BILL ANALYSIS �
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|SENATE RULES COMMITTEE | AB 2026|
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THIRD READING
Bill No: AB 2026
Author: Fuentes (D), et al.
Amended: 8/27/12 in Senate
Vote: 27 - Urgency
SENATE GOVERNANCE & FINANCE COMMITTEE : 6-0, 8/29/12
AYES: Wolk, Fuller, Hernandez, La Malfa, Liu, Yee
NO VOTE RECORDED: Dutton, DeSaulnier, Kehoe
SENATE APPROPRIATIONS COMMITTEE : 5-0, 8/29/12
AYES: Kehoe, Walters, Alquist, Price, Steinberg
NO VOTE RECORDED: Dutton, Lieu
ASSEMBLY FLOOR : 75-4, 8/16/12 - See last page for vote
SUBJECT : Income taxes: credits: film: extension
SOURCE : Author
DIGEST : This bill authorizes the California Film
Commission (CFC) to allocate $100 million film tax credits
annually for five fiscal years (FYs), starting July 1, 2015
until July 2017.
ANALYSIS : In 1985, the Legislature established the CFC
to coordinate state and local governments' efforts at
providing an environment conducive for the film industry.
21 members of the film industry, private sector, and state
and local governments are appointed by the Governor, Senate
Pro Tem, and Speaker of the Assembly to sit on the CFC
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board.
In 2009, Governor Schwarzenegger signed the California Film
and Television Tax Credit Program (Film Tax Credit Program)
as a part of the 2009 Budget plan to promote film
production and create and retain jobs in California (SB
15X3 (Calderon),Chapter 17, Statutes of 2009, and AB 15X3
(Krekorian), Chapter 10, Statutes of 2009). Qualified
motion pictures, defined as: (1) feature films with
budgets between $1 million and $75 million; (2) movies of
the week with a minimum budget of $500,000; and (3) new
television series with a minimum $1 million budget, may
apply for the credit. Also, 75% of the motion picture
shooting days must take place in California, or 75% of the
motion production budget must pay for services or the
purchase or rental or property within the state. Because
SB 15X3 authorized the CFC to allocate two years of credits
in the first year, each year's allocation is for the next
fiscal year's credits. For example, when CFC allocated
credits in July 1, 2012, it is for credits in FY 2013-14.
Last year, Governor Brown approved AB 1069 (Fuentes),
Chapter 731, Statutes of 2011, which extended the Film Tax
Credit Program for one year to 2014-15.
I. Extension . This bill authorizes the CFC to allocate
$100 million film tax credits annually for five FYs,
starting July 1, 2015 until July 2017.
II. Application . This bill requires an applicant to list
on its application:
All members of a combined reporting group, if
known at the time of application; and,
The names of all partners in a partnership not
publicly traded or the names of all members of a
limited liability company classified as a partnership
not publicly traded for California income tax
purposes that have a financial interest in the
applicant's qualified motion picture.
III. CFC . Before the CFC issues a credit certificate, it
must establish a procedure for a qualified taxpayer to
report to the CFC the following information:
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If readily available, a list of the states,
provinces, or other jurisdictions in which any member
of the applicant's combined reporting group in the
same business unit as the qualified taxpayer that, in
the preceding calendar year, has produced a qualified
motion picture intended for release in the United
States market.
Whether a qualified motion picture was awarded
any financial incentive by the state, province, or
other jurisdiction that was predicated on the
performance of primary principal photography or
postproduction in that location
A "qualified motion picture" does not include any
episodes of a television series that were complete or
in production prior to July 1, 2009.
This bill authorizes the CFC to allow qualified taxpayers
that receive multiple credit certificates in a calendar
year to file a single report on a calendar year basis.
This bill requires the CFC to obtain, when possible, the
following information from applicants that do not receive
an allocation of credit:
Whether the qualified motion picture that was the
subject of the application was completed.
If an application was completed, which state or
foreign jurisdiction was the primary principal
photography completed.
Whether the applicant received any financial
incentives from the state or foreign jurisdiction to
make the qualified motion picture in that location.
This bill requires CFC to provide the Legislative
Analyst's Office (LAO), upon its request, any or all
application materials or any other materials received
from, or submitted by the, applicants, in electronic
format when available.
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This bill requires CFC to annually provide the LAO a
list of qualified taxpayers and the tax credit amounts
allocated to each qualified taxpayer by the CFC. The
list shall include the names and taxpayer identification
numbers, including taxpayer identification numbers of
each partner or shareholder, as applicable, of the
qualified taxpayer.
This bill requires the California Film Office to
annually post on its Web site and make available for
public release:
A table, which includes all of the following
information:
o A list of qualified taxpayers and the tax
credit amounts allocated to each qualified
taxpayer by the CFC,
o The number of production days in California
the qualified taxpayer represented in its
application would occur,
o The number of California jobs that the
qualified taxpayer represented in its application
would be directly created by the production, and
o The total amount of qualified expenditures
expected to be spent by the production.
A narrative staff summary describing the
production of the qualified taxpayer as well as
background information regarding the qualified
taxpayer contained in the qualified taxpayer's
application for the credit.
This bill provides that information provided to the CFC
constitutes confidential tax information pursuant to the
franchise and income tax laws.
IV. Study . This bill provides that the LAO must provide to
the Assembly Revenue and Taxation Committee, the Senate
Governance and Finance Committee, and the public, on or
before January 1, 2016, a report evaluating the economic
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effects and administration of the tax credits.
This bill authorizes the LAO, in researching the
reports, to:
Request and receive all information provided to
the CFC pursuant to state law.
Request and receive all information provided to
the Franchise Tax Board relating to the sale or
assignment of credits.
Request and receive all information provided to
the board pursuant to state law.
This bill also requires CFC, the board, the Franchise
Tax Board, the Employment Development Department, and
all other relevant state agencies to provide additional
information, as specified by the LAO, as needed to
research the reports.
This bill provides that information received by the LAO
pursuant to this section must be considered confidential
taxpayer information and subject to the appropriate
confidentiality requirements of the participating state
agency.
This bill authorizes the LAO to publish statistics in
conjunction with the reports required, derived from
information provided to the LAO, if the published
statistics are classified to prevent the identification
of particular taxpayers, reports, and tax returns and
the publication of the percentage of dividends paid by a
corporation that is deductible by the recipient.
V. Urgency . This bill provides that an urgency statute is
necessary because the film tax credit program is set to
expire and to ensure that California remains
competitive, to provide security to taxpayers that may
apply to the program, and to retain many at-risk motion
pictures.
Comments
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According to the Senate Governance and Finance Committee
analysis, when 43 other U.S. states and overseas production
companies offer enticing tax subsidies for film and TV
productions, California loses big. Productions that leave
the state to pursue other state or international incentives
-- "runaway productions" -- translate to significant job
and economic losses. California has a historical
comparative advantage over other states, because of the
long-established film industry and the high-paying talent
pool that resides in state. Along with the state's natural
beauty, clement weather, and high-tech media studios, a tax
incentive retains and attracts production to California.
However, with the credit set to expire in 2016,
California's film industry will become uncompetitive, as
other locations invest in and develop their own
infrastructure and talent pools. Moreover, the state will
no longer draw ancillary economic benefits from tourism.
This bill's tax credit extension provides the necessary
economic stability to retain and attract film industry
productions back to California.
This bill proposes to extend the existing film tax credit
program for an additional two years until FY 2016-17. Last
year, AB 1069 (Fuentes) extended the credit's sunset to
2015. Because the program allocated $200 million in
credits in its first year, a sunset in 2015 means that
credits are allocated in June 2014. Yet, that's still
another two years before credits "run out."
Previous legislation . This bill is not the first film
industry related bill. This bill is identical to SB 1167
(Calderon) at the Assembly Desk and SB 1197 (Calderon)
which is awaiting hearing in the Assembly Revenue and
Taxation Committee.
AB 1069 (Fuentes), Chapter 731, Statutes of 2011, passed
last September extended the film tax credit to 2015.
SB 1197 and SB 55X8 (Calderon, 2009) would have deleted the
fiscal year limitation of the existing film production tax
credit. Both were held in the Senate Revenue and Taxation
Committee.
AB 15X3 (Krekorian, 2009) established a $500 million tax
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credit for specific expenditures on qualified productions.
The bill limited allocations to $100 million credit each
year. It was signed by Governor Schwarzenegger.
AB 1696 (Bass, 2007) would have established a financial
assistance program within the CFC to encourage filming
motion picture and commercials in California. The bill
failed passage on the Senate Floor.
SB 359 (Runner, 2007), as part of the State Budget
negotiations, would have 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 bill would
have allowed the credit to be claimed against the sales and
use tax liability of the company in lieu of the franchise
or income tax liability. The bill would have allowed
credits to be carried over until exhausted. The Senate
Revenue and Taxation Committee held the bill.
AB 832 (Bass, 2007) would have created an unfunded grant
program, as administered by the CFC, to encourage filming
in California. The bill was held in the Assembly
Appropriations Suspense File.
SB 740 (Calderon), of the 2007-08 Legislative Session,
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.
The bill was held in the Senate Revenue and Taxation
Committee without a hearing.
AB 777 (Nu�ez), of the 2005-06 Legislative Session,
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 refundable credit. The bill was held in
the Senate Revenue and Taxation Committee without a
hearing.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: Yes
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According to the Senate Appropriations Committee:
Estimated tax revenue loss of $5.1 million in
2014-15, $22 million in 2015-16, and an additional $161
million in future fiscal years as a result of extended
tax credit benefits (General Fund).
Extended staffing costs at the CFC of approximately
$300,000 annually through 2016-17 for continued
administration of the credit program (General Fund).
Estimated staff costs to the LAO of approximately
$75,000, likely absorbable, to report on the economic
effects and administration of the credit program.
SUPPORT : (Verified 8/30/12)
California Chamber of Commerce
California Labor Federation
California Stat Council of Laborers
California Taxpayers Association
California Teamsters Public Affairs Council
Central City Association
Chamber of Commerce, Los Angeles Area
Cities of Brawley, El Centro, and Los Angeles
County of Los Angeles
Directors Guild of America, Inc.
Film Liaisons in California Statewide
Fullerton Chamber of Commerce
Greater San Fernando Valley Chamber of Commerce
Hollywood Chamber of Commerce
Jess Talamantes, Mayor of Burbank
Long Beach Area Chamber of Commerce
Los Angeles Chamber of Commerce
Motion Picture Association of America, Inc.
Paramount Pictures
Professional Musicians Local 47
SAG-AFTRA
San Francisco Travel Association
Southwest California Legislative Council
Valley Industry and Commerce Association
OPPOSITION : (Verified 8/30/12)
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American Cancer Society (unless amended)
American Heart Association (unless amended)
California School Employees Association
ARGUMENTS IN SUPPORT : The author states:
California suffered both job and financial losses as
hundreds of productions have left the state to seek
incentives offered elsewhere. A phenomenon commonly
referred to "run-away production." In addition to the
international competition from Canada, Australia and
most EU nations, over 40 U.S. states offer meaningful
financial incentives to the film industry successfully
luring production and post-production jobs and spending
away from California.
In February 2009, the California Film & Television Tax
Credit Program was enacted as part of a targeted
economic stimulus package to increase production
spending, jobs and tax revenues in California. AB 2026,
in seeking a two-year extension to the existing law,
acknowledges that the Program has been successful in its
goal to retain and increase film and television
production occurring in California.
ARGUMENTS IN OPPOSITION : American Cancer Society (ACS)
states:
Movies deliver billions of images of smoking to young
audiences and because of the casual relationship between
depictions of smoking in the movies and the initiation
of smoking among young people, the Centers for Disease
Control and Prevention (CDC), as well as the World
Health Organization (WHO), now recommend that state
subsidies for movies be limited to tobacco-free movies.
California has been a leader in the tobacco control
movement. It is incongruent to have such a strong state
program while at the same time providing subsidies for
movie productions that depict the use of tobacco which
we know will increase the use of tobacco among our
youth. A recent study conducted by the University of
California San Francisco (UCSF) reported that from
mid-2009 through 2011, California approved $75 million
in subsidies for films including smoking (these films
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grossed $1.1 billion at the box office). At the same
time, the State's Tobacco Control and Prevention program
is being funded at $70 million for Fiscal Year 2012
(only sixteen percent of the CDC recommended amount).
Furthermore, a UCSF researchers then concluded, "If the
California film subsidy program continues and the
pattern of subsidies and smoking in films remains the
same as in the past, films containing tobacco and
subsidized by California taxpayers will contribute an
estimated 17,000 new 12-17 year old smokers among the
next cohort of 12-17 year old smokers in California, who
will incur an estimated $270 million in smoking-induced
costs.
ACS had requested the bill be amended to prohibit films
with tobacco imagery or reference to be eligible for a
tax credit in order to remove our opposition.
ASSEMBLY FLOOR : 75-4, 8/16/12
AYES: Achadjian, Alejo, Allen, Ammiano, Atkins, Beall,
Bill Berryhill, Block, Blumenfield, Bradford, Brownley,
Buchanan, Butler, Charles Calderon, Campos, Carter,
Cedillo, Conway, Cook, Davis, Dickinson, Donnelly, Eng,
Feuer, Fletcher, Fong, Fuentes, Furutani, Beth Gaines,
Galgiani, Garrick, Gatto, Gordon, Gorell, Grove, Hagman,
Halderman, Hall, Harkey, Hayashi, Roger Hern�ndez, Hill,
Huber, Hueso, Huffman, Jeffries, Jones, Knight, Logue,
Bonnie Lowenthal, Ma, Mansoor, Mendoza, Miller, Mitchell,
Monning, Morrell, Nestande, Nielsen, Olsen, Pan, Perea,
V. Manuel P�rez, Portantino, Silva, Skinner, Smyth,
Solorio, Swanson, Torres, Valadao, Wagner, Wieckowski,
Williams, John A. P�rez
NOES: Bonilla, Chesbro, Norby, Yamada
NO VOTE RECORDED: Lara
AGB/DLW:k 8/30/12 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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