Saving Hollywood? California to restore access to tax break for independent films

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California lawmakers are poised to adopt a proposal Monday to exempt independent Hollywood productions from a new cap on how many tax credits they can claim each year, following months of pressure from the multibillion-dollar entertainment industry and fears about more productions fleeing the state.

The proposal, Assembly Bill 186, effectively maintains independent productions’ ability to access California’s film tax credits. Such productions often have smaller budgets than major studios and claim less tax credit.

Created in 2009 to help California's film industry compete with the tax incentives and lower costs in other states and countries, the film tax credit lets production companies offset a portion of their annual tax liability. Last year, as Hollywood reeled from the effects of the COVID-19 pandemic, union strikes and wildfires, Gov. Gavin Newsom successfully pushed state leaders to double the size of the program and allocate up to $750 million a year in film tax credits in an attempt to keep more film and TV jobs in California.

AB 186 also revises that program to benefit other motion picture companies by allowing them more time to use their film tax credits and giving them a bigger refund — and more quickly — if they choose to cash out on their unused credits.

Under the new program, companies can apply leftover credits to future tax years, or get a cash refund — often in the millions of dollars — for the unused portion.

Industry leaders celebrated last year’s expansion but it soon clashed with another Newsom priority: Capping corporate tax credits. In July, the governor signed into law a permanent cap, limiting the amount big companies can claim at up to $5 million or 70% of a company’s tax liability, whichever is higher, amid a gloomy budget outlook and pressure to make billionaires and corporations pay more.

Hollywood advocates were infuriated, arguing the cap threatened to hamstring the film tax credit program. Bryan Lourd, CEO of the Creative Artists Agency, urged lawmakers earlier this month to exempt the industry from the cap.

“Without this fix, we risk destabilizing a program that is critical to keeping film and television production in California and the thousands of jobs it supports,” he said in a letter.

While the final deal does not exempt the entire industry, it reflects a starting point, said Assemblymember Rick Zbur, a Democrat who represents Hollywood and co-authored last year’s film tax credit expansion.

The legislation will “provide greater stability and certainty for productions and workers, mitigate the impacts of the business tax credit limitation, and help us continue competing for jobs and investment,” he said in a statement.

Under AB 186, some studios would be able to claim the tax credits above the cap up to 15 years in the future, instead of the nine years allowed under current law. Those who claimed tax credits from the expanded program last year would also be able to claim up to 95% of the unused tax credits as refunds, up from the current 90%, and the state must pay off the refund within two years, instead of five.

If approved, the measure would cost the state up to $170 million in annual tax revenue, according to a legislative analysis of the proposal.

A slew of lobbyists representing motion picture studios, such as SkyDance and Walt Disney, as well as labor unions, such as the Screen Actors Guild-American Federation of Television and Radio Artists (SAG-AFTRA), supported the deal during a budget hearing Sunday.

Shane Gusman, lobbyist for SAG-AFTRA and the Teamsters Union in California, told CalMatters the deal represents a compromise.

“It’s fair to say that the unions and others were arguing for a full exemption,” he said Sunday. “But it’s one of those things we … got enough so that the program will continue to work.”

This article was originally published on CalMatters and was republished under the Creative Commons Attribution-NonCommercial-NoDerivatives license.