excess of five minutes, including an infomercial, news, or current
affairs program, interview or talk program, network promotion
(short-form content intended to promote other programming),
feature film promotion (trailers and teasers), sporting event, game
show, award ceremony, daytime drama, reality entertainment
program, program intended primarily for industrial, corporate,
or institutional end users, public service announcements,
fundraising commercial or commercial promoting a political
candidate or political issue, a program consisting of more than
one-half of the screen time of stock footage, a program produced
by an organization described in Section 527 of the Internal Revenue
Code, or any production that falls within the recordkeeping
requirements of Section 2257 of Title 18 of the United States Code.

(3) “Qualified expenditures” means the amount paid or incurred
during the taxable year to purchase or lease tangible personal
property within the studio zone in the production of a qualified
commercial, and to pay for services, including qualified wages,
performed within the studio zone in the production of a qualified
commercial.

(4) “Qualified expenditures credit base” means the amount
over five hundred thousand dollars ($500,000) paid or incurred
during the taxable year within the studio zone in qualified
expenditures.

(5) (A) “Qualified individual” means an individual who
performs services during the production period in an activity
related to the production of a qualified commercial.

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

(i) Any individual related to the qualified taxpayer as described
in Section 51(i)(1) of the Internal Revenue Code.

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

(6) (A) “Qualified taxpayer” means a taxpayer that is
principally engaged in the production of a qualified commercial,
has control over the selection of production location, deployment,
or management of the production equipment, directly employs the
production crew as the person that has control over the hiring and
firing of the crew on the qualified commercial, and paid or incurred
at least five hundred thousand dollars ($500,000) in qualified
expenditures within the studio zone during the taxable year. All
members of a commonly controlled group, as defined by
subdivision (b) of Section 25105, shall be treated as a single
qualified taxpayer for the purposes of computing qualified
expenditures.

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

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

(i) Any wages required to be reported under Section 13050 of
the Unemployment Insurance Code that were paid or incurred by
a qualified taxpayer involved in the production of a qualified
commercial with respect to a qualified individual for services
performed on the qualified commercial produced within the studio
zone.

(ii) Any payments made to a qualified taxpayer for services
performed in the studio zone by a qualified individual.

(iii) Remuneration paid to an independent contractor who is a
qualified individual for services performed within the studio zone
by that qualified individual.

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

(B) “Qualified wages” shall not include expenses, including
wages, paid per person per qualified commercial for writers,
directors, music directors, music composers, music supervisors,
producers, and performers, other than background actors with no
scripted lines.

(8) “Studio zone” means the area within a circle of 30 miles in
radius from the intersection of Beverly Boulevard and La Cienega
Boulevard in Los Angeles, California.

(c) In the case where the credit allowed under this section
exceeds the “net tax,” either of the following may occur:

(1) The excess credit may be carried over to reduce the “net
tax” in the following taxable year, and succeeding five taxable
years, if necessary, until the credit has been exhausted.

(2) (A) For the taxable year, 50 percent of the excess credit
shall be refunded to the qualified taxpayer, and 50 percent of the
excess credit shall be carried over to reduce the “net tax” in the
following taxable year.

(B) For the following taxable year, if the credit remaining
exceeds the “net tax” for that taxable year, the excess credit shall
be refunded.

(3) There shall be continuously appropriated from the General
Fund to the Franchise Tax Board an amount equal to the refunds
allowed by this section for the purpose of making those refunds.

(d) A credit shall be allowed pursuant to this section only if the
qualified taxpayer provides the following to the California Film
Commission:

(1) The production schedule for each commercial produced in
a taxable year.

(2) Total qualified expenditures.

(3) Total qualified wages paid.

(4) Total nonqualified expenditures incurred in California.

(5) Agreed upon procedures as prescribed by the California
Film Commission and performed by a licensed certified public
accountant who performs attest services in California and who
has attended a certified public accountant orientation meeting
conducted by the California Film Commission.

(6) Number of cast and crew members hired for each
commercial.

(7) Number of days worked by each cast and crew member for
each commercial.

(8) Number of vendors used during the taxable year.

(9) Any other information as requested by the California Film
Commission.

(e) The California Film Commission may prescribe rules and
regulations to carry out the purposes of this section including any
rules and regulations necessary to establish procedures, processes,
requirements, and rules identified in, or required to, implement
this section.

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

(1) Establish a procedure for applicants to file with the
commission a written application due on or before April 1, 2014,
and each April 1 thereafter, on a form jointly prescribed by the
commission and the Franchise Tax Board for the allocation of the
tax credit.

(2) Subject to the annual cap established as provided in
subdivision (h), allocate and certify an aggregate amount of credits
to qualified taxpayers under this section and Section 23680.

(3) Establish a verification procedure for the amount of qualified
expenditures paid or incurred by the applicant.

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

(g) The California Film Commission shall provide the Franchise
Tax Board annually with a list of qualified taxpayers and the tax
credit amounts allocated to each qualified taxpayer by the
California Film Commission. The list shall include the names and
taxpayer identification numbers, including taxpayer identification
numbers of each partner or shareholder, as applicable, of the
qualified taxpayers.

(h) (1) The aggregate amount of credits that may be allocated
in any fiscal year pursuant to this section and Section 23680 shall
be an amount equal to the sum of all of the following:

(A) Thirteen million dollars ($13,000,000) in credits for the
2012-13 fiscal year and each fiscal year thereafter.

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

(2) If the amount of credits applied for in any particular fiscal
year exceeds the aggregate amount of tax credits authorized to be
allocated under this section and Section 23680, the aggregate
amount of tax credits shall be allocated to each qualified taxpayer
on a pro rata basis.

(3) If the amount of credits allocated in a fiscal year is less than
the aggregate amount of tax credits authorized to be allocated
under this section and Section 23680, the remaining amount shall
be allocated to qualified taxpayers on a pro rata basis, not to
exceed 15 percent of the amount of the qualified expenditures
credit base.

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

end insert

begin insert

begin insert SEC. 2. end insert   

end insert

begin insert Section 17053.90 is added to the end insert begin insert Revenue and Taxation
Code end insert begin insert , to read: end insert

begin insert

begin insert 17053.90. end insert   

(a) For taxable years beginning on or after January
1, 2013, there shall be allowed to a qualified taxpayer a credit
against the “net tax,” as defined in Section 17039, an amount
equal to 15 percent, except as otherwise provided, of the qualified
expenditures credit base for the production of a qualified
commercial outside of the studio zone and within the state.

(b) For purposes of this section:

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

(i) Qualified taxpayer contributions under any pension,
profit-sharing, annuity, or similar plan.

(ii)  Qualified taxpayer-provided coverage under any accident
or health plan for employees.

(iii) The qualified taxpayer’s cost of life or disability insurance
provided to employees.

(B) Any amount treated as wages under clause (i) of
subparagraph (A) of paragraph (7) shall not be taken into account
under this paragraph.

(C) For the purposes of this paragraph, “employee” means a
qualified individual.

(2) (A) “Qualified commercial” means a commercial or
advertisement composed of moving images and sounds that is
recorded on film, videotape, or other digital medium, created for
display on a network, regional channel, cable, or interactive media,
including, but not limited to, the Internet, mobile devices, in-game
advertising, and experiential advertising where at least 75 percent
of the total qualified expenditures occur wholly outside of the
studio zone and within the state. For purposes of this paragraph,
mobile devices include cellphones, smartphones, personal digital
assistants, and other portable devices with a screen.

(B) “Qualified commercial” shall not include any
program-length production with an advertising component in
excess of five minutes, including an infomercial, news, or current
affairs program, interview or talk program, network promotion
(short-form content intended to promote other programming),
feature film promotion (trailers and teasers), sporting event, game
show, award ceremony, daytime drama, reality entertainment
program, program intended primarily for industrial, corporate,
or institutional end users, public service announcements,
fundraising commercial or commercial promoting a political
candidate or political issue, a program consisting of more than
one-half of the screen time of stock footage, a program produced
by an organization described in Section 527 of the Internal Revenue
Code, or any production that falls within the recordkeeping
requirements of Section 2257 of Title 18 of the United States Code.

(3) “Qualified expenditures” means the amount paid or incurred
during the taxable year to purchase or lease tangible personal
property outside of the studio zone and within the state in the
production of a qualified commercial, and to pay for services,
including qualified wages, performed outside of the studio zone
and within the state in the production of a qualified commercial.

(4) “Qualified expenditures credit base” means the amount
over two hundred fifty thousand dollars ($250,000) paid or
incurred during the taxable year outside the studio zone in qualified
expenditures.

(5) (A) “Qualified individual” means an individual who
performs services during the production period in an activity
related to the production of a qualified commercial.

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

(i) Any individual related to the qualified taxpayer as described
in Section 51(i)(1) of the Internal Revenue Code.

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

(6) (A) “Qualified taxpayer” means a taxpayer that is
principally engaged in the production of a qualified commercial,
has control over the selection of production location, deployment,
or management of the production equipment, directly employs the
production crew as the person that has control over the hiring and
firing of the crew on the qualified commercial, and paid or incurred
at least two hundred fifty thousand dollars ($250,000) in qualified
expenditures outside of the studio zone and within the state during
the taxable year. All members of a commonly controlled group,
as defined by subdivision (b) of Section 25105, shall be treated as
a single qualified taxpayer for the purposes of computing qualified
expenditures.

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

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

(i) Any wages required to be reported under Section 13050 of
the Unemployment Insurance Code that were paid or incurred by
a qualified taxpayer involved in the production of a qualified
commercial with respect to a qualified individual for services
performed on the qualified commercial produced outside of the
studio zone and within the state.

(ii) Any payments made to a qualified entity for services
performed outside of the studio zone and within the state by
qualified individuals.

(iii) Remuneration paid to an independent contractor who is a
qualified individual for services performed outside of the studio
zone and within the state by that qualified individual.

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

(B) “Qualified wages” shall not include expenses, including
wages, paid per person per qualified commercial for writers,
directors, music directors, music composers, music supervisors,
producers, and performers, other than background actors with no
scripted lines.

(8) “Studio zone” means the area within a circle of 30 miles in
radius from the intersection of Beverly Boulevard and La Cienega
Boulevard in Los Angeles, California.

(c) In the case where the credit allowed under this section
exceeds the “net tax,” either of the following may occur:

(1) The excess credit may be carried over to reduce the “net
tax” in the following taxable year, and succeeding five taxable
years, if necessary, until the credit has been exhausted.

(2) (A) For the taxable year, 50 percent of the excess credit
shall be refunded to the qualified taxpayer, and 50 percent of the
excess credit shall be carried over to reduce the “net tax” in the
following taxable year.

(B) For the following taxable year, if the credit remaining
exceeds the “net tax” for that taxable year, the excess credit shall
be refunded.

(3) There shall be continuously appropriated from the General
Fund to the Franchise Tax Board an amount equal to the refunds
allowed by this section for the purpose of making those refunds.

(d) A credit shall be allowed pursuant to this section only if the
qualified taxpayer provides the following to the California Film
Commission:

(1) The production schedule for each commercial produced in
a taxable year.

(2) Total qualified expenditures.

(3) Total qualified wages paid.

(4) Total nonqualified expenditures incurred in California.

(5) Agreed upon procedures as prescribed by the California
Film Commission and performed by a licensed certified public
accountant to who performs attest services in California and who
has attended a certified public accountant orientation meeting
conducted by the California Film Commission.

(6) Number of cast and crew members hired for each
commercial.

(7) Number of days worked by each cast and crew member for
each commercial.

(8) Number of vendors used during the taxable year.

(9) Any other information as requested by the California Film
Commission.

(e) The California Film Commission may prescribe rules and
regulations to carry out the purposes of this section including any
rules and regulations necessary to establish procedures, processes,
requirements, and rules identified in or required to implement this
section.

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

(1) Establish a procedure for applicants to file with the
commission a written application due on or before April 1, 2014,
and each April 1 thereafter, on a form jointly prescribed by the
commission and the Franchise Tax Board for the allocation of the
tax credit.

(2) Subject to the annual cap established as provided in
subdivision (h), allocate and certify an aggregate amount of credits
to qualified taxpayers under this section and Section 23681.

(3) Establish a verification procedure for the amount of qualified
expenditures paid or incurred by the applicant.

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

(g) The California Film Commission shall provide the Franchise
Tax Board annually with a list of qualified taxpayers and the tax
credit amounts allocated to each qualified taxpayer by the
California Film Commission. The list shall include the names and
taxpayer identification numbers, including taxpayer identification
numbers of each partner or shareholder, as applicable, of the
qualified taxpayers.

(h) (1) The aggregate amount of credits that may be allocated
in any fiscal year pursuant to this section and Section 23681 shall
be an amount equal to the sum of all of the following:

(A) Two million dollars ($2,000,000) in credits for the 2012-13
fiscal year and each fiscal year thereafter.

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

(2) If the amount of credits applied for in any particular fiscal
year exceeds the aggregate amount of tax credits authorized to be
allocated under this section and Section 23681, the aggregate
amount of tax credits shall be allocated to each qualified taxpayer
on a pro rata basis.

(3) If the amount of credits allocated in a fiscal year is less than
the aggregate amount of tax credits authorized to be allocated
under this section and Section 23681, the remaining amount shall
be allocated to qualified taxpayers on a pro rata basis, not to
exceed 15 percent of the amount of the qualified expenditures
credit base.

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

end insert

begin insert

begin insert SEC. 3. end insert   

end insert

begin insert Section 23680 is added to the end insert begin insert Revenue and Taxation
Code end insert begin insert , to read: end insert

begin insert

begin insert 23680. end insert   

end insert begin insert

(a) For taxable years beginning on or after January
1, 2013, there shall be allowed to a qualified taxpayer a credit
against the “tax,” as defined in Section 23036, an amount equal
to 15 percent, except as otherwise provided, of the qualified
expenditures credit base for the production of a qualified
commercial within the studio zone.

end insert begin insert

(b) For purposes of this section:

end insert begin insert

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

end insert begin insert

(i) Qualified taxpayer contributions under any pension,
profit-sharing, annuity, or similar plan.

end insert begin insert

(ii) Qualified taxpayer-provided coverage under any accident
or health plan for employees.

end insert begin insert

(iii) The qualified taxpayer’s cost of life or disability insurance
provided to employees.

end insert begin insert

(B) Any amount treated as wages under clause (i) of
subparagraph (A) of paragraph (7) shall not be taken into account
under this paragraph.

end insert begin insert

(C) For the purposes of this paragraph, “employee” means a
qualified individual.

end insert begin insert

(2) (A) “Qualified commercial” means a commercial or
advertisement composed of moving images and sounds that is
recorded on film, videotape, or other digital medium, created for
display on a network, regional channel, cable, or interactive media,
including, but not limited to, the Internet, mobile devices, in-game
advertising, and experiential advertising where at least 75 percent
of the total qualified expenditures occur wholly within the studio
zone. For purposes of this paragraph, mobile devices include
cellphones, smartphones, personal digital assistants, and other
portable devices with a screen.

end insert begin insert

(B) “Qualified commercial” shall not include any
program-length production with an advertising component in
excess of five minutes, including an infomercial, news, or current
affairs program, interview or talk program, network promotion
(short-form content intended to promote other programming),
feature film promotion (trailers and teasers), sporting event, game
show, award ceremony, daytime drama, reality entertainment
program, program intended primarily for industrial, corporate,
or institutional end users, public service announcements,
fundraising commercial or commercial promoting a political
candidate or political issue, a program consisting of more than
one-half of the screen time of stock footage, a program produced
by an organization described in Section 527 of the Internal Revenue
Code, or any production that falls within the recordkeeping
requirements of Section 2257 of Title 18 of the United States Code.

end insert begin insert

(3) “Qualified expenditures” means the amount paid or incurred
during the taxable year to purchase or lease tangible personal
property within the studio zone in the production of a qualified
commercial, and to pay for services, including qualified wages,
performed within the studio zone in the production of a qualified
commercial.

end insert begin insert

(4) “Qualified expenditures credit base” means the amount
over five hundred thousand dollars ($500,000) paid or incurred
during the taxable year within the studio zone in qualified
expenditures.

end insert begin insert

(5) (A) “Qualified individual” means an individual who
performs services during the production period in an activity
related to the production of a qualified commercial.

end insert begin insert

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

end insert begin insert

(i) Any individual related to the qualified taxpayer as described
in Section 51(i)(1) of the Internal Revenue Code.

end insert begin insert

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

end insert begin insert

(6) (A) “Qualified taxpayer” means a taxpayer that is
principally engaged in the production of a qualified commercial,
has control over the selection of production location, deployment,
or management of the production equipment, directly employs the
production crew as the person that has control over the hiring and
firing of the crew on the qualified commercial, and paid or incurred
at least five hundred thousand dollars ($500,000) in qualified
expenditures within the studio zone during the taxable year. All
members of a commonly controlled group, as defined by
subdivision (b) of Section 25105, shall be treated as a single
qualified taxpayer for the purposes of computing qualified
expenditures.

end insert begin insert

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

end insert begin insert

(ii) In the case of an “S” corporation, the credit allowed under
this section shall not be used by an “S” corporation as a credit
against a tax imposed under Chapter 4.5 (commencing with Section
23800) of Part 11 of Division 2.

end insert begin insert

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

end insert begin insert

(i) Any wages required to be reported under Section 13050 of
the Unemployment Insurance Code that were paid or incurred by
a qualified taxpayer involved in the production of a qualified
commercial with respect to a qualified individual for services
performed on the qualified commercial produced within the studio
zone.

end insert begin insert

(ii) Any payments made to a qualified taxpayer for services
performed in the studio zone by a qualified individual.

end insert begin insert

(iii) Remuneration paid to an independent contractor who is a
qualified individual for services performed within the studio zone
by that qualified individual.

end insert begin insert

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

end insert begin insert

(B) “Qualified wages” shall not include expenses, including
wages, paid per person per qualified commercial for writers,
directors, music directors, music composers, music supervisors,
producers, and performers, other than background actors with no
scripted lines.

end insert begin insert

(8) “Studio zone” means the area within a circle of 30 miles in
radius from the intersection of Beverly Boulevard and La Cienega
Boulevard in Los Angeles, California.

end insert begin insert

(c) In the case where the credit allowed under this section
exceeds the “tax,” either of the following may occur:

end insert begin insert

(1) The excess credit may be carried over to reduce the “tax”
in the following taxable year, and succeeding five taxable years,
if necessary, until the credit has been exhausted.

end insert begin insert

(2) (A) For the taxable year, 50 percent of the excess credit
shall be refunded to the qualified taxpayer, and 50 percent of the
excess credit shall be carried over to reduce the “tax” in the
following taxable year.

end insert begin insert

(B) For the following taxable year, if the credit remaining
exceeds the “tax” for that taxable year, the excess credit shall be
refunded.

end insert

begin insert (3) end insert begin insert   end insert begin insert There shall be continuously appropriated from the General
Fund to the Franchise Tax Board an amount equal to the refunds
allowed by this section for the end insert begin delete prupose end delete begin insert purpose of making those
refunds. end insert

begin insert

(d) A credit shall be allowed pursuant to this section only if the
qualified taxpayer provides the following to the California Film
Commission:

end insert begin insert

(1) The production schedule for each commercial produced in
a taxable year.

end insert begin insert

(2) Total qualified expenditures.

end insert begin insert

(3) Total qualified wages paid.

end insert begin insert

(4) Total nonqualified expenditures incurred in California.

end insert begin insert

(5) Agreed upon procedures as prescribed by the California
Film Commission and performed by a licensed certified public
accountant to perform attest services in California and who has
attended a certified public accountant orientation meeting
conducted by the California Film Commission.

end insert begin insert

(6) Number of cast and crew members hired for each
commercial.

end insert begin insert

(7) Number of days worked by each cast and crew member for
each commercial.

end insert begin insert

(8) Number of vendors used during the taxable year.

end insert begin insert

(9) Any other information as requested by the California Film
Commission.

end insert begin insert

(e) The California Film Commission may prescribe rules and
regulations to carry out the purposes of this section including any
rules and regulations necessary to establish procedures, processes,
requirements, and rules identified in or required to implement this
section.

end insert begin insert

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

end insert begin insert

(1) Establish a procedure for applicants to file with the
commission a written application due on or before April 1, 2014,
and each April 1 thereafter, on a form jointly prescribed by the
commission and the Franchise Tax Board for the allocation of the
tax credit.

end insert begin insert

(2) Subject to the annual cap established as provided in
subdivision (h), allocate and certify an aggregate amount of credits
to qualified taxpayers under this section and Section 17053.89.

end insert begin insert

(3) Establish a verification procedure for the amount of qualified
expenditures paid or incurred by the applicant.

end insert begin insert

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

end insert begin insert

(g) The California Film Commission shall provide the Franchise
Tax Board annually with a list of qualified taxpayers and the tax
credit amounts allocated to each qualified taxpayer by the
California Film Commission. The list shall include the names and
taxpayer identification numbers, including taxpayer identification
numbers of each partner or shareholder, as applicable, of the
qualified taxpayers.

end insert begin insert

(h) (1) The aggregate amount of credits that may be allocated
in any fiscal year pursuant to this section and Section 17053.89
shall be an amount equal to the sum of all of the following:

end insert begin insert

(A) Two million dollars ($2,000,000) in credits for the 2012-13
fiscal year and each fiscal year thereafter.

end insert begin insert

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

end insert begin insert

(C) The amount of previously allocated credits not certified.

end insert begin insert

(2) If the amount of credits applied for in any particular fiscal
year exceeds the aggregate amount of tax credits authorized to be
allocated under this section and Section 17053.89, the aggregate
amount of tax credits shall be allocated to each qualified taxpayer
on a pro rata basis.

end insert begin insert

(3) If the amount of credits allocated in a fiscal year is less than
the aggregate amount of tax credits authorized to be allocated
under this section and Section 17053.89, the remaining amount
shall be allocated to qualified taxpayers on a pro rata basis, not
to exceed 15 percent of the amount of the qualified expenditures
credit base.

end insert begin insert

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

end insert

begin insert

begin insert SEC. 4. end insert   

end insert

begin insert Section 23681 is added to the end insert begin insert Revenue and Taxation
Code end insert begin insert , to read: end insert

begin insert

begin insert 23681. end insert   

(a) For taxable years beginning on or after January
1, 2013, there shall be allowed to a qualified taxpayer a credit
against the “tax,” as defined in Section 23036, an amount equal
to 15 percent, except as otherwise provided, of the qualified
expenditures credit base for the production of a qualified
commercial outside of the studio zone and within this state.

(b) For purposes of this section:

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

(i) Qualified taxpayer contributions under any pension,
profit-sharing, annuity, or similar plan.

(ii) Qualified taxpayer-provided coverage under any accident
or health plan for employees.

(iii) The qualified taxpayer’s cost of life or disability insurance
provided to employees.

(B) Any amount treated as wages under clause (i) of
subparagraph (A) of paragraph (7) shall not be taken into account
under this paragraph.

(C) For the purposes of this paragraph, “employee” means a
qualified individual.

(2) (A) “Qualified commercial” means a commercial or
advertisement composed of moving images and sounds that is
recorded on film, videotape, or other digital medium, created for
display on a network, regional channel, cable, or interactive media,
including, but not limited to, the Internet, mobile devices, in-game
advertising, and experiential advertising where at least 75 percent
of the total qualified expenditures occur wholly outside of the
studio zone and within the state. For purposes of this paragraph,
mobile devices include cellphones, smartphones, personal digital
assistants, and other portable devices with a screen.

(B) “Qualified commercial” shall not include any
program-length production with an advertising component in
excess of five minutes, including an infomercial, news, or current
affairs program, interview or talk program, network promotion
(short-form content intended to promote other programming),
feature film promotion (trailers and teasers), sporting event, game
show, award ceremony, daytime drama, reality entertainment
program, program intended primarily for industrial, corporate,
or institutional end users, public service announcements,
fundraising commercial or commercial promoting a political
candidate or political issue, a program consisting of more than
one-half of the screen time of stock footage, a program produced
by an organization described in Section 527 of the Internal Revenue
Code, or any production that falls within the recordkeeping
requirements of Section 2257 of Title 18 of the United States Code.

(3) “Qualified expenditures” means the amount paid or incurred
during the taxable year to purchase or lease tangible personal
property outside of the studio zone and within the state in the
production of a qualified commercial, and to pay for services,
including qualified wages, performed outside of the studio zone
and within the state in the production of a qualified commercial.

(4) “Qualified expenditures credit base” means the amount
over two hundred fifty thousand dollars ($250,000) paid or
incurred during the taxable year outside of the studio zone in
qualified expenditures.

(5) (A) “Qualified individual” means an individual who
performs services during the production period in an activity
related to the production of a qualified commercial.

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

(i) Any individual related to the qualified taxpayer as described
in Section 51(i)(1) of the Internal Revenue Code.

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

(6) (A) “Qualified taxpayer” means a taxpayer that is
principally engaged in the production of a qualified commercial,
has control over the selection of production location, deployment,
or management of the production equipment, directly employs the
production crew as the person that has control over the hiring and
firing of the crew on the qualified commercial, and paid or incurred
at least two hundred fifty thousand dollars ($250,000) in qualified
expenditures outside of the studio zone and within the state during
the taxable year. All members of a commonly controlled group,
as defined by subdivision (b) of Section 25105, shall be treated as
a single qualified taxpayer for the purposes of computing qualified
expenditures.

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

(ii) In the case of an “S” corporation, the credit allowed under
this section shall not be used by an “S” corporation as a credit
against a tax imposed under Chapter 4.5 (commencing with Section
23800) of Part 11 of Division 2.

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

(i) Any wages required to be reported under Section 13050 of
the Unemployment Insurance Code that were paid or incurred by
a qualified taxpayer involved in the production of a qualified
commercial with respect to a qualified individual for services
performed on the qualified commercial produced outside of the
studio zone and within the state.

(ii) Any payments made to a qualified entity for services
performed outside of the studio zone and within the state by
qualified individuals.

(iii) Remuneration paid to an independent contractor who is a
qualified individual for services performed outside of the studio
zone and within the state by that qualified individual.

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

(B) “Qualified wages” shall not include expenses, including
wages, paid per person per qualified commercial for writers,
directors, music directors, music composers, music supervisors,
producers, and performers, other than background actors with no
scripted lines.

(8) “Studio zone” means the area within a circle of 30 miles in
radius from the intersection of Beverly Boulevard and La Cienega
Boulevard in Los Angeles, California.

(c) In the case where the credit allowed under this section
exceeds the “tax,” either of the following may occur:

(1) The excess credit may be carried over to reduce the “tax”
in the following taxable year, and succeeding five taxable years,
if necessary, until the credit has been exhausted.

(2) (A) For the taxable year, 50 percent of the excess credit
shall be refunded to the qualified taxpayer, and 50 percent of the
excess credit shall be carried over to reduce the “tax” in the
following taxable year.

(B) For the following taxable year, if the credit remaining
exceeds the “tax” for that taxable year, the excess credit shall be
refunded.

(3) There shall be continuously appropriated from the General
Fund to the Franchise Tax Board an amount equal to the refunds
allowed by this section for the purpose of making those refunds.

(d) A credit shall be allowed pursuant to this section only if the
qualified taxpayer provides the following to the California Film
Commission:

(1) The production schedule for each commercial produced in
a taxable year.

(2) Total qualified expenditures.

(3) Total qualified wages paid.

(4) Total nonqualified expenditures incurred in California.

(5) Agreed upon procedures as prescribed by the California
Film Commission and performed by a licensed certified public
accountant to perform attest services in California and who has
attended a certified public accountant orientation meeting
conducted by the California Film Commission.

(6) Number of cast and crew members hired for each
commercial.

(7) Number of days worked by each cast and crew member for
each commercial.

(8) Number of vendors used during the taxable year.

(9) Any other information as requested by the California Film
Commission.

(e) The California Film Commission may prescribe rules and
regulations to carry out the purposes of this section including any
rules and regulations necessary to establish procedures, processes,
requirements, and rules identified in or required to implement this
section.

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

(1) Establish a procedure for applicants to file with the
commission a written application due on or before April 1, 2014,
and each April 1 thereafter, on a form jointly prescribed by the
commission and the Franchise Tax Board for the allocation of the
tax credit.

(2) Subject to the annual cap established as provided in
subdivision (h), allocate and certify an aggregate amount of credits
to qualified taxpayers under this section and Section 23686.

(3) Establish a verification procedure for the amount of qualified
expenditures paid or incurred by the applicant.

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

(g) The California Film Commission shall provide the Franchise
Tax Board annually with a list of qualified taxpayers and the tax
credit amounts allocated to each qualified taxpayer by the
California Film Commission. The list shall include the names and
taxpayer identification numbers, including taxpayer identification
numbers of each partner or shareholder, as applicable, of the
qualified taxpayers.

(h) (1) The aggregate amount of credits that may be allocated
in any fiscal year pursuant to this section and Section 17053.90
shall be an amount equal to the sum of all of the following:

(A) Two million dollars ($2,000,000) in credits for the 2012-13
fiscal year and each fiscal year thereafter.

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

(2) If the amount of credits applied for in any particular fiscal
year exceeds the aggregate amount of tax credits authorized to be
allocated under this section and Section 17053.90, the aggregate
amount of tax credits shall be allocated to each qualified taxpayer
on a pro rata basis.

(3) If the amount of credits allocated in a fiscal year is less than
the aggregate amount of tax credits authorized to be allocated
under this section and Section 17053.90, the remaining amount
shall be allocated to qualified taxpayers on a pro rata basis, not
to exceed 15 percent of the amount of the qualified expenditures
credit base.

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

end insert

begin insert

begin insert SEC. 5. end insert   

end insert begin insert

The Legislature finds and declares that a special law
is necessary and that a general law cannot be made applicable
within the meaning of Section 16 of Article IV of the California
Constitution because of the unique need to support the commercial
industry in Los Angeles.

end insert

begin delete

SECTION 1.  

It is the intent of the Legislature to enact
legislation that would strengthen the California economy and
stimulate job growth by providing incentives for the production
of commercials.

end delete

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CORRECTIONS:

Text--Page 15.

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