Amended in Senate July 3, 2013

Amended in Senate April 8, 2013

Senate Bill No. 370

Introduced by Senator Lieu

February 20, 2013

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.

LEGISLATIVE COUNSEL’S DIGEST

SB 370, as amended, Lieu. Income tax: credits: qualified commercial production.

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

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.

begin insert

This bill would provide that specified information provided to the California Film Commission shall constitute confidential taxpayer information, and would impose specified criminal penalties on the disclosure of that information. By expanding the crime of knowingly and wrongfully accessing, using, or disclosing specified information, this bill would impose a state-mandated local program.

end insert begin insert

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

end insert begin insert

This bill would provide that no reimbursement is required by this act for a specified reason.

end insert

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

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

SECTION 1.  

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

17053.89.  

(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 begin delete qualified end delete expenditures occur wholly within the studio
zone. For purposes of this paragraph, mobile devices include
begin delete cellphones, end delete begin insert cellular telephones, end insert 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 begin delete that falls within end delete begin insert to which end insert the
recordkeeping requirements of Section 2257 of Title 18 of the
United States Code begin insert apply end 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 begin delete services, including qualified wages, end delete
begin insert services end insert 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. begin delete 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 delete

(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,” begin delete either of end delete the following begin delete may end delete begin insert shall end insert occur:

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

begin delete

(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.

end delete begin delete

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

end delete begin insert

(2) With regard to the remaining 50 percent of the excess credit,
the qualified taxpayer shall elect to do either of the following:

end insert begin insert

(A) Receive a refund of the excess credit amount.

end insert begin insert

(B) Carry over the excess credit to reduce the “net tax” in the
following taxable year, and succeeding six taxable years, if
necessary, until the credit has been exhausted.

end insert

(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 begin delete aggregate end delete 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 begin delete must end delete begin insert shall end insert be satisfied
before a credit certificate may be issued by the California Film
Commission.

begin insert

(5) Provide the Legislative Analyst’s Office, upon request, any
or all application materials or any other materials received from,
or submitted by, the applicants, in electronic format when
available, including, but not limited to, information provided
pursuant to subdivision (d).

end insert begin insert

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

end insert

(g)  begin insert (1) end insert begin insert   end insert The California Film Commission shall provide the
begin insert Legislative Analyst’s Office and the end insert 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.

begin insert

(2) (A) Notwithstanding subparagraph (B), the California Film
Commission shall annually post on its Internet Web site and make
available for public release the following:

end insert begin insert

(i) A table which includes all of the following information:

end insert begin insert

(I) A list of qualified taxpayers and the tax credit amounts
allocated to each qualified taxpayer by the California Film
Commission.

end insert begin insert

(II) The total number of production days in California reported
by the qualified taxpayers in its application.

end insert begin insert

(III) The number of California jobs directly created by the
production as reported by the qualified taxpayer in its application.

end insert begin insert

(IV) The total amount of qualified expenditures that were spent
on submitted productions.

end insert begin insert

(ii) A summary describing the qualified taxpayer’s production
and background information regarding the qualified taxpayer
contained in the qualified taxpayer’s application for the credit.

end insert begin insert

(B) This subdivision shall not be construed to make the
information submitted by an applicant for a tax credit under this
section a public record.

end insert

(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 begin delete all end delete begin insert both end insert 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 begin insert outside of the studio zone and
within the state pursuant to Section 17053.90 or 23681 end insert 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.

begin insert

(j) The credit allowed by this section shall be in lieu of any other
deduction that the taxpayer may otherwise claim pursuant to this
part with respect to qualified expenditures.

end insert

SEC. 2.  

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

17053.90.  

(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 begin delete qualified end delete expenditures occur wholly outside of the
studio zone and within the state. For purposes of this paragraph,
mobile devices include begin delete cellphones, end delete begin insert cellular telephones, end insert
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 begin delete that falls within end delete begin insert to which end insert the
recordkeeping requirements of Section 2257 of Title 18 of the
United States Code begin insert apply end insert .

(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 begin delete services,
including qualified wages, end delete begin insert services end insert 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. begin delete 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 delete

(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,” begin delete either of end delete the following begin delete may end delete begin insert shall end insert occur:

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

begin delete

(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.

end delete begin insert

(2) With regard to the remaining 50 percent of the excess credit,
the qualified taxpayer shall elect to do either of the following:

end insert begin insert

(A) Receive a refund of the excess credit amount.

end insert begin insert

(B) Carry over the excess credit to reduce the “net tax” in the
following taxable year, and succeeding six taxable years, if
necessary, until the credit has been exhausted.

end insert

(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 begin delete to end delete 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 begin delete aggregate end delete 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 begin delete must end delete begin insert shall end insert be satisfied
before a credit certificate may be issued by the California Film
Commission.

begin insert

(5) Provide the Legislative Analyst’s Office, upon request, any
or all application materials or any other materials received from,
or submitted by, the applicants, in electronic format when
available, including, but not limited to, information provided
pursuant to subdivision (d).

end insert begin insert

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

end insert

(g)  begin insert (1) end insert begin insert   end insert The California Film Commission shall provide the
begin insert Legislative Analyst’s Office and the end insert 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.

begin insert

(2) (A) Notwithstanding subparagraph (B), the California Film
Commission shall annually post on its Internet Web site and make
available for public release the following:

end insert begin insert

(i) A table which includes all of the following information:

end insert begin insert

(I) A list of qualified taxpayers and the tax credit amounts
allocated to each qualified taxpayer by the California Film
Commission.

end insert begin insert

(II) The total number of production days in California reported
by the qualified taxpayers in its application.

end insert begin insert

(III) The number of California jobs directly created by the
production as reported by the qualified taxpayer in its application.

end insert begin insert

(IV) The total amount of qualified expenditures that were spent
on submitted productions.

end insert begin insert

(ii) A summary describing the qualified taxpayer’s production
and background information regarding the qualified taxpayer
contained in the qualified taxpayer’s application for the credit.

end insert begin insert

(B) This subdivision shall not be construed to make the
information submitted by an applicant for a tax credit under this
section a public record.

end insert

(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 begin insert within the studio zone pursuant
to Section 17053.89 or 23680 end insert 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.

begin insert

(j) The credit allowed by this section shall be in lieu of any other
deduction that the taxpayer may otherwise claim pursuant to this
part with respect to qualified expenditures.

end insert

SEC. 3.  

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

23680.  

(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.

(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 begin delete qualified end delete expenditures occur wholly within the studio
zone. For purposes of this paragraph, mobile devices include
begin delete cellphones, end delete begin insert cellular telephones, end insert 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 begin delete that falls within end delete begin insert to which end insert the
recordkeeping requirements of Section 2257 of Title 18 of the
United States Code begin insert apply end 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 begin delete services, including qualified wages, end delete
begin insert services end insert 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) (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 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 “tax,” begin delete either of end delete the following begin delete may end delete begin insert shall end insert occur:

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

begin delete

(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 delete begin delete

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

end delete begin insert

(2) With regard to the remaining 50 percent of the excess credit,
the qualified taxpayer shall elect to do either of the following:

end insert begin insert

(A) Receive a refund of the excess credit amount.

end insert begin insert

(B) Carry over the excess credit to reduce the “tax” in the
following taxable year, and succeeding six taxable years, if
necessary, until the credit has been exhausted.

end insert

(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 begin delete to perform end delete begin insert who performs end insert 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 begin delete aggregate end delete amount of credits
to qualified taxpayers under this section and Section 17053.89.

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

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

begin insert

(5) Provide the Legislative Analyst’s Office, upon request, any
or all application materials or any other materials received from,
or submitted by, the applications, in electronic format when
available, including, but not limited to, information provided
pursuant to subdivision (d).

end insert begin insert

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

end insert

(g)  begin insert (1) end insert begin insert   end insert The California Film Commission shall provide the
begin insert Legislative Analyst’s Office and the end insert 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.

begin insert

(2) (A) Notwithstanding subparagraph (B), the California Film
Commission shall annually post on its Internet Web site and make
available for public release the following:

end insert begin insert

(i) A table which includes all of the following information.

end insert begin insert

(I) A list of qualified taxpayers and the tax credit amounts
allocated to each qualified taxpayer by the California Film
Commission.

end insert begin insert

(II) The total number of production days in California reported
by the qualified taxpayers in its application.

end insert begin insert

(III) The number of California jobs directly created by the
production as reported by the qualified taxpayer in its application.

end insert begin insert

(IV) The total amount of qualified expenditures that were spent
on submitted productions.

end insert begin insert

(ii) A summary describing the qualified taxpayer’s production
and background information regarding the qualified taxpayer
contained in the qualified taxpayer’s application for the credit.

end insert begin insert

(B) This subdivision shall not be construed to make the
information submitted by an applicant for a tax credit under this
section a public record.

end 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:

(A)  begin delete Two end delete begin insert Thirteen end insert million dollars begin delete ($2,000,000) end delete begin insert ($13,000,000) end insert
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.

begin delete

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

end delete

(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.

(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 begin insert outside the studio zone
pursuant to Section 17053.90 or 23681 end insert 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.

begin insert

(j) The credit allowed by this section shall be in lieu of any other
deduction that the taxpayer may otherwise claim pursuant to this
part with respect to qualified expenditures.

end insert

SEC. 4.  

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

23681.  

(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 begin delete this end delete begin insert the end insert 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 begin delete qualified end delete expenditures occur wholly outside of the
studio zone and within the state. For purposes of this paragraph,
mobile devices include begin delete cellphones, end delete begin insert cellular telephones, end insert
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 begin delete that falls within end delete begin insert to which end insert the
recordkeeping requirements of Section 2257 of Title 18 of the
United States Code begin insert apply end insert .

(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 begin delete services,
including qualified wages, end delete begin insert services end insert 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 begin delete entity end delete begin insert taxpayer end insert for
services performed outside of the studio zone and within the state
by begin delete qualified individuals end delete begin insert a qualified individual end insert .

(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,” begin delete either of end delete the following begin delete may end delete begin insert shall end insert occur:

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

begin delete

(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 delete begin delete

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

end delete begin insert

(2) With regard to the remaining 50 percent of the excess credit,
the qualified taxpayer shall elect to do either of the following:

end insert begin insert

(A) Receive a refund of the excess credit amount.

end insert begin insert

(B) Carry over the excess credit to reduce the “tax” in the
following taxable year, and succeeding six taxable years, if
necessary, until the credit has been exhausted.

end insert

(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 begin delete to perform end delete begin insert who performs end insert 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 begin delete aggregate end delete amount of credits
to qualified taxpayers under this section and Section begin delete 23686 end delete
begin insert 17053.90 end insert .

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

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

begin insert

(5) Provide the Legislative Analyst’s Office, upon request, any
or all application materials or any other materials received from,
or submitted by, the applicants, in electronic format when
available, including, but not limited to, information provided
pursuant to subdivision (d).

end insert begin insert

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

end insert

(g)  begin insert (1) end insert begin insert   end insert The California Film Commission shall provide the
begin insert Legislative Analyst’s Office and the end insert 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.

begin insert

(2) (A) Notwithstanding subparagraph (B), the California Film
Commission shall annually post on its Internet Web site and make
available for public release the following:

end insert begin insert

(i) A table which includes all of the following information:

end insert begin insert

(I) A list of qualified taxpayers and the tax credit amounts
allocated to each qualified taxpayer by the California Film
Commission.

end insert begin insert

(II) The total number of production days in California reported
by the qualified taxpayers in its application.

end insert begin insert

(III) The number of California jobs directly created by the
production as reported by the qualified taxpayer in its application.

end insert begin insert

(IV) The total amount of qualified expenditures that were spent
on submitted productions.

end insert begin insert

(ii) A summary describing the qualified taxpayer’s production
and background information regarding the qualified taxpayer
contained in the qualified taxpayer’s application for the credit.

end insert begin insert

(B) This subdivision shall not be construed to make the
information submitted by an applicant for a tax credit under this
section a public record.

end insert

(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 begin insert within the studio zone
pursuant to Section 17053.89 or 23680 end insert 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.

begin insert

(j) The credit allowed by this section shall be in lieu of any other
deduction that the taxpayer may otherwise claim pursuant to this
part with respect to qualified expenditures.

end insert

SEC. 5.  

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.

begin insert

begin insert SEC. 6. end insert   

end insert begin insert

No reimbursement is required by this act pursuant to
Section 6 of Article XIII B of the California Constitution because
the only costs that may be incurred by a local agency or school
district will be incurred because this act creates a new crime or
infraction, eliminates a crime or infraction, or changes the penalty
for a crime or infraction, within the meaning of Section 17556 of
the Government Code, or changes the definition of a crime within
the meaning of Section 6 of Article XIII B of the California
Constitution.

end insert