Governor Gavin Newsom‘s proposed 2023-24 state budget extends funding for California’s Film and TV Tax Credit Program an additional five years (through fiscal 2030-31) and proposes to make credits refundable for the first time since the state launched its incentive in 2009.
The new budget provisions are part of Governor Newsom’s ongoing effort to retain and grow production activity across the Golden State. They call for replacing the current third iteration of the state’s tax credit program (Program 3.0), which sunsets in 2025, with a new five-year program dubbed Program 4.0. While total funding is proposed to remain at $330 million per year, tax credits awarded under Program 4.0 will be eligible to be partially refundable to make the program applicable to a broader range of applicants.
“The proposed budget affirms Governor Newsom’s leadership in ensuring California’s Film and TV Tax Credit Program evolves and continues to deliver on our goal of retaining and growing in-state production,” said California Film Commission Executive Director Colleen Bell. “The five-year extension and provision to make tax credits refundable will give industry decision makers more options and the certainty they need to make long-term investments here in the Golden State. This will translate into more production-related jobs, spending and opportunity.”
Refundable tax credits will enable applicants to claim a tax refund at a discounted value over multiple years. Credits used to offset in-state tax liability will continue to retain their full value. Under California’s current program, credits for feature films and TV projects are non-refundable and non-transferable, while credits for independent film projects are currently transferable but non-refundable. With the proposed budget, all applicants (and therefore all projects) admitted into California’s tax credit program could be eligible for refundable tax credits.
California has earned its long-held status as the world’s film and TV production capital due to its superior crews, talent, infrastructure, weather, locations and a host of other factors that promote business and creative success. In recent years, aggressive incentives — mostly in the form of tax credits and rebates — have attempted to lure production away from the Golden State. The impact of such ‘runaway production’ prompted policymakers in California to respond with the state’s own robust tax credit program.
According to the California Film Commission’s latest progress report, the current iteration of the state’s tax credit program (Program 3.0) launched in July 2020 and is on track to generate more than $6.2 billion in total production spending statewide during just the first half of its five-year duration. This figure includes $4.2 billion in “qualified” spending, defined as wages to below-the-line crew members and payments to in-state vendors. Only the qualified portion of each project’s budget is eligible for tax credits under California’s uniquely targeted program. The $6.2 billion figure does not include the creation/retention of non-incentivized jobs for performers, producers, directors, writers, composers and music supervisors.
A recent study by the Los Angeles Economic Development Corporation (LAEDC) reported that each dollar allocated by California’s Film and TV Tax Credit Program generated $24.40 in economic output, plus $1.07 returned to taxpayers in state and local tax revenues.
In addition to bringing production jobs and spending to regions across the state, California’s Film and TV Tax Credit Program also promotes workforce training, diversity and inclusion. The Career Readiness requirement mandates that all tax credit projects participate in learning and training programs such as paid internships for students, externships for faculty members, workshops, panels and professional skills tours. The more recently launched Career Pathways Program specifically targets individuals from underserved communities. It is funded directly by tax credit projects and works with partner training programs across the state to reduce the economic, geographic and social barriers to career success. California’s tax credit program also requires participating projects to have a written policy for addressing unlawful harassment and submit voluntarily reported above and below-the-line cast and crew employment diversity data. Each production must also provide the state with a copy of its initiatives and programs to increase the representation of women and minorities.
A full summary of Governor Newsom’s proposed 2023-24 state budget is available here and a revised proposal with revenue estimates will be released this May. The state’s 2023-24 fiscal year begins July 1.
California’s film and television production incentive was launched in 2009. In 2014, the California legislature passed a bill that created the second iteration of the state’s tax credit program (Program 2.0) and more than tripled the amount of funding from $100 million to $330 million annually. Program 2.0 also extended eligibility to include a range of project types (big-budget feature films, TV pilots and 1-hr. TV series for any distribution outlet) that were excluded from the first-generation tax credit program. In addition, Program 2.0 introduced a “jobs ratio” ranking system to select projects based on “qualified” spending (e.g., wages paid to below-the-line workers and payments made to in-state vendors). To spur production statewide, a supplementary five percent tax credit was made available to non-independent projects that shoot outside the Los Angeles 30-Mile Studio Zone or that have qualified expenditures for visual effects or music scoring/track recording. The five-year Program 2.0 went into effect on July 1, 2015 and wrapped its fifth and final fiscal year (2019/20) on June 30, 2020.
The third (current) generation of the California Film and TV Tax Credit Program (dubbed “Program 3.0”) was launched on July 1, 2020. New provisions included a pilot skills training program to help individuals from underserved communities gain access to career opportunities. Program 3.0 also added provisions requiring projects to have a written policy for addressing unlawful harassment and enhanced reporting of above and below-the-line cast and crew employment diversity data.
More information about California’s Film and Television Tax Credit Program 3.0, including application procedures, eligibility, and guidelines, is available at http://www.film.ca.gov/tax-credit/.