BILL ANALYSIS Ó
AB 1199
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Date of Hearing: April 28, 2015
ASSEMBLY COMMITTEE ON ARTS, ENTERTAINMENT, SPORTS, TOURISM, AND
INTERNET MEDIA
Ian Charles Calderon, Chair
AB 1199
(Nazarian) - As Introduced February 27, 2015
SUBJECT: Income taxes: credits: motion pictures.
SUMMARY: Redefines qualified expenditures for music and scoring
of films under the film tax credit program. Specifically, this
bill:
1)Provides additional credits to a qualified motion picture in
an aggregate amount, as specified, including five percent of
the qualified expenditures relating to qualified music
preparation, music scoring, music track recording, and music
editing by musicians attributable to the production of a
qualified motion picture in California.
2)Defines "Qualified music preparation, music scoring, music
track recording, and music editing" to mean music preparation,
music scoring, music track recording, and music editing where
at least 75% or a minimum of one hundred thousand dollars
($100,000) of the total expenditures for the music
preparation, music scoring, music track recording, and music
editing is paid or incurred in California.
EXISTING LAW:
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1)Provides that, for taxable years beginning on or after January
1, 2016, there shall be allowed to a qualified taxpayer a
credit against the "net tax," as specified, in an amount equal
to 20% or 25%, whichever is the applicable credit percentage
of the qualified expenditures for the production of a
qualified motion picture in California.
2)Declares that the applicable credit percentage shall be:
a) Twenty percent of the qualified expenditures
attributable to the production of a qualified motion
picture in California, including, but not limited to, a
feature, up to one hundred million dollars ($100,000,000)
in qualified expenditures, or a television series that
relocated to California that is in its second or subsequent
years of receiving a tax credit allocation, as provided.
b) Twenty-five percent of the qualified expenditures
attributable to the production of a qualified motion
picture in California where the qualified motion picture is
a television series that relocated to California in its
first year of receiving a tax credit allocation pursuant to
this section.
c) Twenty-five percent of the qualified expenditures, up to
ten million dollars ($10,000,000), attributable to the
production of a qualified motion picture that is an
independent film.
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3)Allows additional credits to a qualified motion picture in an
aggregate amount not to exceed 5% of the qualified
expenditures relating to music scoring and music track
recording, by musicians attributable to the production of a
qualified motion picture in California.
4)Defines "Postproduction" to mean the final activities in a
qualified motion picture's production, including editing,
foley recording, automatic dialogue replacement, sound
editing, scoring, music track recording by musicians and music
editing, beginning and end credits, negative cutting, negative
processing and duplication, the addition of sound and visual
effects, sound mixing, film-to-tape transfers, encoding, and
color correction.
5)Requires that a "qualified motion picture," must film at least
75% of its principal photography days wholly in California or
75% of the production budget must be incurred within the
state.
FISCAL EFFECT: Unknown
COMMENTS:
1)Author and supporter's statement of need for legislation: AB
1839 was a good start but didn't require post-production work
be done in California. The author states the following in
support of this measure, "Governments across the U.S. and
around the world are investing billions of dollars in the film
and television industry in an effort to create and retain the
high-quality jobs attached to the industry. Yet musicians -
the highly-trained and highly-talented women and men who
record the scores for movies and television shows - are being
left behind. Increasingly, recording work is being offshored
mostly to Eastern Europe and London-where musicians are paid
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far below the industry standard. Loss of jobs and wages in
California is evident as, the wages for musicians totaled $22
million in 2003 and just ten years later, the total was almost
half, at $11.7 million.
"AB 1199's provisions, although they are small technical
changes, provide the necessary economic incentive to retain
and attract music back to California. As an example, the cost
to production companies of employing recording musicians at
the top industry standard is equivalent to 0.36% to 0.52% of a
typical film's production budget. By offshoring this work,
production companies save less than one-quarter of one percent
of the film's production budget-or $143,000 on a typical $65
million film - yet workers and the community lose $1.2
million."
Supporters such as the Society of Composers and Lyricists add,
"AB 1199 introduces language that would for the first time
require a specific amount of the total expenditures relating
to music post-production be done in California in order for a
production to qualify for an added rebate."
According to information provided by the bill's sponsors,
"Music jobs create more than just a livelihood for thousands
of professional musicians in California. Musicians who perform
on film and TV soundtracks are the same gifted artists who
perform in theaters, on stages, in clubs, in schools and
public spaces throughout our state, and provide a rich
cultural life that goes beyond their substantial economic
contribution. The same performers teach our children in
non-profits providing music instruction to children
underserved by arts curricula, and train young musicians in
our colleges and universities. The financial and cultural
wealth of our region is deeply threatened by the dramatic loss
of film and television music scoring documented in the
comprehensive LAANE report "Keeping the Score".
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"Musicians have stood shoulder to shoulder with our labor
alliance since the late 1990's, helping to pass each
generation of film/TV tax credits. We have helped create
language, lobby, strategize and worked hard for our labor
colleagues - yet no jobs have been created for us. In the
years leading up to AB 1839, not one music job was created by
California tax credits. Unfortunately, we have documented
music jobs running away even for projects that received
production tax dollars here. It is saddening to see companies
taking California tax dollars and then taking our music jobs
overseas.
"AB 1839 will not work for us. Here's why: Most of our film
employment is for independent productions - yet they are not
allowed to access the 5% uplift for music scoring. Most of the
major studio production would already be required to score
here. The TV and pilot production that is the focus of so much
of the incentive program provides a much smaller part of
musicians employment. Unlike actors, writers, directors,
grips, engineers and others, episodic television provides a
small part of the employment available for musicians.
"Here's what will work for California: Setting aside a tiny
percentage for music scoring post-production will create an
outsize number of jobs, wages, health and pension benefits,
and state revenues. A mere 1% tax credit for music scoring
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would generate 12 million dollars in immediate wages, as well
as health and pension benefits and an even greater amount of
taxable residuals paid over time. Since most films available
for music scoring will be produced outside California, this
allows us to capture jobs that would otherwise be lost to
Californians. Our music scoring infrastructure will, with this
program, bring music scoring from projects filmed in Georgia,
North Carolina, New York, the U.K. and all over the world.
Just one significant film like the "Hunger Games: Catching
Fire", with a music budget of around $800,000, is estimated to
bring in 2.3 million dollars to California regional benefit.
The revenues raised by capturing such a project with an
incentive would represent an outsize value for California."
They add, "London is just in the process of raising their
post-production carve-out to 30% - and it has worked for them,
as they take music jobs away from California. New York
upgraded their separate post-production carve-out from 7 to 25
million dollars in 2015, and it is paying dividends for New
Yorkers - at our expense."
2)Background: California Film Production Tax Program.
Last year the legislature adopted a revised and expanded
set of film production tax credits with the passage of AB
1839 (Gatto/Bocanegra), Chapter 413, Statutes of 2014.
That measure contained many changes in both the scope and
structure of the film tax credit program.
a) The original structure for the film tax credit program.
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In 2009, the Legislature approved, and Governor
Schwarzenegger signed, the California Film & Television Tax
Credit Program (Film Tax Credit Program) as a part of the
2009 Budget plan to promote film production and to create
and retain jobs in California [SB 15 X3 (Calderon), Chapter
17, Statutes of 2009-10 Third Extraordinary Session, and AB
15 X3 (Krekorian), Chapter 10, Statutes of 2009-10 Third
Extraordinary Session].
The California Film Commission (CFC) allocates $100 million
in credits for qualified production expenditures annually -
$10 million of which is set aside for qualified production
expenditures incurred by independent films. Qualified
taxpayers are allowed a credit against income and/or sales
and use taxes, based upon qualified expenditures. Credits
are not refundable and only tax credits that are issues to
an "independent film" are transferrable to an unrelated
party.
Qualified expenditures are costs that must be incurred in
the State of California. They include crew and staff
salaries, wages and benefits (not including wages and
benefits paid to writers, directors, music
directors/composers/producers, and actors), cost of rental
facilities and equipment, and costs such as lodging, food,
wardrobe and construction.
To apply for the California Film and Television Incentive
Program, a "qualified motion picture" must be one of the
following:
i) Eligible for 20% Tax Credit -
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A feature film with a production budget of no less
than $1 million and not more than $75 million.
A movie of the week or miniseries with a production
budget of no less than $500,000.
A new television series licensed for original
distribution on basic cable with a production budget of
$1 million minimum and with a running time of no less
than 60 minutes (including commercials).
ii) Eligible for 25% Tax Credit -
A television series, without regard to episode
length or media distribution outlet (basic cable, premium
cable, or network broadcast), that filmed all of its
prior seasons outside of California and that chooses to
relocate to California.
An "independent film" (with a production budget of
at least $1 million and a maximum qualified expenditures
budget of $10 million; must be produced by a company that
is not publicly traded and that publicly traded companies
do not own more than 25% of the producing company).
The film must also have 75% of its production days take
place in or total production budget spent in California.
In an effort to ensure fairness, the oversubscribed program
is operated in a lottery manner. Applications for tax
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credits are due to the CFC at the beginning of June, and
the CFC holds a drawing at the end of the month to select
the films that will be issued credits. The number of
applicants for credits far exceeds the available funds for
credits: in 2012, only 27 projects out of the 322
applicants that applied were selected.
After the applications for credits have been received and
the "qualified motion pictures" have been selected for the
available credits, the CFC issues a credit allocation
letter reserving an amount of tax credits to an applicant
based upon projected qualified expenditures. If a project
is approved for a credit, the project must shoot within 6
months and be completed within 30 months from the date that
the application was approved.
Upon completion of the project, and before the Tax Credit
Certificate is issued, the applicant must provide to the
CFC several documents, including a list of qualified
expenditures that has been reviewed by a trained CPA. The
CFC reviews the documents with the applicant to determine
if all criteria has been met, at which time the CFC will
issue the credit certificate. The credit allows the
taxpayer to claim the credit on their filed tax return with
the Franchise Tax Board under the personal income tax or
the corporate tax law.
b) AB 1839 restructured and increased funding for the film
tax credit program. One of the biggest changes to the film
tax credit program introduced with AB 1839 was the tripling
of the annual budget available for tax credits, from $100
million to $330 million dollars. In addition to the
increased amount available for credits, the allocation
system changed from a once a year lottery system, to a
competitive system based upon a formula using the ratio of
jobs projected to be created and the amount of funding
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requested. The allocations are now to be made twice a year.
A summary of the major programmatic changes includes:
AB 1839 expanded and amended the tax credit for qualified
expenditures for the production of qualified motion
pictures in California for taxable years beginning on or
after January 1, 2016, and authorized the CFC to administer
the program and allocate the tax credits, subject to a $230
million cap in the first year (2015-16) and $330 million
aggregate annual cap for each fiscal year (FY) from the
2016-17 FY through and including the 2019-20 FY. Note that
when the $230 million was added to the $100 million
provided in existing law for the 2015-16 FY, the available
funds for all future years under the bill was $330 million.
In addition, the measure:
i) Requires the CFC to allocate the credit amounts
subject to specified categories in order to insure like
productions compete against each other under the jobs
ratio formula outlined in the bill.
ii) Requires applicants to include a statement which
declares that the tax credit is a significant factor in
the applicant's choice of location for the qualified
motion picture.
iii) Changes the definition of relocating series, to one
which has a minimum production budget of at least $1
million per episode.
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iv) Allows ongoing series to become eligible for the
film tax credits.
v) Ensures any television series, relocating television
series, or any new television series based on a pilot
that was issued a credit a place at the top of the queue
for allocations for the life of that television series,
as provided.
vi) Requires the CFC to audit final submissions for tax
credits and compare the jobs ratio figures contained in
original tax credit applications to those actual
qualified expenditures, and provides for discrepancies to
be addressed.
vii) Requires that on or before July 1, 2019, the
Legislative Analyst's Office (LAO) shall provide to the
Assembly Revenue and Taxation Committee, the Senate
Governance and Finance Committee, and the public a report
evaluating the economic effects and administration of the
tax credits allowed, as provided.
Additionally, as pointed out by the author, "in efforts to
promote optimal returns to our investment and prevent runaway
production in various sectors of the industry, the tax credit
program provides an additional 5% credit for the following
expenditures:
Out-of-Zone filming- expenditures relating to
original photography and incurred outside the Los Angeles
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Zone.
Visual Effects (VFX) - To qualify, visual effects
work must represent at least 75% of the VFX budget or a
minimum of $10 million in qualified VFX expenditures
incurred in California.
Music Scoring and music track recording -
expenditures relating to music scoring and track
recoding. In comparison to qualified VFX expenditures
there are no similar minimum thresholds."
1)Long history of Legislative and Oversight Hearings of Arts,
Entertainment, Sports, Tourism & Internet Media (AEST&IM) and
Revenue & Taxation Committees supports film production tax
credit program. The issue of film production tax credits has
come before this committee many times, in many years, in many
versions. (Please see Comment 7 below). The Committee has also
studied this issue extensively, both alone and with the
Committee on Revenue and Taxation.
On March 21, 2011, a Joint Oversight Hearing of the Assembly
AEST&IM and the Assembly Revenue and Taxation Committees was
held on, "California's Film Credit Under the Spotlight: A
Review of the Film and Television Tax Credit Program." This
was followed by the Revenue and Taxation Committee Oversight
Hearing on "Assessing Tax Expenditure Programs in Light of
California's Fiscal Challenges" on February 22, 2012, where
the Film Tax Credit was again analyzed. On October 9, 2013,
yet another Joint Oversight Hearing of the Assembly AEST&IM
and the Assembly Revenue and Taxation Committees was held,
entitled "A Review of the California Film Tax Program." The
topics of discussion in the many hearings followed the same
general themes. Below is a capsule of some of the findings
which came from these many reviews of the Film Tax Credit
Program.
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a) Run-away Production. From the 2011 Joint Informational
Hearing: At the state level, "run-away productions" are
film or television productions that are developed for
initial exhibition or broadcast in California, but that are
actually filmed in another state or country in order to
achieve lower production costs.
A number of other states (forty two at last count) have
adopted or are adopting measures, including tax credits, to
attract film production. Various entities (state & local
governments, non-profits, labor unions and the film
industry, among others) indicate that tax credits and other
incentives to produce films outside California have
resulted in film production moving out of California and
into other states and countries.
According to the Los Angeles Economic Development
Commission (LAEDC):
"Most people think of film production running away to
Canada, though Europe was a quite popular destination for a
while (and Romania is currently). However, run-away
production to other states has become a more significant
challenge to California's film industry. This trend impacts
not only production activities in the Los Angeles area, but
film commissions around the state that have also been
facing this competition. LAEDC tracked the location of
major photography on feature film production from (2003 to
2005). Two things stood out from this informal survey.
One, when productions leave California, the major studios
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still tend to go offshore rather than to other states. In
many cases, these decisions are due to story
considerations, but the financial benefits are still
important components of the decision.
"The second trend is that independent producers are
increasingly going elsewhere in the U.S. Other states have
been busy offering new incentives or increasing the level
of existing incentives for filming in their jurisdictions.
More worrisome are the efforts to develop production
facilities to lure more of the production process. For
example, in New Mexico, there are plans to build a $60
million film, TV, and digital media production facility in
Albuquerque. New York is working on a studio complex.
"LAEDC conducted research for the CFC on the job and state
tax revenue implications of run-away production. On a
"mid-budget" film ($17 million), 304 direct and indirect
jobs were created and $1.2 million state sales and income
taxes were generated. For a "large budget" film ($70
million), 928 direct and indirect jobs were created, while
$10.6 million in state taxes were generated. These were
conservative estimates."
According to the CFC, "In 2003, 66% of studio feature films
were filmed in California. In 2009, only 38% of studio
films were filmed in state. San Francisco film and TV
production employment dropped 43% between 2001 and 2006.
"The Los Angeles region experienced a steady decline in
feature film production days in 11 out of the last 13
years. However, Film L.A., the permitting agency for Los
Angeles, reported that in 2010, feature film production
posted a 28.1% fourth quarter gain and a year-over-year
gain of 8.1%. "The annual increase can be wholly
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attributed to California's Film and Television Tax Credit.
The Program attracted dozens of new feature film projects
to Los Angeles, which were responsible for 26% of local
feature production for the year. Were it not for these
projects, 2010 would have been the worst year on record,"
reported Film L.A. in their Jan. 11, 2011 release. These
numbers are an excellent early indicator that the incentive
program is having an immediate impact on production levels
b) Testimony Presented to the Committees by the CFC
Included the Following Information on the Economic Impacts
of the (then) Current Film Tax Credit Program. At the time
of hearing, $600 million in tax credits had been allocated
(reserved) resulting in: Total aggregate direct spending
by Program projects: $4.7 billion Total wages paid / to be
paid by Program projects: $1.48 billion.
In addition to the economic figures above, the CFC
presented testimony at the 2011 Joint Informational
Hearing, which included the following testimony about the
motion picture industry's general contribution to the
state's economy, "The motion picture industry is an
essential source of economic activity, tax revenue, jobs
and tourism for California contributing $38 billion dollars
annually to our state's economy and supporting nearly
250,000 well-paying direct jobs - with health benefits.
"For instance: An average $70 million dollar feature film
generates $10.6 million in state sales and income taxes.
The average daily shooting costs on a feature film or TV
series range from $100,000 to $250,000 per day. (That's
actual dollars that each production spends on groceries,
hotel rooms, gas, building supplies, props and payroll). A
typical film shooting outside of Los Angeles County will
spend on average $50,000 per day in a local community. The
average salary for production employees is $75,000, well
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above the national average."
c) California Research Bureau (CRB) Data Demonstrates That
Loss of Feature Film Productions Drove Down Wages, Even
Though Production Days of Other Categories (Such as Reality
Television) Increased. As background material for the 2011
Joint Oversight Hearing, and in support of their testimony,
the CRB prepared a briefing packet that updated some basic
data on employment, wages, and production in California's
movie and video production industry; surveyed state Movie
Production Incentive (MPI) programs nation-wide; and
surveyed the scholarly and official state literatures on
the operation and effects of MPIs.
The CRB researchers offered their report with the caveat
that time and staffing constraints limited the
comprehensiveness of our response. The following is
excerpted from that document: "The industry as a whole
showed modest growth over the first half of the decade
through 2004, a flat trend through 2007, declined in
2008-9, followed by a sharp recovery in 2010. In California
outside of Los Angeles County, the industry peaked in 2002,
showed slow employment declines through 2007, and then
rebounded in 2008-9.
"However, employment growth in Los Angeles County was
coupled with relative and absolute declines in average
industry wages. Los Angeles County movie industry employees
earned, on average, 27 percent more per month in 2000 than
their non-L.A. counterparts ($4,279 - or $5,349 in 2009
dollars, vs. $3,370 - $4,213 in 2009 dollars). In 2009, the
average L.A. County industry employee earned 13 percent
less per month than his non-L.A. counterpart ($3,754 vs.
$4,232). Thus, in real terms, the L.A. average has dropped
30 percent, declining almost every year, whereas the
non-L.A. County average grew by a scant 0.45 percent for
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the decade.
"Further, according to this data, feature film production
has declined since the beginning of the 2000s both in
absolute terms as well as in relative terms. Television,
which accounted for 23 percent at the start of the decade,
now takes more than 40 percent of the total production
days."
d) Most recent analysis Progress Report, Film and Television
Tax Credit Program & Competition for California's
Entertainment Industry, July 2013, shows film tax credit
program is working.
The most recent 2013 CFC progress report shows that,
including the 2013 year's conditionally allocated tax
credits, approximately $600 million in tax credits has been
allocated (reserved) to eligible film and TV projects,
resulting in estimated total aggregate direct spending by
the program projects of $4.75 billion and estimated total
qualified wages paid (or to be paid) by the projects of
$1.48 billion. According to the CFC, each $100 million in
tax credit allocations allows an average of 45 projects to
participate, generating on average $792 million in direct
production spending, including $250 million in payroll for
below-the-line workers. Furthermore, for every $100 million
in tax credits, productions will hire an estimated 8,500
cast and crew members and utilize 10,000 vendors.
Collectively, they will also employ more than 67,000 daily
hires as extras. All in all, the report concludes that the
existing film tax credit program has succeeded in
attracting the target group: basic cable TV series,
mid-sized feature films and made-for-TV movies.
2)Recent Private Studies Support but Recommend Improvement of
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the Film Tax Credit Program. Private entities have also
studied the California Film Tax Credit Program, including a
UCLA report from the nonprofit think tank the Headway Project,
There's No Place Like Home Bringing Film & Television
Production Back to California, which verifies the positive
economic impact of California's Film & Television Tax Credit
Program, and makes suggested improvements. Key findings
include that there remains a very strong correlation between
tax credits and where film and TV producers go to shoot their
projects, and while tax credits are not the only factor in
deciding where a project should be shot, they appear to be the
most powerful. The authors of the study conclude that the
program "is creating jobs and is likely providing an immediate
economic benefit to the state."
FilmL.A. also released a recent study which found the impacts
of runaway production continue and will worsen without
expansion of the Film Tax Credit Program; see California Ranks
Fourth in Total Live Action Film Project, Job and Spending
Counts. "According to data provided to FilmL.A. by the
California Film Commission, from 2010-2013 a total of 77 film
projects applied for but were not awarded California state
film incentive and then went on to complete production. Most
of these projects fled the state; more than 66 percent (51
count) of these projects eventually filmed outside of
California in places were (sic) incentives were available?The
loss for the California economy exceeded $914 million." The
report concludes, "California's film and television tax credit
program is a good investment, but needs to be extended and
restructured to keep the entertainment industry from fleeing
the state."
The Milken Institute also recently released a study which was
entitled, "A Hollywood Exit -What California Must Do to Remain
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Competitive in Entertainment - and Keep Jobs." In the study,
researchers confirmed that production flight has continued,
despite the presence of the California Film Tax Credit
Program. They also confirmed that California cannot win, and
should not attempt to win, an all-out tax incentive race to
enact the highest incentive program. Rather, Milken
researchers suggest that California build on its strengths of
being the established global leader in film production and
preserve its core employment base and infrastructure. In order
to do this, they make the following recommendations which
track closely with those of the other studies author's:
a) Reduce the uncertainty involved in the filmed production
credit.
i) Increase funding: Raise the total amount of
available annual funds in the state's filmed production
credit to a level that allows for the elimination of the
annual lottery and for the awarding of credits on a
rolling basis throughout the year rather than at one
arbitrary point tied to the state's fiscal calendar. This
level should be high enough to eliminate the need for the
lottery but should also have a clear annual ceiling to
avoid creating unpredictability for the state's general
fund. The newly raised level of funding should also be
divided into specific allocations to maximize the impact
across the economy and allow for productions not eligible
for the current incentives to be covered.
ii) Remove sunset: California legislators should
eliminate the sunset date of film production incentives
in favor of a periodic review process, similar to that
used by New York, to allow the state to make adjustments
to the total pool of money (based on economic conditions
and competition) that will take effect after two years.
By establishing certainty in the incentives as well as a
review process that can make rational adjustments, the
state would encourage studios and film companies to make
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larger commitments to the local infrastructure and can
avoid the pitfalls of sudden policy reversals seen in
states such as Michigan.
b) Ensure a smooth evaluation process.
Establish an application fee for productions over $3
million that will be dedicated to providing new employees
at the CFC who will handle the evaluation process. The fee
can be weighted to the size of the application, with a
minimum application fee for smaller productions scaled up
somewhat for larger productions. This funding would be
dedicated to the hiring of evaluation staff at the CFC and
could be diverted to the state general fund.
c) Restructure the credit to align with television
schedules.
Dedicate a portion of the fund to hour-long dramatic
television, including miniseries, and ensure that network
television is explicitly included. Establish a rolling
allocation in order to align the fund availability with
television filming schedules, particularly in the period
when networks determine their fall schedules. Strongly
consider emphasizing new productions and eliminating the
provision for relocating ones, while continuing to offer
coverage to existing television shows as long as they are
renewed on a timely basis. In addition, a dedicated pool of
money separate from television funding should be
established for films, as well as movies of the week and
other non-recurring productions.
d) Capture blockbuster productions.
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Movies with budgets over $75 million should become eligible
for filmed production incentives. Total credits for larger
productions can be capped to ensure that no one film takes
a disproportionate share. Big-budget films could remain
eligible for the incentives provided they spend a
to-be-determined minimum in the state. This will encourage
productions to shift a significant portion of high-value
filming to California, and by including visual effects as
recommended below, the state can more readily meet a
threshold for a total percent of the budget spent in the
state.
e) Encourage production across the state.
Productions outside the union-designated 30 Mile Zone
around Los Angeles suffer a clear cost disadvantage. These
projects are exposed to higher costs for on-location
filming or higher union travel rates. To mitigate this
expense, productions that film outside of the zone should
be eligible for an additional 5% credit. This has been
implemented to clearly positive effect in New York to
encourage productions outside the immediate vicinity of New
York City. This will stimulate productions in formerly busy
locations such as San Francisco and encourage scouting of
diverse locales throughout the entire state.
f) Embrace digital effects and innovation.
i) Digital visual effects and animation expenditures
should be made explicitly eligible for filmed production
incentives at the 20% rate. This would offset a cost
disadvantage faced by local visual effects companies -
particularly those in the San Francisco Bay area that do
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not qualify for the current incentives - and encourage
additional expenditures in the state.
ii) Establish a digital infrastructure investment credit
that is part of the state's research and development tax
credit rather than the filmed production incentive. As
California works to encourage investment in the filmed
production infrastructure, it can also provide a research
and development credit to production.
3)Committee comments:
a) New expanded provisions of law have yet to be
implemented.
As mentioned in Comment 2 above, the California film
tax credit program was recently recast and
restructured to include more money for the program
overall and an express bump in the 20% credit allowed
for qualified expenditures of an additional 5% for
musical scoring and editing. The impact of this
expansion has yet to be implemented and therefore the
committee wonders whether the provisions adopted in AB
1839 should be given the opportunity to be implemented
and the effects considered in the forthcoming studies
on the efficacy of the film tax credit program.
It should be noted that the 20% of qualified
expenditures under AB 1839 includes post-production,
which is defined as including to mean the final
activities in a qualified motion picture's production,
including editing, foley recording, automatic dialogue
replacement, sound editing, scoring, music track
recording by musicians and music editing, beginning
and end credits, negative cutting, negative processing
and duplication, the addition of sound and visual
effects, sound mixing, film-to-tape transfers,
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encoding, and color correction (emphasis added).
b) Changes proposed by AB 1199 may not address
concerns of musicians.
As noted above, films may qualify for the California
Film Tax Credit Program and get a 20% credit against
expenses if 75% of the overall expenditures of a film
are incurred in California or if 75% of total shooting
days occur in state. Under existing law, all
qualifying music costs are eligible to receive the 5%
additional credit (over and above the 20%) regardless
of total music costs.
AB 1199 seeks to change this, to expressly provide
that in order to get the 5% additional credit for
music services, as defined in the bill, at least 75%
or a minimum of one hundred thousand dollars
($100,000) of the total expenditures for the music
preparation, music scoring, music track recording, and
music editing is paid or incurred in California.
Supporters claim that this change is needed, because
under the current formulation, a film may qualify for
20% tax credits in California by reaching the 75% of
qualifying expenses through filming and other post
production activities, yet score their film in New
York and collect that state's 35% tax credit for
musical scoring.
However, by drafting the language to make all music
credits subject to the 75% in-state rule, the bill may
inadvertently incentivize producers to move all music
work out of state, and it does not contain any
language to prohibit film makers from engaging in the
double dipping of music and scoring of tax credits
from multiple states that the bill seeks to prevent.
Under AB 1199, a film may still qualify for the 20%
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tax credit in California, and take their music scoring
and editing to another state, but now the same film
makers will not be able to claim the California
musicians for their overall tax credit, and thus will
not be incentivized to use any California musicians.
4)Double Referral : Should this bill pass out of this
committee, it will be re-referred to the Assembly
Committee on Revenue and Taxation.
5)Prior Legislation :
a) AB 2700 (Nazarian), of 2014, would have created a new
tax credit to be allocated by the California Film
Commission, beginning on and after July 1, 2015 through
July 1, 2020, in an amount equal to 25% for qualified post
production costs, as defined, for qualified motion
pictures. Held in Assembly Appropriation Committee.
b) AB 1839 (Gatto/Bocanegra), Chapter 413, Statutes of
2014, created a tax credit for qualified expenditures for
the production of qualified motion pictures in California
for taxable years beginning on or after January 1, 2016,
and authorizes the California Film Commission to administer
the program and allocate the tax credits, subject to a $230
million cap in the first year (2015-16) and $330 million
aggregate annual cap for each fiscal year from the 2016-17
FY through and including the 2019-20 FY.
c) AB 1780 (Donnelly), of 2013-14, would remove the sunset
and extend the Film Production Tax Credits, as defined in
the bill, indefinitely. AB 1780 was held in this committee.
d) AB 1435 (Gatto), of 2013-14, would have removed the
sunset provisions, thus extending the credit indefinitely,
revise the limit on the aggregate amount of credits that
may be allocated in a fiscal year, revise how the credit
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amount is determined for specified qualified motion
pictures, provide that credit amount for television series
shall be 20% of qualified expenditures, provide that the
credit amounts may be increased based on specified
criteria, for a television series and for specified
productions that perform postproduction in the state. AB
1435 was held in this committee.
e) AB 1189 (Nazarian), of 2013-14, would have extended for
five years the requirement that the CFC annually allocate
tax credits to qualifying motion pictures, as specified,
through the 2021-22 fiscal year and would also extend and
increase the limit on the aggregate amount of credits that
may be allocated through the 2021-22 fiscal year. AB 1189
was returned to the Chief Clerk pursuant to Joint Rule 56.
f) AB 286 (Nazarian), of 2013-14, would have expanded the
definition of qualified motion pictures under the film tax
program by removing the cap on the production budget for
feature films and would limit the amount of qualified
expenditures to $75 million. This bill additionally would
have revised the amount of credits allocated by the CFC per
fiscal year for a qualifying television series, as
specified, to provide that the minimum production budget
threshold is met by allowing aggregation of two fiscal
years expenditures. AB 286 was returned to the Chief Clerk
pursuant to Joint Rule 56.
g) AB 2026 (Fuentes), Chapter 841, Statutes of 2012,
extended the film production tax credit program for two
years, until 2017, under terms which are substantially
similar to the measure under current consideration.
h) SB 1197 (Ron Calderon), Chapter 840, Statutes of 2012,
extended the film production tax credit program for one
year, until 2015, under terms which are substantially
similar to the measure under current consideration.
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Chaptered out by AB 2026 (above).
i) AB 1069 (Fuentes), Chapter 731, Statutes of 2011,
extended the film production tax credit program for one
year, until 2015, under terms which are substantially
similar to the measure under current consideration.
j) SB 1197 (Calderon), of 2009-10, deleted the fiscal year
limitation on the existing film production tax credit. SB
1197 was held in Senate Revenue & Taxation Committee
without a hearing.
aa) SB 55 X8 (Calderon), of the Eighth Extraordinary Session
of 2009-10 deleted the fiscal year limitation in the
existing production tax credit. SB 55 X8 was held in Senate
Rules Committee without a hearing.
bb) AB15 X3 (Krekorian), Chapter 10, Statutes of the 2009-10
Third Extraordinary Session, established a five year $500M
tax credit for qualified expenditures on qualified
productions. Limited allocations to $100M/year.
cc) AB 855 (Krekorian), of 2009-10, established a film
production tax credit. AB 855 was held at the Assembly
Desk.
dd) AB 1696 (Bass), of 2007-08, established a financial
assistance program within the CFC to encourage filming
motion pictures and commercials in California and requires
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the Business, Transportation & Housing Agency to report the
economic impact of this program by December 2011. AB 1696
failed passage on the Senate Floor.
ee) SB 359 (Runner), of 2007-08, mega tax credit bill which
included motion picture production credit. Part of State
Budget negotiations. Created a credit for a percentage of
the wages paid of amounts paid to purchase or lease
tangible personal property in conjunction with the
production of a qualified motion picture. The credit is
certified and allocated by the CFC. The bill also allows
the credit to be claimed against the sales and use tax
liability of the company in lieu of the franchise or income
tax liability. Finally, the bill allows the credit to be
carried over until exhausted. SB 359 was held in the Senate
Revenue and Taxation Committee.
ff) AB 832 (Bass), of 2007-08, created unfunded grant
program administered by the CFC to encourage filming motion
pictures and commercials in California. AB 832 was held on
the Assembly Appropriations Committee Suspense File.
gg) SB 740 (Calderon), of 2007-08, created a film production
credit equal to 100% of the direct revenues attributable to
the production or 125% of the revenues of the productions
in a TV series that relocated to California or an
independent film as defined. SB 740 was held in Senate
Revenue & Taxation Committee without a hearing.
hh) AB 777 (Nunez), of 2005-06, authorized qualified motion
picture tax credit in an amount equal to 12% of the
qualified production for qualified wages paid with an
additional 3% for qualified motion pictures. Created
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refundable credit. AB 777 was held in Senate Revenue &
Taxation Committee without a hearing.
ii) SB 58 (Murray), of 2005-06, granted a refundable income
or corporation tax credit equal to 15% of the amount of
qualified wages paid and qualified property purchased in
the production of a qualified motion picture. SB 58 was
held in Senate Revenue & Taxation Committee.
jj) AB 261 (Koretz), of 2005-06, re-established funding for
the Film California First Program. AB 261 was a gut and
amend out in the Assembly Rules Committee and became a
transportation bill.
aaa) AB 1830 (Cohn), of 2003-04, authorized tax credits
between 2006 and 2012 in an amount equal to 15% of
qualified wages paid or incurred for services performed,
with respect to the production of each qualified motion
picture. AB 1830 was held in this Committee without a
hearing.
bbb) AB 1277 (Cohn), Chapter 662, Statutes of 2003,
transferred administrative authority over the CFC to the
Business, Transportation & Housing Agency. This bill also
created the Film California First Fund, administered by the
CFC, which provided for reimbursements to local governments
for their costs in issuing permits for local filming of
motion pictures. In the last two state budget cycles, no
General Fund monies have been appropriated to operate this
program.
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ccc) AB 2410 (Frommer), Chapter 1042, Statutes of 2002,
required the CFC to report annually the number of motion
picture starts that occurred within the State of
California. The bill also required EDD to research and
maintain data on film industry employment, to determine the
economic impact of the film industry, to monitor film
industry employment and activity and competing states and
countries, to examine the ethnic diversity and
representation of minorities in the entertainment industry,
to review the effect of federal, state and local laws on
the filmed entertainment industry and to report that
information to the legislature biannually, provided that
funds are appropriated by the legislature in the annual
Budget Act for these purposes.
ddd) AB 2747 (Wesson), of 2001-02, provided a tax incentive
to produce motion pictures within California. Would offer
tax credits to productions with a total cost of qualified
wages between $200,000 and $10 million for 15-25% of wages
paid to qualified individuals during the taxable year with
respect to qualified motion picture production depending on
the area. For each motion picture, the maximum amount of
wages per qualified individual that could be taken into
account when computing the credit was $25,000. AB 2747
failed passage in the Senate Appropriations Committee.
eee) SB 2061 (Schiff), Chapter 700, Statutes of 2000, created
the State Theatrical Arts Resources (STAR) partnership
which offers surplus State property to filmmakers, where
unused State properties, such as health facilities and
vacant office structures, are available at no charge or
"almost free" to filmmakers.
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fff) AB 358 (Wildman/Kuehl), of 1999-2000, provided a
refundable income and corporation tax credit for 10% of
eligible wages paid for motion pictures and TV programs
produced in California. AB 358 was held on the Senate
Appropriations Committee Suspense File.
ggg) AB 484 (Kuehl), Chapter 699, Statutes of 1999, created
the Film California First program, housed at the California
Film Commission to reimburse certain film costs incurred by
a qualified production company when filming on public
property, but which is currently unfunded.
REGISTERED SUPPORT / OPPOSITION:
Support
American Federation of Musicians, Local 47
American Society of Music Arrangers and Composers
Professional Musicians of California
The Recording Academy
The Society of Composers and Lyricists
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United Food and Commercial Workers Union, Local 770
Opposition
There is no opposition on file.
Analysis Prepared by:Dana Mitchell / A.,E.,S.,T., & I.M. / (916)
319-3450