Hollywood Warns California Against Sabotaging Film Incentives

The entertainment industry in California is raising concerns over Gov. Gavin Newsom’s proposed limit on corporate tax credits, warning that it could undermine the state’s production sector. A coalition of industry and labor groups penned a letter on June 8, stating that the new measure could result in job losses and damage the state’s film incentive program.

Last year, in response to a decline in film and TV production, Newsom increased the state incentive to $750 million. However, his current budget proposal includes restrictions on companies’ ability to claim tax credits, which the entertainment groups argue goes against the purpose of the expansion.

The coalition, which includes the Motion Picture Association and Hollywood unions, is advocating for a carve-out that would exempt film credits from the proposed limitation. Newsom’s plan aims to limit tax credits to 50% of a company’s liability or $5 million, whichever is greater, in order to stabilize the state budget and eliminate a structural deficit until July 2028.

The film credit is just one of several state tax incentives, with others including the research and development credit and the low-income housing credit. Newsom’s proposal would prevent companies from using these credits to offset their entire tax liability, a move that the industry groups argue could deter companies from filming in California.

Producers often base their location decisions on the availability and value of incentives, making it crucial for companies to monetize their film credits efficiently. The latest version of the budget sets a temporary $5 million limit on credit utilization for the next three years, followed by a permanent limit of 70% of a company’s tax liability starting in 2030.

The Department of Finance defended the 70% limit as a reasonable compromise to maintain the incentive effect of business tax credits while ensuring a minimum tax is paid. They also stated that the proposal will have a limited impact on the film tax credit program, allowing companies to offset sales tax and redeem refundable credits over five years at a discount.

However, industry groups continue to push for complete exemption of film credits from the new limitations, arguing that they were already approved by the Legislature through 2030. The Independent Film and Television Alliance expressed concerns that the proposal would affect both indie producers and major studios, as it could shrink the pool of buyers for transferable tax credits.

As the film credit became refundable in 2025, there are still companies holding non-refundable credits issued before then, which could expire due to previous limits on credit utilization. The coalition urges for these credits to be made refundable or transferable to prevent them from being lost.

Overall, the entertainment industry is calling for careful consideration of the impact of the proposed tax credit limitations on California’s production sector, stressing the importance of maintaining a competitive environment for filming in the state.