Amended in Senate July 2, 2014

Amended in Senate June 17, 2014

Amended in Assembly May 23, 2014

Amended in Assembly March 19, 2014

California Legislature—2013–14 Regular Session

Assembly Bill No. 1839

Introduced by Assembly Members Gatto and Bocanegra

(Principal coauthors: Assembly Members Allen, Bloom, Bonta, Brown, Ian Calderon, Campos, Dababneh, Garcia, Gorell, Hall, Muratsuchi, V. Manuel Pérez, Rendon, and Wilk)

(Principal coauthors: Senators Lieu and Padilla)

(Coauthors: Assembly Members Achadjian, Alejo, Ammiano, Bigelow, Bradford, Chávez, Cooley, Dahle, Daly, Dickinson, Fox, Beth Gaines, Gonzalez, Gray, Hagman, Harkey, Roger Hernández, Holden, Jones, Jones-Sawyer, Levine, Linder, Logue, Lowenthal, Maienschein, Medina, Melendez, Mullin, Nestande, Pan, Patterson, Perea, Quirk, Quirk-Silva, Rodriguez, Ting, Waldron, Weber, Wieckowski, and Williams)

(Coauthors: Senators Berryhill, Correa, Gaines, Galgiani, Huff, Knight, Liu, Pavley, Torres, Walters, and Wyland)

February 18, 2014

An act to amend Section 23036 of, to add Sections begin insert 38.9, end insert 17053.95 begin insert , end insert and 23695 to, and to repeal and amend Section 6902.5 of, the Revenue and Taxation Code, relating to taxation, to take effect immediately, tax levy.

LEGISLATIVE COUNSEL’S DIGEST

AB 1839, as amended, Gatto. Income taxes: qualified motion pictures.

The Personal Income Tax Law and the Corporation Tax Law allow various credits against the taxes imposed by those laws, including a credit against those taxes for taxable years beginning on or after January 1, 2011, in an amount equal to an applicable percentage of either 20% or 25%, respectively, of the qualified expenditures, as defined, attributable to the production of a qualified motion picture in California, or, where the qualified motion picture is a television series that relocated to California or is an independent film, as provided. Existing law imposes specified duties on the California Film Commission related to the administration of the credits, including a requirement to allocate the tax credits until July 1, 2017, and limits the aggregate amount of credits that may be allocated to qualified motion pictures in any fiscal year to $100,000,000 through the 2016-17 fiscal year. Existing law, for taxable years beginning on or after January 1, 2011, in lieu of the credits authorized under the Personal Income Tax Law and the Corporation Tax Law for qualified motion pictures described above, also allows a credit against qualified state sales and use taxes, as provided.

Existing law, including the Corporation Tax Law, provides for a tentative minimum tax and further provides that, except for specified credits, no other credit shall reduce the tax imposed below the tentative minimum tax.

This bill would establish similar credits under the Personal Income Tax Law and the Corporation Tax Law for taxable years beginning on or after January 1, 2016, to be allocated by the California Film Commission on and after January 1, 2015, and before July 1, 2021. This bill would, as compared to the existing tax credits, extend the scope of the credits for a qualified motion picture to the applicable percentage of qualified expenditures up to $100,000,000, would extend the credit to qualified expenditures for television pilot episodes, qualified expenditures for qualified visual effects, and qualified expenditures relating to music scoring and music track recording by musicians, would provide limited credit allocation priority for specified television series, and would determine an applicable percentage of 25% or 20% for qualified expenditures for television series relocating to California based on the number of years the series has received the credit since relocation to California and where in California photography occurs. This bill would limit the aggregate amount of these new credits to be allocated in each fiscal year to an unspecified amount, and would also set aside specific credit allocation amounts for each fiscal year for independent films and for television series that relocate to California. This bill would, for taxable years beginning on or after January 1, 2016, in lieu of the credits authorized under the Personal Income Tax Law and the Corporation Tax Law for qualified motion pictures described above, allow a credit against qualified state sales and use taxes, as provided. begin insert This bill would also require the Legislative Analyst’s Office to prepare reports related to the effectiveness and administration of the qualified motion picture credit under the Sales and Use Tax Law, the Personal Income Tax Law, and the Corporation Tax Law. end insert

This bill would, for taxable years, beginning on or after January 1, 2016, additionally allow the credit under the Corporation Tax Law for qualified expenditures for the production of qualified motion pictures to reduce the tentative minimum tax.

The bill would state that its provisions are severable.

This bill would take effect immediately as a tax levy.

Vote: majority. Appropriation: no. Fiscal committee: yes. State-mandated local program: no.

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

begin insert

begin insert SECTION 1. end insert   

end insert

begin insert Section 38.9 is added to the end insert begin insert Revenue and Taxation
Code end insert begin insert , to read: end insert

begin insert

begin insert 38.9. end insert   

(a) On or before July 1, 2019, the Legislative Analyst’s
Office shall provide to the Assembly Committee on Revenue and
Taxation, the Senate Committee on Governance and Finance, and
the public a report evaluating the economic effects and
administration of the tax credits allowed pursuant to Sections
6902.5, as amended by the act adding this section, 17053.95, and
23695. In researching the reports, the Legislative Analyst’s Office
may do all of the following:

(1) Request and receive all information provided to the
California Film Commission pursuant to subdivision (g) of Sections
17053.95 and 23695.

(2) Request and receive all information provided to the
Franchise Tax Board relating to the sale or assignment of credits
pursuant to subdivision (c) of Sections 17053.95 and 23695.

(3) Request and receive all information provided to the board
pursuant to subdivisions (c) and (g) of Section 6902.5, as amended
by the act adding this section.

(b) The California Film Commission, the board, the Franchise
Tax Board, the Employment Development Department, and all
other relevant state agencies shall provide additional information,
as specified by the Legislative Analyst’s Office, as needed to
research the reports required by this section.

(c) (1) The information received by the Legislative Analyst’s
Office pursuant to this section shall be considered confidential
taxpayer information subject to Sections 7056, 7056.5, and 19542
of this code and Section 1094 of the Unemployment Insurance
Code, and shall be subject to the appropriate confidentiality
requirements of the participating state agency.

(2) The Legislative Analyst’s Office may publish statistics in
conjunction with the reports required by this section that are
derived from information provided to the Legislative Analyst’s
Office pursuant to this section, 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
under Part 11 (commencing with Section 23001) of Division 2.

end insert

begin delete SECTION 1. end delete
begin insert SEC. 2. end insert   

Section 6902.5 of the Revenue and Taxation Code, as
added by Section 1 of Chapter 10 of the Third Extraordinary
Session of the Statutes of 2009, is repealed.

begin delete SEC. 2. end delete
begin insert SEC. 3. end insert   

Section 6902.5 of the Revenue and Taxation Code, as
added by Section 1 of Chapter 17 of the Third Extraordinary
Session of the Statutes of 2009, is amended to read:

6902.5.  

(a) For the purposes of this section:

(1) “Qualified taxpayer” means a person who is a qualified
taxpayer within the meaning of paragraph (17) of subdivision (b)
of Section 17053.85, 17053.95, 23685, or 23695.

(2) “Affiliate” means a qualified taxpayer’s affiliated corporation
that has been assigned any portion of the credit amount by the
qualified taxpayer pursuant to subdivision (c) of Section 23685 or
subdivision (c) of Section 23695.

(3) “Credit amount” means an amount equal to the tax credit
amount that would otherwise be allowed to a qualified taxpayer
pursuant to Section 17053.85, 17053.95, 23685, or 23695 but for
the election made pursuant to this section.

(4) “Production period” means the production period as defined
in paragraph (12) of subdivision (b) of Section 17053.85, 17053.95,
23685, or 23695.

(5) (A) “Qualified sales and use taxes” means any state sales
and use taxes imposed by Part 1 (commencing with Section 6001),
on the operative date of the act adding this section.

(B) Notwithstanding subparagraph (A), “qualified sales and use
taxes” does not mean taxes imposed by Section 6051.2, 6051.5,
6201.2, 6201.5, Part 1.5 (commencing with Section 7200), Part
1.6 (commencing with Section 7251), or Section 35 of Article XIII
of the California Constitution.

(b) (1) A qualified taxpayer may, in lieu of claiming the credit
allowed by Section 17053.85, 17053.95, 23685, or 23695 make
an irrevocable election to apply the credit amount against qualified
sales and use taxes imposed on the qualified taxpayer in accordance
with this section.

(2) An affiliate may, in lieu of claiming the assigned portion of
the credit allowed by Section 23685 or 23695, make an irrevocable
election to apply the assigned portion of the credit amount against
qualified sales and use taxes imposed on the affiliate in accordance
with this section.

(c) (1) A qualified taxpayer or affiliate shall submit to the board
an irrevocable election, in a form as prescribed by the board, which
shall include, but not be limited to, the following information:

(A) Representation that the claimant is a qualified taxpayer or
an affiliate.

(B) Statement of the dates on which the production period began
and ended.

(C) The credit amount, and if an affiliate, the portion of the
credit amount assigned to it and documentation supporting the
assignment of that portion of the credit amount.

(D) The amount of qualified sales and use taxes the claimant
remitted to the board during the period commencing on the first
day of the calendar quarter commencing immediately before the
beginning of the production period, and ending on the date the
claimant was required to file its most recent sales and use tax return
with the board.

(E) A copy of the credit certificate issued pursuant to
subparagraph (C) of paragraph (2) of subdivision (g) of Section
17053.85 or 23685 or subparagraph (D) of paragraph (2) of
subdivision (g) of Section 17053.95 or 23695.

(2) The election shall be filed on or before the date on which
the qualified taxpayer or affiliate would first be allowed to claim
a credit pursuant to Section 17053.85, 17053.95, 23685, or 23695
on its tax return.

(d) (1) The claimant may elect to obtain a refund of qualified
sales and use taxes paid during the period described in
subparagraph (D) of paragraph (1) of subdivision (c). If the
claimant elects to obtain a refund of qualified sales and use taxes,
the claimant shall file a claim for refund with the irrevocable
election described in subdivision (c). The refund amount shall not
exceed, for a qualified taxpayer, the credit amount, or for an
affiliate, the portion of the credit amount assigned to it.

(2) No interest shall be paid on any amount refunded or credited
pursuant to paragraph (1).

(e) If the claimant does not elect to obtain a refund or in the
case where the credit amount, or assigned portion, exceeds the
amount of its claim for refund for the qualified sales and use taxes,
the claimant may, for the reporting periods in the five years
following the last reporting period as described in subparagraph
(D) of paragraph (1) of subdivision (c), offset any remaining credit
amount, or assigned portion, against the qualified sales and use
taxes imposed during those reporting periods.

(f) Section 6961 shall apply to any refund, or part thereof, that
is erroneously made and any credit, or part thereof, that is
erroneously allowed pursuant to this section.

(g) The board shall provide an annual listing to the Franchise
Tax Board, in a form and manner agreed upon by the board and
the Franchise Tax Board, of the qualified taxpayers, or affiliates
that have been assigned a portion of the credit allowed under
Section 23685 pursuant to subdivision (c) of Section 23685 or
Section 23695 pursuant to subdivision (c) of Section 23695, who,
during the year, have made an irrevocable election pursuant to this
section and the credit amount, or portion of the credit amount,
claimed by each qualified taxpayer or affiliate.

(h) The board may prescribe rules and regulations for the
administration of this section.

begin delete SEC. 3. end delete
begin insert SEC. 4. end insert   

Section 17053.95 is added to the Revenue and Taxation
Code, to read:

17053.95.  

(a) (1) 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 defined in Section 17039, in an
amount equal to the applicable percentage, as specified in
paragraph (4), of the qualified expenditures for the production of
a qualified motion picture in California. A credit shall not be
allowed under this section for any qualified expenditures for the
production of a motion picture in California if a credit has been
claimed for those same expenditures under Section 17053.85.

(2) The credit shall be allowed for the taxable year in which the
California Film Commission issues the credit certificate pursuant
to subdivision (g) for the qualified motion picture, but in no
instance prior to July 1, 2016, and shall be for the applicable
percentage of all qualified expenditures paid or incurred by the
qualified taxpayer in all taxable years for that qualified motion
picture.

(3) The amount of the credit allowed to a qualified taxpayer
shall be limited to the amount specified in the credit certificate
issued to the qualified taxpayer by the California Film Commission
pursuant to subdivision (g).

(4) For purposes of paragraphs (1) and (2), the applicable
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 pursuant to this section
or Section 17053.85.

(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.

(D) (i) The California Film Commission shall increase the
applicable percentage by 5 percent, not to exceed a maximum of
25 percent, if the qualified motion picture paid or incurred outside
the Los Angeles zone the qualified expenditures relating to original
photography outside the Los Angeles zone.

(ii) For purposes of this subparagraph:

(I) “Applicable period” means the period that commences with
preproduction and ends when original photography concludes. The
applicable period includes the time necessary to strike a remote
location and return to the Los Angeles zone.

(II) “Los Angeles zone” means the area within a circle 30 miles
in radius from Beverly Boulevard and La Cienega Boulevard, Los
Angeles, California, and includes Agua Dulce, Castaic, including
Lake Castaic, Leo Carillo State Beach, Ontario International
Airport, Piru, and Pomona, including the Los Angeles County
Fairgrounds. The Metro Goldwyn Mayer, Inc. Conejo Ranch
property is within the Los Angeles zone.

(III) “Original photography” includes principal photography
and reshooting original footage.

(IV) “Qualified expenditures relating to original photography
outside the Los Angeles zone” means amounts paid or incurred
during the applicable period for tangible personal property
purchased or leased and used or consumed outside the Los Angeles
zone and relating to original photography outside the Los Angeles
zone and qualified wages paid for services performed outside the
Los Angeles zone and relating to original photography outside the
Los Angeles zone.

(E) Twenty-five percent 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.

(F) Twenty-five percent of the qualified expenditures relating
to qualified visual effects.

(b) For purposes of this section:

(1) “Ancillary product” means any article for sale to the public
that contains a portion of, or any element of, the qualified motion
picture.

(2) “Budget” means an estimate of all expenses paid or incurred
during the production period of a qualified motion picture. It shall
be the same budget used by the qualified taxpayer and production
company for all qualified motion picture purposes.

(3) “Clip use” means a use of any portion of a motion picture,
other than the qualified motion picture, used in the qualified motion
picture.

(4) “Credit certificate” means the certificate issued by the
California Film Commission pursuant to subparagraph (C) of
paragraph (2) of subdivision (g).

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

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

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

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

(B) Any amount treated as wages under clause (i) of
subparagraph (A) of paragraph (20) shall not be taken into account
under this paragraph.

(6) “Independent film” means a motion picture with a minimum
budget of one million dollars ($1,000,000) that is produced by a
company that is not publicly traded and publicly traded companies
do not own, directly or indirectly, more than 25 percent of the
producing company.

(7) “Licensing” means any grant of rights to distribute the
qualified motion picture, in whole or in part.

(8) “New use” means any use of a motion picture in a medium
other than the medium for which it was initially created.

(9) “Pilot for a new television series” means the initial episode
produced for a proposed television series.

(10) (A) “Postproduction” means 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.

(B) “Postproduction” does not include the manufacture or
shipping of release prints or their equivalent.

(11) “Preproduction” means the process of preparation for actual
physical production which begins after a qualified motion picture
has received a firm agreement of financial commitment, or is
greenlit, with, for example, the establishment of a dedicated
production office, the hiring of key crew members, and includes,
but is not limited to, activities that include location scouting and
execution of contracts with vendors of equipment and stage space.

(12) “Principal photography” means the phase of production
during which the motion picture is actually shot, as distinguished
from preproduction and postproduction.

(13) “Production period” means the period beginning with
preproduction and ending upon completion of postproduction.

(14) “Qualified entity” means a personal service corporation as
defined in Section 269A(b)(1) of the Internal Revenue Code, a
payroll services corporation, or any entity receiving qualified wages
with respect to services performed by a qualified individual.

(15)  “Qualified expenditures” means amounts paid or incurred
for tangible personal property purchased or leased, and used, within
this state in the production of a qualified motion picture and
payments, including qualified wages, for services performed within
this state in the production of a qualified motion picture.

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

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

(i) Any individual related to the qualified taxpayer as described
in subparagraph (A), (B), or (C) of Section 51(i)(1) of the Internal
Revenue Code.

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

(17) (A) “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 with a minimum production budget of one million
dollars ($1,000,000).

(ii) A movie of the week or miniseries with a minimum
production budget of five hundred thousand dollars ($500,000).

(iii) A new television series of episodes longer than 40 minutes
each of running time, exclusive of commercials, that is produced
in California, with a minimum production budget of one million
dollars ($1,000,000) per episode.

(iv) An independent film.

(v) A television series that relocated to California.

(vi) A pilot for a new television series that is longer than 40
minutes of running time, exclusive of commercials, that is produced
in California, and with a minimum production budget of one
million dollars ($1,000,000).

(B) To qualify as a “qualified motion picture,” all of the
following conditions shall be satisfied:

(i) At least 75 percent of the principal photography days occur
wholly in California or 75 percent 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.

(ii) Production of the qualified motion picture is completed
within 30 months from the date on which the qualified taxpayer’s
application is approved by the California Film Commission. For
purposes of this section, a qualified motion picture is “completed”
when the process of postproduction has been finished.

(iii) The copyright for the motion picture is registered with the
United States Copyright Office pursuant to Title 17 of the United
States Code.

(iv) Principal photography of the qualified motion picture
commences after the date on which the application is approved by
the California Film Commission, but no later than 180 days after
the date of that approval unless death, disability, or disfigurement
of the director or of a principal cast member, an act of God,
including, but not limited to, fire, flood, earthquake, storm,
hurricane, or other natural disaster, terrorist activities, or
government sanction has directly prevented a production’s ability
to begin principal photography within the prescribed 180-day
commencement period.

(C) For the purposes of subparagraph (A), in computing the
total wages paid or incurred for the production of a qualified
motion picture, all amounts paid or incurred by all persons or
entities that share in the costs of the qualified motion picture shall
be aggregated.

(D) “Qualified motion picture” shall not include commercial
advertising, music videos, a motion picture produced for private
noncommercial 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.

(18) (A) “Qualified taxpayer” means a taxpayer who has paid
or incurred qualified expenditures and has been issued a credit
certificate by the California Film Commission pursuant to
subdivision (g).

(B) In the case of any pass-thru entity, the determination of
whether a taxpayer is a qualified taxpayer under this section shall
be made at the entity level and any credit under this section is not
allowed to the pass-thru entity, but shall be passed through to the
partners or shareholders in accordance with applicable provisions
of Part 10 (commencing with Section 17001) or Part 11
(commencing with Section 23001). For purposes of this paragraph,
“pass-thru entity” means any entity taxed as a partnership or “S”
corporation.

(19) “Qualified visual effects” means visual effects where at
least 75 percent or a minimum of ten million dollars ($10,000,000)
of the qualified expenditures for the visual effects is paid or
incurred in California.

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

(i) Any wages subject to withholding under Division 6
(commencing with Section 13000) of the Unemployment Insurance
Code that were paid or incurred by any taxpayer involved in the
production of a qualified motion picture with respect to a qualified
individual for services performed on the qualified motion picture
production within this state.

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

(iii) Any payments made to a qualified entity for services
performed in this state by qualified individuals within the meaning
of paragraph (16).

(iv) Remuneration paid to an independent contractor who is a
qualified individual for services performed within this state by that
qualified individual.

(B) “Qualified wages” shall not include any of the following:

(i) Expenses, including wages, related to new use, reuse, clip
use, licensing, secondary markets, or residual compensation, or
the creation of any ancillary product, including, but not limited to,
a soundtrack album, toy, game, trailer, or teaser.

(ii) Expenses, including wages, paid or incurred with respect to
acquisition, development, turnaround, or any rights thereto.

(iii) Expenses, including wages, related to financing, overhead,
marketing, promotion, or distribution of a qualified motion picture.

(iv) Expenses, including wages, paid per person per qualified
motion picture for writers, directors, music directors, music
composers, music supervisors, producers, and performers, other
than background actors with no scripted lines.

(21) “Residual compensation” means supplemental
compensation paid at the time that a motion picture is exhibited
through new use, reuse, clip use, or in secondary markets, as
distinguished from payments made during production.

(22) “Reuse” means any use of a qualified motion picture in the
same medium for which it was created, following the initial use
in that medium.

(23) “Secondary markets” means media in which a qualified
motion picture is exhibited following the initial media in which it
is exhibited.

(24) “Television series that relocated to California” means a
television series, without regard to episode length or initial media
exhibition, with a minimum production budget of one million
dollars ($1,000,000) per episode, that filmed no fewer than its most
recent two seasons outside of California and for which the taxpayer
certifies that the credit provided pursuant to this section is the
primary reason for relocating to California.

(25) “Visual effects” means the creation, alteration, or
enhancement of images that cannot be captured on a set or location
during live action photography and therefore is accomplished in
postproduction. It includes, but is not limited to, matte paintings,
animation, set extensions, computer-generated objects, characters
and environments, compositing (combining two or more elements
in a final image), and wire removals. “Visual effects” does not
include fully animated projects, whether created by traditional or
digital means.

(c) (1) Notwithstanding any other law, a qualified taxpayer
may sell any credit allowed under this section that is attributable
to an independent film, as defined in paragraph (6) of subdivision
(b), to an unrelated party.

(2) The qualified taxpayer shall report to the Franchise Tax
Board prior to the sale of the credit, in the form and manner
specified by the Franchise Tax Board, 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.

(3) In the case where the credit allowed under this section
exceeds the “net tax,” the excess credit may be carried over to
reduce the “net tax” in the following taxable year, and succeeding
five taxable years, if necessary, until the credit has been exhausted.

(4) 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.

(5) A party that has acquired tax credits under this section shall
be subject to the requirements of this section.

(6) In no event may a qualified taxpayer assign or sell any tax
credit to the extent the tax credit allowed by this section is claimed
on any tax return of the qualified taxpayer.

(7) In the event that both the taxpayer originally allocated a
credit under this section by the California Film Commission and
a taxpayer to whom the credit has been sold both claim the same
amount of credit on their tax returns, the Franchise Tax Board may
disallow the credit of either taxpayer, so long as the statute of
limitations upon assessment remains open.

(8) Chapter 3.5 (commencing with Section 11340) of Part 1 of
Division 3 of Title 2 of the Government Code does not apply to
any standard, criterion, procedure, determination, rule, notice, or
guideline established or issued by the Franchise Tax Board
pursuant to this subdivision.

(9) Subdivision (g) of Section 17039 shall not apply to any
credit sold pursuant to this subdivision.

(10) For purposes of this subdivision, the unrelated party or
parties that purchase a credit pursuant to this subdivision shall be
treated as a qualified taxpayer pursuant to paragraph (1) of
subdivision (a).

(d) No credit shall be allowed pursuant to this section unless
the qualified taxpayer provides the following to the California
Film Commission:

(1) Identification of each qualified individual.

(2) The specific start and end dates of production.

(3) The total wages paid.

(4) The amount of qualified wages paid to each qualified
individual.

(5) The copyright registration number, as reflected on the
certificate of registration issued under the authority of Section 410
of Title 17 of the United States Code, relating to registration of
claim and issuance of certificate. The registration number shall be
provided on the return claiming the credit.

(6) The total amounts paid or incurred to purchase or lease
tangible personal property used in the production of a qualified
motion picture.

(7) Information to substantiate its qualified expenditures.

(8) Information required by the California Film Commission
under regulations promulgated pursuant to subdivision (g)
necessary to verify the amount of credit claimed.

(e) (1) The California Film Commission may prescribe rules
and regulations to carry out the purposes of this section including
any rules and regulations necessary to establish procedures,
processes, requirements, application fee structure, and rules
identified in or required to implement this section, including credit
and logo requirements. The regulations shall include provisions
to set aside a percentage of annual credit allocations for
independent films and television series relocating to California,
pursuant to subdivision (i).

(2) Implementation of this section is deemed an emergency and
necessary for the immediate preservation of the public peace,
health, and safety, or general welfare and, therefore, the California
Film Commission is hereby authorized to adopt emergency
regulations necessary to implement this section during the 2014-15
fiscal year in accordance with the rulemaking provisions of the
Administrative Procedure Act (Chapter 3.5 (commencing with
Section 11340) of Part 1 of Division 3 of Title 2 of the Government
Code).

(f) If the qualified taxpayer fails to provide the copyright
registration number as required in paragraph (5) of subdivision
(d), the credit shall be disallowed and assessed and collected under
Section 19051 until the procedures are satisfied.

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

(1) On or after January 1, 2015, and before July 1, 2021, in one
or more allocation periods per fiscal year, allocate tax credits to
applicants.

(A) Establish a procedure for applicants to file with the
California Film Commission a written application, on a form jointly
prescribed by the California Film Commission and the Franchise
Tax Board for the allocation of the tax credit. The application shall
include, but not be limited to, the following information:

(i) The budget for the motion picture production.

(ii) The number of production days.

(iii) A financing plan for the production.

(iv) The diversity of the workforce employed by the applicant,
including, but not limited to, the ethnic and racial makeup of the
individuals employed by the applicant during the production of
the qualified motion picture, to the extent possible.

(v) All members of a combined reporting group, if known at
the time of the application.

(vi) Financial information, if available, including, but not limited
to, the most recently produced balance sheets, annual statements
of profits and losses, audited or unaudited financial statements,
summary budget projections or results, or the functional equivalent
of these documents of a partnership or owner of a single member
limited liability company that is disregarded pursuant to Section
23038. The information provided pursuant to this clause shall be
confidential and shall not be subject to public disclosure.

(vii) 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. The information provided pursuant to
this clause shall be confidential and shall not be subject to public
disclosure.

(viii) Detailed narratives, for use only by the Legislative
Analyst’s Office in conducting a study of the effectiveness of this
credit, that describe the extent to which the credit is expected to
influence or affect filming and other business location decisions,
hiring decisions, salary decisions, and any other financial matters
of the applicant.

(ix) Any other information deemed relevant by the California
Film Commission or the Franchise Tax Board.

(B) Establish criteria, consistent with the requirements of this
section, for allocating tax credits.

(C) Determine and designate applicants who meet the
requirements of this section.

(D) (i) Except as provided in clauses (ii) and (iii), process and
approve, or reject, all applications on a first-come-first-served
basis.

(ii) Any new television series, as described in clause (iii) of
subparagraph (A) of paragraph (17) of subdivision (b), and any
television series that relocated to California, as described in clause
(v) of subparagraph (A) of paragraph (17) of subdivision (b), that
has been approved and issued a credit allocation by the California
Film Commission either under this section or Section 17053.85
shall be placed at the top of the queue for an open allocation period
once in each subsequent year in the life of that television series
whenever credits are allocated within a fiscal year.

(iii) Any new television series based on a pilot for a new
television series described in paragraph (9) of subdivision (b),
where that pilot has been previously approved and issued a credit
allocation by the California Film Commission under this section
or Section 17053.85, shall be placed at the top of the queue for an
open allocation period once in the initial and in each subsequent
year in the life of that television series whenever credits are
allocated within a fiscal year.

(E) Subject to the annual cap established as provided in
subdivision (i), allocate an aggregate amount of credits under this
section and Section 23695, and allocate any carryover of
unallocated credits from prior years.

(2) Certify tax credits allocated to qualified taxpayers.

(A) Establish a verification procedure for the amount of qualified
expenditures paid or incurred by the applicant, including, but not
limited to, updates to the information in subparagraph (A) of
paragraph (1) of subdivision (g).

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

(C) (i) Establish a procedure for a qualified taxpayer to report
to the California Film Commission, prior to the issuance of a credit
certificate, the following information:

(I) 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.
For purposes of this clause, “qualified motion picture” shall not
include any episodes of a television series that were complete or
in production prior to July 1, 2016.

(II) Whether a qualified motion picture described in subclause
(I) 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.

(ii) The California Film Commission may provide that the report
required by this subparagraph be filed in a single report provided
on a calendar year basis for those qualified taxpayers that receive
multiple credit certificates in a calendar year.

(D) Issue a credit certificate to a qualified taxpayer upon
completion of the qualified motion picture reflecting the credit
amount allocated after qualified expenditures have been verified
under this section. The amount of credit shown in the credit
certificate shall not exceed the amount of credit allocated to that
qualified taxpayer pursuant to this section.

(3) Obtain, when possible, the following information from
applicants that do not receive an allocation of credit:

(A) Whether the qualified motion picture that was the subject
of the application was completed.

(B) If completed, in which state or foreign jurisdiction was the
primary principal photography completed.

(C) Whether the applicant received any financial incentives
from the state or foreign jurisdiction to make the qualified motion
picture in that location.

(4) Provide the Legislative Analyst’s Office, upon request, any
or all application materials or any other materials received from,
or submitted by, the applicants, in electronic format when available,
including, but not limited to, information provided pursuant to
clauses (i) to (ix), inclusive, of subparagraph (A) of paragraph (1).

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

(h) (1) The California Film Commission shall annually provide
the Legislative Analyst’s Office, the Franchise Tax Board, and the
board with a list of qualified taxpayers and the tax credit amounts
allocated to each qualified taxpayer by the California Film
Commission. The list shall include the names and taxpayer
identification numbers, including taxpayer identification numbers
of each partner or shareholder, as applicable, of the qualified
taxpayer.

(2) (A) Notwithstanding paragraph (5) of subdivision (g), the
California Film Commission 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 California Film Commission, 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.

(B) Nothing in this subdivision shall be construed to make the
information submitted by an applicant for a tax credit under this
section a public record.

begin insert

(3) The California Film Commission shall provide each city
and county in California with an instructional guide that includes,
but is not limited to, a review of best practices for facilitating
motion picture production in local jurisdictions, resources on
hosting and encouraging motion picture production, and the
California Film Commissions’ Model Film Ordinance. The
California Film Commission shall maintain on its Internet Web
site a list of initiatives by locality that encourage motion picture
production in regions across the state. The list shall be distributed
to each approved applicant for the program to highlight local
jurisdictions that offer incentives to facilitate film production.

end insert

(i) (1) The aggregate amount of credits that may be allocated
in any fiscal year pursuant to this section and Section 23695 shall
be an amount equal to the sum of all of the following:

(A) ____dollars ($____) in credits for the 2016-17 fiscal year
and each fiscal year thereafter, through and including the 2020-21
fiscal year.

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

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

(2) (A) Notwithstanding the foregoing, the California Film
Commission shall set aside the lesser of 10 percent of the amount
specified in subparagraph (A) of paragraph (1) or twenty million
dollars ($20,000,000) of tax credits each fiscal year for independent
films allocated in accordance with rules and regulations developed
pursuant to subdivision (e).

(B) Notwithstanding the foregoing, the California Film
Commission shall set aside up to thirty million dollars
($30,000,000) of tax credit each fiscal year for television series
that relocated to California in its first year of receiving a tax credit
allocation pursuant to this section allocated in accordance with
rules and regulations developed pursuant to subdivision (e).

(3) Any act that reduces the amount that may be allocated
pursuant to paragraph (1) constitutes a change in state taxes for
the purpose of increasing revenues within the meaning of Section
3 of Article XIII   A of the California Constitution and may be
passed by not less than two-thirds of all Members elected to each
of the two houses of the Legislature.

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

begin delete SEC. 4. end delete
begin insert SEC. 5. end insert   

Section 23036 of the Revenue and Taxation Code is
amended to read:

23036.  

(a) (1) The term “tax” includes any of the following:

(A) The tax imposed under Chapter 2 (commencing with Section
23101).

(B) The tax imposed under Chapter 3 (commencing with Section
23501).

(C) The tax on unrelated business taxable income, imposed
under Section 23731.

(D) The tax on “S” corporations imposed under Section 23802.

(2) The term “tax” does not include any amount imposed under
paragraph (1) of subdivision (e) of Section 24667 or paragraph (2)
of subdivision (f) of Section 24667.

(b) For purposes of Article 5 (commencing with Section 18661)
of Chapter 2, Article 3 (commencing with Section 19031) of
Chapter 4, Article 6 (commencing with Section 19101) of Chapter
4, and Chapter 7 (commencing with Section 19501) of Part 10.2,
and for purposes of Sections 18601, 19001, and 19005, the term
“tax” also includes all of the following:

(1) The tax on limited partnerships, imposed under Section
17935, the tax on limited liability companies, imposed under
Section 17941, and the tax on registered limited liability
partnerships and foreign limited liability partnerships imposed
under Section 17948.

(2) The alternative minimum tax imposed under Chapter 2.5
(commencing with Section 23400).

(3) The tax on built-in gains of “S” corporations, imposed under
Section 23809.

(4) The tax on excess passive investment income of “S”
corporations, imposed under Section 23811.

(c) Notwithstanding any other provision of this part, credits are
allowed against the “tax” in the following order:

(1) Credits that do not contain carryover provisions.

(2) Credits that, when the credit exceeds the “tax,” allow the
excess to be carried over to offset the “tax” in succeeding taxable
years, except for those credits that are allowed to reduce the “tax”
below the tentative minimum tax, as defined by Section 23455.
The order of credits within this paragraph shall be determined by
the Franchise Tax Board.

(3) The minimum tax credit allowed by Section 23453.

(4) Credits that are allowed to reduce the “tax” below the
tentative minimum tax, as defined by Section 23455.

(5) Credits for taxes withheld under Section 18662.

(d) Notwithstanding any other provision of this part, each of
the following applies:

(1) A credit may not reduce the “tax” below the tentative
minimum tax (as defined by paragraph (1) of subdivision (a) of
Section 23455), except the following credits:

(A) The credit allowed by former Section 23601 (relating to
solar energy).

(B) The credit allowed by former Section 23601.4 (relating to
solar energy).

(C) The credit allowed by former Section 23601.5 (relating to
solar energy).

(D) The credit allowed by Section 23609 (relating to research
expenditures).

(E) The credit allowed by former Section 23609.5 (relating to
clinical testing expenses).

(F) The credit allowed by Section 23610.5 (relating to
low-income housing).

(G) The credit allowed by former Section 23612 (relating to
sales and use tax credit).

(H) The credit allowed by Section 23612.2 (relating to enterprise
zone sales or use tax credit).

(I) The credit allowed by former Section 23612.6 (relating to
Los Angeles Revitalization Zone sales tax credit).

(J) The credit allowed by former Section 23622 (relating to
enterprise zone hiring credit).

(K) The credit allowed by Section 23622.7 (relating to enterprise
zone hiring credit).

(L) The credit allowed by former Section 23623 (relating to
program area hiring credit).

(M) The credit allowed by former Section 23623.5 (relating to
Los Angeles Revitalization Zone hiring credit).

(N) The credit allowed by former Section 23625 (relating to
Los Angeles Revitalization Zone hiring credit).

(O) The credit allowed by Section 23633 (relating to targeted
tax area sales or use tax credit).

(P) The credit allowed by Section 23634 (relating to targeted
tax area hiring credit).

(Q) The credit allowed by former Section 23649 (relating to
qualified property).

(R) For taxable years beginning on or after January 1, 2011, the
credit allowed by Section 23685 (relating to qualified motion
pictures).

(S) For taxable years beginning on or after January 1, 2016, the
credit allowed by Section 23695 (relating to qualified motion
pictures).

(2) A credit against the tax may not reduce the minimum
franchise tax imposed under Chapter 2 (commencing with Section
23101).

(e) Any credit which is partially or totally denied under
subdivision (d) is allowed to be carried over to reduce the “tax”
in the following year, and succeeding years if necessary, if the
provisions relating to that credit include a provision to allow a
carryover of the unused portion of that credit.

(f) Unless otherwise provided, any remaining carryover from a
credit that has been repealed or made inoperative is allowed to be
carried over under the provisions of that section as it read
immediately prior to being repealed or becoming inoperative.

(g) Unless otherwise provided, if two or more taxpayers share
in costs that would be eligible for a tax credit allowed under this
part, each taxpayer is eligible to receive the tax credit in proportion
to his or her respective share of the costs paid or incurred.

(h) Unless otherwise provided, in the case of an “S” corporation,
any credit allowed by this part is computed at the “S” corporation
level, and any limitation on the expenses qualifying for the credit
or limitation upon the amount of the credit applies to the “S”
corporation and to each shareholder.

(i) (1) With respect to any taxpayer that directly or indirectly
owns an interest in a business entity that is disregarded for tax
purposes pursuant to Section 23038 and any regulations thereunder,
the amount of any credit or credit carryforward allowable for any
taxable year attributable to the disregarded business entity is limited
in accordance with paragraphs (2) and (3).

(2) The amount of any credit otherwise allowed under this part,
including any credit carryover from prior years, that may be applied
to reduce the taxpayer’s “tax,” as defined in subdivision (a), for
the taxable year is limited to an amount equal to the excess of the
taxpayer’s regular tax (as defined in Section 23455), determined
by including income attributable to the disregarded business entity
that generated the credit or credit carryover, over the taxpayer’s
regular tax (as defined in Section 23455), determined by excluding
the income attributable to that disregarded business entity. A credit
is not allowed if the taxpayer’s regular tax (as defined in Section
23455), determined by including the income attributable to the
disregarded business entity is less than the taxpayer’s regular tax
(as defined in Section 23455), determined by excluding the income
attributable to the disregarded business entity.

(3) If the amount of a credit allowed pursuant to the section
establishing the credit exceeds the amount allowable under this
subdivision in any taxable year, the excess amount may be carried
over to subsequent taxable years pursuant to subdivisions (d), (e),
and (f).

(j) (1) Unless otherwise specifically provided, in the case of a
taxpayer that is a partner or shareholder of an eligible pass-thru
entity described in paragraph (2), any credit passed through to the
taxpayer in the taxpayer’s first taxable year beginning on or after
the date the credit is no longer operative may be claimed by the
taxpayer in that taxable year, notwithstanding the repeal of the
statute authorizing the credit prior to the close of that taxable year.

(2) For purposes of this subdivision, “eligible pass-thru entity”
means any partnership or “S” corporation that files its return on a
fiscal year basis pursuant to Section 18566, and that is entitled to
a credit pursuant to this part for the taxable year that begins during
the last year a credit is operative.

(3) This subdivision applies to credits that become inoperative
on or after the operative date of the act adding this subdivision.

begin delete SEC. 5. end delete
begin insert SEC. 6. end insert   

Section 23695 is added to the Revenue and Taxation
Code, to read:

23695.  

(a) (1) For taxable years beginning on or after January
1, 2016, there shall be allowed to a qualified taxpayer a credit
against the “tax,” as defined in Section 23036, in an amount equal
to the applicable percentage, as specified in paragraph (4), of the
qualified expenditures for the production of a qualified motion
picture in California. A credit shall not be allowed under this
section for any qualified expenditures for the production of a
motion picture in California if a credit has been claimed for those
same expenditures under Section 23685.

(2) The credit shall be allowed for the taxable year in which the
California Film Commission issues the credit certificate pursuant
to subdivision (g) for the qualified motion picture, but in no
instance prior to July 1, 2016, and shall be for the applicable
percentage of all qualified expenditures paid or incurred by the
qualified taxpayer in all taxable years for that qualified motion
picture.

(3) The amount of the credit allowed to a qualified taxpayer
shall be limited to the amount specified in the credit certificate
issued to the qualified taxpayer by the California Film Commission
pursuant to subdivision (g).

(4) For purposes of paragraphs (1) and (2), the applicable
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 pursuant to this section
or Section 23685.

(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.

(D) (i) The California Film Commission shall increase the
applicable percentage by 5 percent, not to exceed a maximum of
25 percent, if the qualified motion picture paid or incurred outside
the Los Angeles zone the qualified expenditures relating to original
photography outside the Los Angeles zone.

(ii) For purposes of this subparagraph:

(I) “Applicable period” means the period that commences with
preproduction and ends when original photography concludes. The
applicable period includes the time necessary to strike a remote
location and return to the Los Angeles zone.

(II) “Los Angeles zone” means the area within a circle 30 miles
in radius from Beverly Boulevard and La Cienega Boulevard, Los
Angeles, California, and includes Agua Dulce, Castaic, including
Lake Castaic, Leo Carillo State Beach, Ontario International
Airport, Piru, and Pomona, including the Los Angeles County
Fairgrounds. The Metro Goldwyn Mayer, Inc. Conejo Ranch
property is within the Los Angeles zone.

(III) “Original photography” includes principal photography
and reshooting original footage.

(IV) “Qualified expenditures relating to original photography
outside the Los Angeles zone” means amounts paid or incurred
during the applicable period for tangible personal property
purchased or leased and used or consumed outside the Los Angeles
zone and relating to original photography outside the Los Angeles
zone and qualified wages paid for services performed outside the
Los Angeles zone and relating to original photography outside the
Los Angeles zone.

(E) Twenty-five percent 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.

(F) Twenty-five percent of the qualified expenditures relating
to qualified visual effects.

(b) For purposes of this section:

(1) “Ancillary product” means any article for sale to the public
that contains a portion of, or any element of, the qualified motion
picture.

(2) “Budget” means an estimate of all expenses paid or incurred
during the production period of a qualified motion picture. It shall
be the same budget used by the qualified taxpayer and production
company for all qualified motion picture purposes.

(3) “Clip use” means a use of any portion of a motion picture,
other than the qualified motion picture, used in the qualified motion
picture.

(4) “Credit certificate” means the certificate issued by the
California Film Commission pursuant to subparagraph (C) of
paragraph (2) of subdivision (g).

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

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

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

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

(B) Any amount treated as wages under clause (i) of
subparagraph (A) of paragraph (20) shall not be taken into account
under this paragraph.

(6) “Independent film” means a motion picture with a minimum
budget of one million dollars ($1,000,000) that is produced by a
company that is not publicly traded and publicly traded companies
do not own, directly or indirectly, more than 25 percent of the
producing company.

(7) “Licensing” means any grant of rights to distribute the
qualified motion picture, in whole or in part.

(8) “New use” means any use of a motion picture in a medium
other than the medium for which it was initially created.

(9) “Pilot for a new television series” means the initial episode
produced for a proposed television series.

(10) (A) “Postproduction” means 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.

(B) “Postproduction” does not include the manufacture or
shipping of release prints or their equivalent.

(11) “Preproduction” means the process of preparation for actual
physical production which begins after a qualified motion picture
has received a firm agreement of financial commitment, or is
greenlit, with, for example, the establishment of a dedicated
production office, the hiring of key crew members, and includes,
but is not limited to, activities that include location scouting and
execution of contracts with vendors of equipment and stage space.

(12) “Principal photography” means the phase of production
during which the motion picture is actually shot, as distinguished
from preproduction and postproduction.

(13) “Production period” means the period beginning with
preproduction and ending upon completion of postproduction.

(14) “Qualified entity” means a personal service corporation as
defined in Section 269A(b)(1) of the Internal Revenue Code, a
payroll services corporation, or any entity receiving qualified wages
with respect to services performed by a qualified individual.

(15) “Qualified expenditures” means amounts paid or incurred
for tangible personal property purchased or leased, and used, within
this state in the production of a qualified motion picture and
payments, including qualified wages, for services performed within
this state in the production of a qualified motion picture.

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

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

(i) Any individual related to the qualified taxpayer as described
in subparagraph (A), (B), or (C) of Section 51(i)(1) of the Internal
Revenue Code.

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

(17) (A) “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 with a minimum production budget of one million
dollars ($1,000,000).

(ii) A movie of the week or miniseries with a minimum
production budget of five hundred thousand dollars ($500,000).

(iii) A new television series of episodes longer than 40 minutes
each of running time, exclusive of commercials, that is produced
in California, with a minimum production budget of one million
dollars ($1,000,000) per episode.

(iv) An independent film.

(v) A television series that relocated to California.

(vi) A pilot for a new television series that is longer than 40
minutes of running time, exclusive of commercials, that is produced
in California, and with a minimum production budget of one
million dollars ($1,000,000).

(B) To qualify as a “qualified motion picture,” all of the
following conditions shall be satisfied:

(i) At least 75 percent of the principal photography days occur
wholly in California or 75 percent 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.

(ii) Production of the qualified motion picture is completed
within 30 months from the date on which the qualified taxpayer’s
application is approved by the California Film Commission. For
purposes of this section, a qualified motion picture is “completed”
when the process of postproduction has been finished.

(iii) The copyright for the motion picture is registered with the
United States Copyright Office pursuant to Title 17 of the United
States Code.

(iv) Principal photography of the qualified motion picture
commences after the date on which the application is approved by
the California Film Commission, but no later than 180 days after
the date of that approval unless death, disability, or disfigurement
of the director or of a principal cast member, an act of God,
including, but not limited to, fire, flood, earthquake, storm,
hurricane, or other natural disaster, terrorist activities, or
government sanction has directly prevented a production’s ability
to begin principal photography within the prescribed 180-day
commencement period.

(C) For the purposes of subparagraph (A), in computing the
total wages paid or incurred for the production of a qualified
motion picture, all amounts paid or incurred by all persons or
entities that share in the costs of the qualified motion picture shall
be aggregated.

(D) “Qualified motion picture” shall not include commercial
advertising, music videos, a motion picture produced for private
noncommercial 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.

(18) (A) “Qualified taxpayer” means a taxpayer who has paid
or incurred qualified expenditures and has been issued a credit
certificate by the California Film Commission pursuant to
subdivision (g).

(B) (i) In the case of any pass-thru entity, the determination of
whether a taxpayer is a qualified taxpayer under this section shall
be made at the entity level and any credit under this section is not
allowed to the pass-thru entity, but shall be passed through to the
partners or shareholders in accordance with applicable provisions
of Part 10 (commencing with Section 17001) or Part 11
(commencing with Section 23001). For purposes of this paragraph,
“pass-thru entity” means any entity taxed as a partnership or “S”
corporation.

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

(19) “Qualified visual effects” means visual effects where at
least 75 percent or a minimum of ten million dollars ($10,000,000)
of the qualified expenditures for the visual effects is paid or
incurred in California.

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

(i) Any wages subject to withholding under Division 6
(commencing with Section 13000) of the Unemployment Insurance
Code that were paid or incurred by any taxpayer involved in the
production of a qualified motion picture with respect to a qualified
individual for services performed on the qualified motion picture
production within this state.

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

(iii) Any payments made to a qualified entity for services
performed in this state by qualified individuals within the meaning
of paragraph (16).

(iv) Remuneration paid to an independent contractor who is a
qualified individual for services performed within this state by that
qualified individual.

(B) “Qualified wages” shall not include any of the following:

(i) Expenses, including wages, related to new use, reuse, clip
use, licensing, secondary markets, or residual compensation, or
the creation of any ancillary product, including, but not limited to,
a soundtrack album, toy, game, trailer, or teaser.

(ii) Expenses, including wages, paid or incurred with respect to
acquisition, development, turnaround, or any rights thereto.

(iii) Expenses, including wages, related to financing, overhead,
marketing, promotion, or distribution of a qualified motion picture.

(iv) Expenses, including wages, paid per person per qualified
motion picture for writers, directors, music directors, music
composers, music supervisors, producers, and performers, other
than background actors with no scripted lines.

(21) “Residual compensation” means supplemental
compensation paid at the time that a motion picture is exhibited
through new use, reuse, clip use, or in secondary markets, as
distinguished from payments made during production.

(22) “Reuse” means any use of a qualified motion picture in the
same medium for which it was created, following the initial use
in that medium.

(23) “Secondary markets” means media in which a qualified
motion picture is exhibited following the initial media in which it
is exhibited.

(24) “Television series that relocated to California” means a
television series, without regard to episode length or initial media
exhibition, with a minimum production budget of one million
dollars ($1,000,000) per episode, that filmed no fewer than its most
recent two seasons outside of California and for which the taxpayer
certifies that the credit provided pursuant to this section is the
primary reason for relocating to California.

(25) “Visual effects” means the creation, alteration, or
enhancement of images that cannot be captured on a set or location
during live action photography and therefore is accomplished in
postproduction. It includes, but is not limited to, matte paintings,
animation, set extensions, computer-generated objects, characters
and environments, compositing (combining two or more elements
in a final image), and wire removals. “Visual effects” does not
include fully animated projects, whether created by traditional or
digital means.

(c) (1) Notwithstanding subdivision (i) of Section 23036, in
the case where the credit allowed by this section exceeds the
taxpayer’s tax liability computed under this part, a qualified
taxpayer may elect to assign any portion of the credit allowed
under this section to one or more affiliated corporations for each
taxable year in which the credit is allowed. For purposes of this
subdivision, “affiliated corporation” has the meaning provided in
subdivision (b) of Section 25110, as that section was amended by
Chapter 881 of the Statutes of 1993, as of the last day of the taxable
year in which the credit is allowed, except that “100 percent” is
substituted for “more than 50 percent” wherever it appears in the
section, and “voting common stock” is substituted for “voting
stock” wherever it appears in the section.

(2) The election provided in paragraph (1):

(A) May be based on any method selected by the qualified
taxpayer that originally receives the credit.

(B) Shall be irrevocable for the taxable year the credit is allowed,
once made.

(C) May be changed for any subsequent taxable year if the
election to make the assignment is expressly shown on each of the
returns of the qualified taxpayer and the qualified taxpayer’s
affiliated corporations that assign and receive the credits.

(D) Shall be reported to the Franchise Tax Board, in the form
and manner specified by the Franchise Tax Board, along with all
required information regarding the assignment of the credit,
including the corporation number, the federal employer
identification number, or other taxpayer identification number of
the assignee, and the amount of the credit assigned.

(3) (A) Notwithstanding any other law, a qualified taxpayer
may sell any credit allowed under this section that is attributable
to an independent film, as defined in paragraph (6) of subdivision
(b), to an unrelated party.

(B) The qualified taxpayer shall report to the Franchise Tax
Board prior to the sale of the credit, in the form and manner
specified by the Franchise Tax Board, 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.

(4) In the case where the credit allowed under this section
exceeds the “tax,” the excess credit may be carried over to reduce
the “tax” in the following taxable year, and succeeding five taxable
years, if necessary, until the credit has been exhausted.

(5) 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.

(6) A party that has been assigned or acquired tax credits under
this paragraph shall be subject to the requirements of this section.

(7) In no event may a qualified taxpayer assign or sell any tax
credit to the extent the tax credit allowed by this section is claimed
on any tax return of the qualified taxpayer.

(8) In the event that both the taxpayer originally allocated a
credit under this section by the California Film Commission and
a taxpayer to whom the credit has been sold both claim the same
amount of credit on their tax returns, the Franchise Tax Board may
disallow the credit of either taxpayer, so long as the statute of
limitations upon assessment remains open.

(9) Chapter 3.5 (commencing with Section 11340) of Part 1 of
Division 3 of Title 2 of the Government Code does not apply to
any standard, criterion, procedure, determination, rule, notice, or
guideline established or issued by the Franchise Tax Board
pursuant to this subdivision.

(10) Subdivision (i) of Section 23036 shall not apply to any
credit sold pursuant to this subdivision.

(11) For purposes of this subdivision:

(A) An affiliated corporation or corporations that are assigned
a credit pursuant to paragraph (1) shall be treated as a qualified
taxpayer pursuant to paragraph (1) of subdivision (a).

(B) The unrelated party or parties that purchase a credit pursuant
to paragraph (3) shall be treated as a qualified taxpayer pursuant
to paragraph (1) of subdivision (a).

(d) No credit shall be allowed pursuant to this section unless
the qualified taxpayer provides the following to the California
Film Commission:

(1) Identification of each qualified individual.

(2) The specific start and end dates of production.

(3) The total wages paid.

(4) The amount of qualified wages paid to each qualified
individual.

(5) The copyright registration number, as reflected on the
certificate of registration issued under the authority of Section 410
of Title 17 of the United States Code, relating to registration of
claim and issuance of certificate. The registration number shall be
provided on the return claiming the credit.

(6) The total amounts paid or incurred to purchase or lease
tangible personal property used in the production of a qualified
motion picture.

(7) Information to substantiate its qualified expenditures.

(8) Information required by the California Film Commission
under regulations promulgated pursuant to subdivision (g)
necessary to verify the amount of credit claimed.

(e) (1) The California Film Commission may prescribe rules
and regulations to carry out the purposes of this section including
any rules and regulations necessary to establish procedures,
processes, requirements, application fee structure, and rules
identified in or required to implement this section, including credit
and logo requirements. The regulations shall include provisions
to set aside a percentage of annual credit allocations for
independent films and television series relocating to California,
pursuant to subdivision (i).

(2) Implementation of this section is deemed an emergency and
necessary for the immediate preservation of the public peace,
health, and safety, or general welfare and, therefore, the California
Film Commission is hereby authorized to adopt emergency
regulations necessary to implement this section during the 2014-15
fiscal year in accordance with the rulemaking provisions of the
Administrative Procedures Act (Chapter 3.5 (commencing with
Section 11340) of Part 1 of Division 3 of Title 2 of the Government
Code).

(f) If the qualified taxpayer fails to provide the copyright
registration number as required in paragraph (5) of subdivision
(d), the credit shall be disallowed and assessed and collected under
Section 19051 until the procedures are satisfied.

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

(1) On or after January 1, 2015, and before July 1, 2021, in one
or more allocation periods per fiscal year, allocate tax credits to
applicants.

(A) Establish a procedure for applicants to file with the
California Film Commission a written application, on a form jointly
prescribed by the California Film Commission and the Franchise
Tax Board for the allocation of the tax credit. The application shall
include, but not be limited to, the following information:

(i) The budget for the motion picture production.

(ii) The number of production days.

(iii) A financing plan for the production.

(iv) The diversity of the workforce employed by the applicant,
including, but not limited to, the ethnic and racial makeup of the
individuals employed by the applicant during the production of
the qualified motion picture, to the extent possible.

(v) All members of a combined reporting group, if known at
the time of the application.

(vi) Financial information, if available, including, but not limited
to, the most recently produced balance sheets, annual statements
of profits and losses, audited or unaudited financial statements,
summary budget projections or results, or the functional equivalent
of these documents of a partnership or owner of a single member
limited liability company that is disregarded pursuant to Section
23038. The information provided pursuant to this clause shall be
confidential and shall not be subject to public disclosure.

(vii) 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. The information provided pursuant to
this clause shall be confidential and shall not be subject to public
disclosure.

(viii) Detailed narratives, for use only by the Legislative
Analyst’s Office in conducting a study of the effectiveness of this
credit, that describe the extent to which the credit is expected to
influence or affect filming and other business location decisions,
hiring decisions, salary decisions, and any other financial matters
of the applicant.

(ix) Any other information deemed relevant by the California
Film Commission or the Franchise Tax Board.

(B) Establish criteria, consistent with the requirements of this
section, for allocating tax credits.

(C) Determine and designate applicants who meet the
requirements of this section.

(D) (i) Except as provided in clauses (ii) and (iii), process and
approve, or reject, all applications on a first-come-first-served
basis.

(ii) Any new television series, as described in clause (iii) of
subparagraph (A) of paragraph (17) of subdivision (b), and any
television series that relocated to California, as described in clause
(v) of subparagraph (A) of paragraph (17) of subdivision (b), that
has been approved and issued a credit allocation by the California
Film Commission either under this section or Section 23685 shall
be placed at the top of the queue for an open allocation period once
in each subsequent year in the life of that television series whenever
credits are allocated within a fiscal year.

(iii) Any new television series based on a pilot for a new
television series described in paragraph (9) of subdivision (b),
where that pilot has been previously approved and issued a credit
allocation by the California Film Commission under this section
or Section 23685, shall be placed at the top of the queue for an
open allocation period once in the initial and in each subsequent
year in the life of that television series whenever credits are
allocated within a fiscal year.

(E) Subject to the annual cap established as provided in
subdivision (i), allocate an aggregate amount of credits under this
section and Section 17053.95, and allocate any carryover of
unallocated credits from prior years.

(2) Certify tax credits allocated to qualified taxpayers.

(A) Establish a verification procedure for the amount of qualified
expenditures paid or incurred by the applicant, including, but not
limited to, updates to the information in subparagraph (A) of
paragraph (1) of subdivision (g).

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

(C) (i) Establish a procedure for a qualified taxpayer to report
to the California Film Commission, prior to the issuance of a credit
certificate, the following information:

(I) 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.
For purposes of this clause, “qualified motion picture” shall not
include any episodes of a television series that were complete or
in production prior to July 1, 2016.

(II) Whether a qualified motion picture described in subclause
(I) 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.

(ii) The California Film Commission may provide that the report
required by this subparagraph be filed in a single report provided
on a calendar year basis for those qualified taxpayers that receive
multiple credit certificates in a calendar year.

(D) Issue a credit certificate to a qualified taxpayer upon
completion of the qualified motion picture reflecting the credit
amount allocated after qualified expenditures have been verified
under this section. The amount of credit shown in the credit
certificate shall not exceed the amount of credit allocated to that
qualified taxpayer pursuant to this section.

(3) Obtain, when possible, the following information from
applicants that do not receive an allocation of credit:

(A) Whether the qualified motion picture that was the subject
of the application was completed.

(B) If completed, in which state or foreign jurisdiction was the
primary principal photography completed.

(C) Whether the applicant received any financial incentives
from the state or foreign jurisdiction to make the qualified motion
picture in that location.

(4) Provide the Legislative Analyst’s Office, upon request, any
or all application materials or any other materials received from,
or submitted by, the applicants, in electronic format when available,
including, but not limited to, information provided pursuant to
clauses (i) to (ix), inclusive, of subparagraph (A) of paragraph (1).

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

(h) (1) The California Film Commission shall annually provide
the Legislative Analyst’s Office, the Franchise Tax Board, and the
board with a list of qualified taxpayers and the tax credit amounts
allocated to each qualified taxpayer by the California Film
Commission. The list shall include the names and taxpayer
identification numbers, including taxpayer identification numbers
of each partner or shareholder, as applicable, of the qualified
taxpayer.

(2) (A) Notwithstanding paragraph (5) of subdivision (g), the
California Film Commission 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 California Film Commission, 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.

(B) Nothing in this subdivision shall be construed to make the
information submitted by an applicant for a tax credit under this
section a public record.

begin insert

(3) The California Film Commission shall provide each city
and county in California with an instructional guide that includes,
but is not limited to, a review of best practices for facilitating
motion picture production in local jurisdictions, resources on
hosting and encouraging motion picture production, and the
California Film Commissions’ Model Film Ordinance. The
California Film Commission shall maintain on its Internet Web
site a list of initiatives by locality that encourage motion picture
production in regions across the state. The list shall be distributed
to each approved applicant for the program to highlight local
jurisdictions that offer incentives to facilitate film production.

end insert

(i) (1) The aggregate amount of credits that may be allocated
in any fiscal year pursuant to this section and Section 17053.95
shall be an amount equal to the sum of all of the following:

(A) ____dollars ($____) in credits for the 2016-17 fiscal year
and each fiscal year thereafter, through and including the 2020-21
fiscal year.

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

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

(2) (A) Notwithstanding the foregoing, the California Film
Commission shall set aside the lesser of 10 percent of the amount
specified in subparagraph (A) of paragraph (1) or twenty million
dollars ($20,000,000) of tax credits each fiscal year for independent
films allocated in accordance with rules and regulations developed
pursuant to subdivision (e).

(B) Notwithstanding the foregoing, the California Film
Commission shall set aside up to thirty million dollars
($30,000,000) of tax credit each fiscal year for television series
that relocated to California in its first year of receiving a tax credit
allocation pursuant to this section allocated in accordance with
rules and regulations developed pursuant to subdivision (e).

(3) Any act that reduces the amount that may be allocated
pursuant to paragraph (1) constitutes a change in state taxes for
the purpose of increasing revenues within the meaning of Section
3 of Article XIII   A of the California Constitution and may be
passed by not less than two-thirds of all Members elected to each
of the two houses of the Legislature.

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

begin delete SEC. 6. end delete
begin insert SEC. 7. end insert   

The provisions of this act are severable. If any
provision of this act or its application is held invalid, that invalidity
shall not affect other provisions or applications that can be given
effect without the invalid provision or application.

begin delete SEC. 7. end delete
begin insert SEC. 8. end insert   

This act provides for a tax levy within the meaning of
Article IV of the Constitution and shall go into immediate effect.