The entertainment industry is warning Gov. Gavin Newsom that the state risks undermining California production if it imposes a new limit on corporate tax credits.
In a June 8 letter, a coalition of industry and labor groups argued that the governor’s budget proposal will cost production jobs and sabotage the state’s film incentive.
More from Variety
“The result will not be theoretical — it will be immediate and concrete,” the letter states. “This impact will be felt across the entire production ecosystem,” adding that the measure poses “a direct and immediate threat to tens of thousands of middle-class jobs.”
Responding to a dramatic downturn in film and TV production, Newsom more than doubled the state incentive to $750 million last year. But the governor’s budget for the upcoming fiscal year would limit companies’ ability to claim tax credits, which the entertainment groups argue defeats the purpose of the expansion.
The coalition, including the Motion Picture Association and the Hollywood unions, is pushing for a carve-out that would exempt film credits from the new limitation.
In May, Newsom vowed to make companies “pay their fair share” by permanently limiting tax credits to 50% of a company’s liability or $5 million, whichever is greater. The proposal was designed to help stabilize the state budget and eliminate a structural deficit through July 2028, while also protecting smaller businesses with lower tax liability.
The film credit is one of several state tax incentives. Among the others is the research and development credit, which costs the state roughly $1.5 billion to $2 billion a year, and the low-income housing credit, which costs about $388 million.
Newsom’s proposal would prevent companies from using those credits to wipe away all or most of their tax liability. But the entertainment industry groups argue that making it more difficult for companies to monetize their film credits will make them more reluctant to film in California.
“Producers make location decisions based on whether and when they can reliably realize the full value of available incentives,” the letter advises.
The latest version of the budget, now working its way through the Legislature, would set a flat $5 million limit on credit utilization for the next three years. Starting in 2030, it would set a permanent credit limit of no more than 70% of a company’s tax liability.
In a statement, the state’s Department of Finance called the 70% limit “an appropriate middle ground that preserves the incentive effect of the state’s business tax credits while ensuring a reasonable minimum tax is paid.”
The department also said that the proposal will also have “a limited impact on the film tax credit program,” noting that companies can still use credits to offset sales tax and can still redeem any refundable credits over five years at a 10% discount.
But the industry groups are still arguing that film credits should be entirely exempt from the new limitations, as they have already been accounted for and approved by the Legislature through 2030.
The Independent Film and Television Alliance, which joined in the June 8 letter, argued that the proposal will affect indie producers as well as major studios.
“Independent productions rely on the ability to monetize transferable tax credits as a critical component of their financing,” said Jackie Brenneman, the group’s president and CEO, in a statement. “By limiting how much of a credit any single buyer can apply in a year, the cap shrinks the pool of buyers able to absorb a full certificate and drives down what they will pay for it.”
Newsom and the Legislature made the film credit refundable in 2025. But some companies are still holding non-refundable film credits that were issued before then, and could not be claimed against tax liability due to previous state limits on credit utilization. The letter warns that those credits are now at risk of expiring, and argues that they should be made refundable or transferable.
Best of Variety
Sign up for Variety’s Newsletter. For the latest news, follow us on Facebook, Twitter, and Instagram.
Credit: Source link