Film Industry in California
Hollywood California has long been considered the movie capital of the world. Historically, the state has been a great location for filming due to its landscape and weather conditions and eventually numerous motion picture studios began appearing in the area. The movie industry has developed substantially since its early beginnings and so has its costs. Pairing these rising costs with the additional tax ramifications businesses face within California, film studios began filming elsewhere. Since 2004, the state has lost over 18,000 jobs within the film and television sector.
California’s Expanded Tax Credit Program
Today, other states have become more appealing locations to film for several reasons, including not just movie settings but also financial purposes. Although there are still plenty of movies being filmed in California, the film industry is not as prominent in the state as it used to be. Thus, in February 2009 California created the California Film & Television Tax Credit Program to increase film and television production, jobs and tax revenue.
This program, administered by the California Film Commission (CFC), provides a tax credit equal to 20-25% of a company’s income tax and/or sales and use tax for eligible film and television productions. Qualified productions must film at least 75% of principal photography days or 75% of the budget must be spent in the state. If the tax credit is used for income tax purposes they are nonrefundable and carried forward for 5 years and can be transferred to an affiliate. Motion pictures considered to be a qualified “independent film” (less than $10 million budget) are allowed to transfer or sell their tax credits to an unrelated party. In addition, $10 million in tax credits is reserved for independent films. The application process requires providing supporting documents to prove eligibility and filling out necessary information and production information (e.g. type of production, schedule to film, and number of principal photography days). After this the CFC will review the applications and, if selected, issue a certificate for the tax credit.
The original bill was allocated $100 million. However, California Governor Jerry Brown has recently signed Assembly Bill 1839, which has increased the amount available to $230 million for 2015-2016 and $330 million for each year between 2016 -2020. Ironically, the bill was signed within days of Tesla choosing Nevada, over several states including California, for its gigafactory. Another change in the new bill includes the selection of projects based upon the number of jobs created, whereas the original was a lottery system. The new bill appears to be more focused on creating and retaining jobs within the state. Other changes include an expansion of eligibility (to big-budget feature films, one-hour TV series, and TV pilots) and eliminating budget caps for films.
Other states reducing film tax credits?
Contrary to California, other states have recently reduced or eliminated their film tax credits. A few states, such as Massachusetts and Louisiana, have experienced minimal economic stimulation. For example, Massachusetts only received $0.13 back for every dollar invested into the program. The lack of benefits has resulted in local taxpayers making up the deficit. North Carolina recently cut back its tax credits after a state report found that a $30 million tax incentive program created only 55-70 jobs in 2011. Thus, these states question whether film tax credits provide any concrete benefits to their economy.
One of the issues at hand is that a production might only occur in a state because of the incentives they are offering. For example, Netflix Inc. series “House of Cards” threatened to leave Maryland if the state decided to reduce tax credits. As such, a state may only experience temporary job growth and revenue only while filming takes place and not necessarily for the long-term. This would help explain why other states are reducing or eliminating their tax credit programs as film and television productions are maybe taking advantage of the state at the expense of the residing taxpayers.
Whether the expansion of this bill is effective for California will be seen in the years to come.
Photo Credit: I. Saracino via Flickr
