BILL ANALYSIS �
AB 1780
Page 1
Date of Hearing: May 6, 2014
ASSEMBLY COMMITTEE ON ARTS, ENTERTAINMENT, SPORTS, TOURISM, AND
INTERNET MEDIA
Ian C. Calderon, Chair
AB 1780 (Donnelly) - As Amended: April 1, 2014
SUBJECT : Income taxes: credit: motion pictures.
SUMMARY : Creates a new program which would require the
Franchise Tax Board (FTB) to annually allocate tax credits to
qualified motion pictures, as specified, starting on January 1,
2016 and continuing through the 2021-22 fiscal year, allowing a
credit equal to 20% of the qualified expenditures attributable
to the production in California of one or more qualified motion
pictures, as defined, with an aggregate qualified expenditure
amount of at least $500,000. This bill provides that the credit
amount may be increased by an additional 10% if each qualified
motion picture, for which qualified expenditures are aggregated
for the claim of credit, includes a California promotion, as
specified. This bill further provides that the credit amount
may be increased by up to an additional 5% if each qualified
motion picture, for which qualified expenditures are aggregated
for the claim of credit, incurred or paid the qualified
expenditures relating to original photography outside of a major
city zone, as defined. Specifically, this bill :
1)Provides a 20% tax credit for the qualified expenditures
attributable to the production of one or more qualified motion
pictures in California with an aggregate qualified expenditure
amount that equals or exceeds $500,000.
2)Declares that the credit shall not be allowed for any
qualified expenditures for the production of a motion picture
in California, if a credit has been claimed, as specified.
3)Allows a 10% additional credit if each qualified motion
picture includes a California promotion, as follows:
a) For a feature, television series, or video game, the
California promotion shall consist of a five-second long
logo that promotes California in the end credits before the
below-the-line crew crawl for the life of the project and a
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link to www.visitcalifornia.com presented by the California
Travel and Tourism Commission on the Internet Web site of
the feature, television series, or video game.
b) For a music video or commercial, the California
promotion shall consist of a link to
www.visitcalifornia.com, presented by the California Travel
and Tourism Commission, on the Internet Web site of the
music video or commercial.
4)The applicable percentage shall also increase by either of the
following:
a) Five percent if each qualified motion picture, for which
qualified expenditures are aggregated for the particular
claim for the credit, incurred or paid the qualified
expenditures relating to original photography outside of a
major city zone.
b) Two and one-half percent if at least one of the
qualified motion pictures, for which qualified expenditures
are aggregated for the particular claim for the credit,
incurred or paid the qualified expenditures relating to
original photography within a major city zone.
5)Contains the following definitions:
a) "Major city zone" means an area within 15 miles of a
city with a population over 300,000.
b) "Qualified motion picture" means a motion picture that
is produced for distribution to the general public,
regardless of medium, that is one of the following:
i) A feature,
ii) A television series,
iii) A music video,
iv) A commercial, or;
v) A video game.
6)Declares that a "Qualified motion picture" shall not include a
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motion picture produced for private non-commercial use, such
as weddings, graduations, or as part of an educational course
and made by students, a news program, current events or public
events program, talk show, game show, sporting event or
activity, awards show, telethon or other production that
solicits funds, reality television program, clip-based
programming if more than 50 percent of the content is
comprised of licensed footage, documentaries, variety
programs, daytime dramas, strip shows, one-half hour (air
time) episodic television shows, or any production that falls
within the recordkeeping requirements of Section 2257 of Title
18 of the United States Code.
7)Allows a qualified taxpayer to sell any credit allowed under
this section to an unrelated party, as specified.
8)Requires the qualified taxpayer to report to the FTB prior to
the sale of the credit, in the form and manner specified by
the FTB, all required information regarding the purchase and
sale of the credit, including the social security or other
taxpayer identification number of the unrelated party to whom
the credit has been sold, the face amount of the credit sold,
and the amount of consideration received by the qualified
taxpayer for the sale of the credit.
9)Provides that a credit shall not be sold pursuant to this
subdivision to more than one taxpayer, nor may the credit be
resold by the unrelated party to another taxpayer or other
party.
10) Clarifies that a party that has acquired tax credits under
this section shall be subject to the requirements of this
section.
11) Restricts transfer of credit to those credits claimed on a
timely filed original return of the qualified taxpayer.
12)Provides that the FTB may prescribe rules, guidelines, or
procedures necessary or appropriate to carry out the purposes
of this section.
13)Makes various technical changes to the law.
EXISTING LAW :
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1) Establishes a motion picture production tax credit, equal
to either:
a) 20% of the qualified expenditures attributable to the
production of a qualified motion picture, or;
b) 25% of the qualified expenditures attributable to the
production of a television series that relocated to
California, or an independent film.
1)Defines "independent film" as a film with a budget between
$1million and $10 million produced by a non-publicly traded
company which is not more than 25% owned by publicly traded
companies.
2)Requires the California Film Commission (CFC) to administer a
motion picture production tax credit allocation and
certification program, as follows:
a) Taxpayers will first apply to the CFC for a credit
allocation, based on a projected project budget.
b) Upon receiving an allocation, the project must be
completed within 30 months.
c) The taxpayer must then provide the CFC with verification
of completion and documentation of actual qualifying
expenditures.
d) Based on that information, the CFC will issue the
taxpayer a credit certificate up to the amount of the
original allocation.
3)Defines "Qualified motion pictures" as one produced for
general distribution to the public, and include feature films
with budgets between $1 million and $75 million; Movies of the
Week with a minimum budget of $500,000, and new television
series with a minimum production budget of $1 million.
4)Requires that in order to be eligible for the credit, 75% of
the production days must take place within California or 75%
of the production budget is incurred for payment for services
performed within the state and the purchase or rental of
property used within the state.
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5)Declares that the credit is not available for commercial
advertising, music videos, motion pictures for non-commercial
use, news and public events programs, talk shows, game shows,
reality programming, documentaries, and pornographic films
6)Requires that the CFC allocate $100 million of credit
authorizations each year during the period 2009-10 through
2015 on a first-come, first-served basis, with 25% of the
allocation reserved for independent films.
7)Declares that any unallocated amounts and any allocation
amounts in excess of certified credits may be carried over and
reallocated by the CFC.
8)Provides that qualifying taxpayers could claim the credit on
their tax return filed with the FTB under either the Personal
Income Tax or Corporation Tax.
9)Provides further that taxpayers may use certified credits in a
number of ways, they may;
a) Claim it directly;
b) Assign it to another member of their unitary group;
c) Sell the credits to other taxpayers, or;
d) Elect to apply the credit against their sales and use
tax liability.
10)Specifies that the CFC will allocate $100 million of credit
authorizations each year during the period starting July 2015
until July 2017 on a first come first served basis.
FISCAL EFFECT : Unknown
COMMENTS :
1)Author Statement of Need for Legislation : According to the
author, "The current film tax credit is set to expire and with
it, give us the opportunity to either extend it with the same
failed policies or renew it with new idea. AB 1780 brings a
positive transformation to credit. It allows independent and
small film companies a chance to qualify and also grants up to
a 35% tax credit which is significantly higher than the
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current incentive and the credit in other states that are
luring away our hallmark industry. AB 1780 is important to
the film industry, but far more important to our state.
Hollywood is the home to the entertainment industry, but over
the years more and more productions are leaving California and
being lured to other parts of the United States that offer a
better tax credit incentive program. With AB 1780, it is
about time that we bring Hollywood home."
2)Arguments in Opposition : The California School Employees
Association opposes AB 1780, stating, "While we appreciate the
important role of the film industry in California's economy,
we believe that it contains the same problem as many tax
credits: it would reward activity which is otherwise taking
place, using state dollars that have no positive impact. The
increases and decreases in trade activity are generally a
function of the economy and not tax credits."
The California Teachers Association (CTA) also opposes AB
1780, stating, "CTA opposes any reduction in revenue to the
State's General Fund which would reduce Proposition 98
funding. In the last several years, K-12 education alone has
taken over $20 billion in cuts. This does not include cuts
that have hit the California Community Colleges, CSU and the
UC systems. Likewise, we must not forget the cuts that have
also hit our social and health services, safety programs, and
many other essential services.
"CTA has been on record opposing tax credits for its own
members (Teacher Tax Credits). Tax credits for special
interest groups, corporations, and others have, over the last
decade, depleted our General Fund of billions of dollars.
California cannot afford to continue giving away tax credits
that deplete the General Fund, because this hurts funding for
our schools."
3)Existing Film Tax Credit Program : 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 [SBX3 15
(Calderon), Chapter 17, Statutes of 2009-10 Third
Extraordinary Session, and ABX3 15, (Krekorian), Chapter 10,
Statutes of 2009-10 Third Extraordinary Session].
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The 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:
a) Eligible for 20% Tax Credit -
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).
b) 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).
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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 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 file tax return with the Franchise Tax Board
under the personal income tax or the corporate tax law.
1)Major proposed changes to Film Tax Credit Program contained in
AB 1780 : The major changes to the existing law proposed under
this bill would:
a) Expand the scope of the California Film Production Tax
Credit Program beyond films and specified television
programs to include commercials, music videos and video
games.
b) Allow aggregation of numerous productions expenses to
reach a $500,000 threshold, whereas existing law has a
single film requirement of a minimum $1 million dollars.
c) Adds a new "California promotion feature", which would
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give an extra 10 percent credit against qualified expenses,
as follows:
i) For a feature, television series, or video game, the
California promotion shall consist of a five-second long
logo that promotes California in the end credits before
the below-the-line crew crawl for the life of the project
and a link to www.visitcalifornia.com presented by the
California Travel and Tourism Commission on the Internet
Web site of the feature, television series, or video
game.
ii) For a music video or commercial, the California
promotion shall consist of a link to
www.visitcalifornia.com, presented by the California
Travel and Tourism Commission, on the Internet Web site
of the music video or commercial.
d) Add a new credit feature for filming outside of a major
city zone as follows:
i) Five percent if each qualified motion picture, for
which qualified expenditures are aggregated for the
particular claim for the credit, incurred or paid the
qualified expenditures relating to original photography
outside of a major city zone.
ii) Two and one-half percent if at least one of the
qualified motion pictures, for which qualified
expenditures are aggregated for the particular claim for
the credit, incurred or paid the qualified expenditures
relating to original photography within a major city
zone.
The bill defines "Major city zone" to mean an area within
15 miles of a city with a population over 300,000.
e) Remove the sunset on the existing program and would
allow the program to continue indefinitely.
f) Remove the cap on expenditures, currently set at
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$100,000 annually to allow an unlimited number of tax
credits to issue.
g) Move the administration of the Film Production Tax
Program from the California Film Commission to the
Franchise Tax Board.
2)Legislative and Oversight Hearings of Arts, Entertainment,
Sports, Tourism & Internet Media (AEST&IM) and Revenue &
Taxation Committees : The issue of film production tax credits
has come before this committee many times, in many years, in
many versions. (Please see, Comment 9 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.
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
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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
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
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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
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 Current Film Tax Credit Program : To date, $600
million in tax credits have 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. (This paragraph was
updated to include current figures).
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
above the national average."
c) California Research Bureau (CRB) Data Demonstrates That
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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 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."
3)Legislative Analyst Office (LAO) study of the Film Tax Credit
Program due in 2016 : In addition to the bill and
Informational Hearing noted above and below, AB 2026 (Fuentes)
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Chapter 841, Statutes of 2011, provided that the LAO must
provide to the Assembly Committee on Revenue and Taxation, the
Senate Committee on Governance and Finance, and the public, on
or before January 1, 2016, a report evaluating the economic
effects and administration of the tax credits.
AB 2026 authorized the LAO, in researching the reports, to:
a) Request and receive all information provided to the CFC
pursuant to state law.
b) Request and receive all information provided to the FTB
relating to the sale or assignment of credits, and;
c) Request and receive all information provided to the
board pursuant to state law.
AB 2026 also required CFC, the board, the FTB, 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.
The bill authorized 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. (Note: This report was released
by the LAO after this analysis was completed.)
1)Recent Private Studies Support but Recommend Improvement of
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
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economic benefit to the state."
FilmLA 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 FilmLA by the CFC, 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
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
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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
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.
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d) Capture blockbuster productions:
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 percent rate. This would offset a
cost disadvantage faced by local visual effects companies
- particularly those in the San Francisco Bay area that
do 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
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production infrastructure, it can also provide a research
and development credit to production.
2)Committee Comments :
a) This Committee Has Adopted Comprehensive Legislation on
This Subject in AB 1839 (Gatto) : Earlier this session,
this committee heard and approved AB 1839 (Gatto), a
measure which would extend the sunset date for the existing
Film Production Tax Credit Program, a portion of which are
tax credits for post-production of qualified films which
are substantially identical to the instant bill, on March
25, 2014, (which was before AB 1780 was amended to contain
its current provisions on April 1, 2014).
b) This Legislation Would Take the Successful Film Tax
Credit Program From the Purview of the CFC and Place it
Instead With the FTB : Currently the Film Production Tax
Credit Program is housed within the CFC. That agency
describes itself on its website as, a "one-stop resource
for film and TV production across the Golden State.
Offering services which include: Film & TV Tax Credits;
Online Permits for Filming on State Property (beaches,
parks, roadways, universities and government buildings); An
Online Location Database via CinemaScout; Personalized
Location Assistance/Problem Solving; Access to California's
Statewide Network of More Than 60 Regional Film Offices
(for local support, location information and permits)."
Existing statutory law contains policy directives to the CFC
which have served to guide creation, adoption and
implementation of the Film Production Tax Credit Program
from its inception in 2009. By all accounts, the CFC is
doing a good job in administration of the existing program,
and has been lauded for its adept handling of the program.
AB 1780 would move the program away from the CFC, providing
instead that, "The FTB may prescribe rules, guidelines, or
procedures necessary or appropriate to carry out the
purposes of this section." The measure is silent on
implementation guidance such as is contained in existing
law, AB 1839 (Gatto) and AB 2700 (Nazarian), which each
contain lengthy sections of policy and procedural guidance.
AB 1780
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When the committee spoke with representatives of the FTB
about their mission, staffing and whether there are current
tax credit programs they administer, representatives stated
that the FTB does not currently administer programs such as
proposed in AB 1780. A check of their website finds that,
"Our mission is to provide the services and information to
help taxpayers file accurate and timely tax returns and pay
the proper amount owed." Toward that goal, according to
their representative, they conduct audits of credit usage
for statutory tax credits, including the Film Production
Tax Credit. The Agency analysis is currently pending and
issues being considered include whether the program
administration duties proposed in AB 1780 are within the
scope of FTB authority and how many new staff FTB would
need to hire in order to implement and enforce the new Film
Tax Credit Program were AB 1780 to become law.
c) This Legislation Has No Funding Limitation Language, and
Therefore Could Theoretically Extend an Indefinite Amount
of Tax Credits : Of the 42 states which offer film
production tax incentives, 12 have no annual cap on the
amount of credits which the program may fund. By contrast
the majority of states place some limitation upon the
amount of funding made available to their tax incentive
programs, including New York, Florida and New Mexico.
California has consistently had a cap on its Film
Production Tax Credit Program expenditure, which has been
maintained at $100 million annually. Currently California
ranks 5th nationwide in tax incentive generosity, behind
New York, Louisiana, Georgia and Florida.
e) Existing Law Contains Extensive Sunshine Reporting
Requirements For CFA Which Are Not Included in AB 1780 : In
order to provide the public with open access to the
operation of the film tax credit allocation and
administration process, current law requires the CFC to
make the following public reports:
The CFC shall annually provide the LAO, the FTB, and the
State Board of Equalization with 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.
AB 1780
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Notwithstanding Revenue and Taxation Code Section 23685,
paragraph (5) of subdivision (g), the CFC shall annually
post on its Internet Web site and make available for public
release the following:
i) A table which includes all of the following
information: a list of qualified taxpayers and the tax
credit amounts allocated to each qualified taxpayer by
the CFC, the number of production days in California the
qualified taxpayer represented in its application would
occur, the number of California jobs that the qualified
taxpayer represented in its application would be directly
created by the production, and the total amount of
qualified expenditures expected to be spent by the
production.
ii) 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.
AB 1780 is silent on the matter of providing the public and
legislature information regarding the operation and
allocation of film tax credits. This situation could lead
to concerns regarding the fairness of the tax credit
allocation program and make legislative oversight
difficult.
3) Double Referral : Should this bill pass out of this
committee, it will be re-referred to the Assembly Committee
on Revenue and Taxation.
4) Prior and Related Legislation :
a) AB 1839 (Gatto/Bocanegra), of the 2013-14 Legislative
Session, extends for five years the requirement that the
California Film Commission (CFC) annually allocates tax
credits to qualified motion pictures, as specified,
continuing through the 2021-22 fiscal year and would recast
these credits as Personal Income Tax Credits beginning on
and after January 2016. Removes the $75 million dollar cap
on the budget for a qualified motion picture and instead
places a cap on the amount of credits a qualified motion
picture is eligible to receive, as specified. Expands the
AB 1780
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portion of the program which covers television series
beyond the current cable-TV only eligibility, to include
all television series, as defined, regardless of broadcast
media. Provides a new incentive for productions located
outside of the Los Angeles zone, as specified. AB 1839 is
currently awaiting hearing in the Assembly Revenue and
Taxation Committee.
b) AB 2700 (Nazarian) of the 2013-14 Legislative Session,
would provide post-production tax credits similar to those
contained in existing law from July 1, 2015, until July
1,2020. AB 2700 is Currently pending before this committee.
(See AB 2700 analysis for more detail).
c) AB 1435 (Gatto), of the 2013-14 Legislative Session,
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 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 is currently in the possession of this
committee.
d) AB 286 (Nazarian), of the 2013-14 Legislative Session,
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.
e) AB 1189 (Nazarian), of the 2013-14 Legislative Session,
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
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fiscal year. AB 1189 was returned to the Chief Clerk
pursuant to Joint Rule 56.
f) 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.
g) 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.
Chaptered out by AB 2026 (above).
h) 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.
i) SB 1197 (Calderon), of the 2009-10 Legislative Session,
deleted the fiscal year limitation on the existing film
production tax credit. SB 1197 was held in Senate Revenue
& Taxation Committee without a hearing.
j) SBX8 55 (Calderon), of the 2009-10 Legislative Session,
deleted the fiscal year limitation in the existing
production tax credit. SB X8 55 was held in Senate Rules
Committee without a hearing.
aa) ABX3 15 (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.
bb) AB 855 (Krekorian), of the 2009-10 Legislative Session,
established a film production tax credit. AB 855 was held
at the Assembly Desk.
cc) AB 1696 (Bass), of the 2007-08 Legislative Session,
established a financial assistance program within the CFC
to encourage filming motion pictures and commercials in
California and requires the Business, Transportation &
Housing Agency to report the economic impact of this
program by December, 2011. AB 1696 failed passage on the
Senate Floor.
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dd) SB 359 (Runner), of the 2007-08 Legislative Session,
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.
ee) AB 832 (Bass), of the 2007-08 Legislative Session,
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.
ff) 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.
SB 740 was held in Senate Revenue & Taxation Committee
without a hearing.
gg) AB 777 (Nunez), 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. AB 777 was held in
Senate Revenue & Taxation Committee without a hearing.
hh) SB 58 (Murray), of the 2005-06 Legislative Session,
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.
ii) AB 261 (Koretz), of the 2005-06 Legislative Session,
re-established funding for the Film California First
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Program. AB 261 was a gut and amend out in the Assembly
Rules Committee and became a transportation bill.
jj) AB 1830 (Cohn), of the 2003-04 Legislative Session,
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.
aaa) 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.
bbb) 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.
ccc) AB 2747 (Wesson), of the 2001-02 Legislative Session,
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
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Senate Appropriations Committee.
ddd) 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.
eee) AB 358 (Wildman & Kuehl), of the 1999-2000 Legislative
Session, 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.
fff) 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
Bring Hollywood Home Foundation (Sponsor)
Opposition
California School Employees Association
California Teachers Association
Analysis Prepared by : Dana Mitchell / A.,E.,S.,T. & I.M. /
(916) 319-3450