SR-06-24-2014-13B 100-002To: Mayor and City Council
From: Councilmember McKeown
Date: June 24, 2014
13 -A: Request of Councilmember McKeown that the Council support AB1839
(Gatto), which will establish competitive state tax credit incentives to retain
film and television jobs in California, in keeping with the principles of Santa
Monica's adopted Creative Capital policy; and authorize City staff to convey
our support to our City lobbyist, state legislators, and the Governor.
AMENDED IN ASSEMBLY MAY 23, 2014
AMENDED IN ASSEMBLY MARCH 19, 2014
CALIFORNIA LEGISLATURE - 2013 -14 REGULAR SESSION
ASSEMBLY BILL No. 1839
Introduced by Assembly Members Gatto and Bocanegra
(Principal coauthors: Assembly Members Allen, Bloom, Banta,
Brown, Ian Calderon, Campos, Dababneh, Garcia, Gorell, Hall,
Muratsuchi, V. Manuel Perez, Rendon, and Wilk)
(Principal coauthors: Senators Lieu and Padilla)
(Coauthors: Assembly Members Achadjian, Alejo, Ammiano,
Bigelow, Bradford, Chavez, Cooley, Dahle, Daly, Dickinson, Fox,
Beth Gaines, Gonzalez, Gray, Hagman, Harkey,
Roger Hernandez, Holden, Jones, Jones - Sawyer, Levine, Linder,
Logue, Lowenthal, Maienschein, Medina, Melendez, Mullin,
Nestande, Pan, Patterson, Perea, Quirk, Quirk - Silva, Rodriguez,
Ting, Waldron, Weber, Wieckowski, and Williams)
(Coauthors: Senators Berryhill, Correa, Gaines, Galgiani, Huff, Knight,
Liu, Pavley, Torres, and Walters Walters, and Wyland)
February 18, 2014
An act to amend Sections 17053.85, 23036, and 23685 of to add
Sections 17053.95 and 23695 to, and to repeal and amend Section
6902.5 of the Revenue and Taxation Code, relating to taxation, to take
effect immediately, tax levy.
LEGISLATIVE COUNSEL'S DIGEST
AB 1839, as amended, Gatto. Income taxes: qualified motion pictures.
The Personal Income Tax Law and the Corporation Tax Law allow
various credits against the taxes imposed by those laws, including a
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AB 1839 —2—
credit against those taxes for taxable years beginning on or after January
1, 2011, in an amount equal to an applicable percentage of either 20%
or 25 %, respectively, of the qualified expenditures, as defined,
attributable to the production of a qualified motion picture in California,
or, where the qualified motion picture is a television series that relocated
to California or is an independent film, as provided. Existing law
imposes specified duties on the California Film Commission related to
the administration of the credits, including a requirement to allocate
the tax credits until July 1, 2017, and limits the aggregate amount of
credits that may be allocated to qualified motion pictures in any fiscal
year to $100,000,000 through the 2016 -17 fiscal year. Existing lave,
for taxable years beginning on or after.loniuny 1, 2011, in lieu of the
credits authorized under the Personal Income Tax Law and the
Corporation Tax Law for qualified motion pictures described above,
also allows a credit against qualified state sales and use taxes, as
provided.
Existing lave; including the Corporation Tax Lou, provides for a
tentative rnininunn tax and farther provides that, except for specified
credits, no other credit shall reduce the tax imposed below the tentative
minimum tax.
This bill would, with regard to existing credits relating to quaked
motion pictures, require the tax credits to be allocated at least twice
per fiscal year and would establish similar credits under the Personal
Income Tax Law and the Corporation Tax Law for taxable years
beginning on or after January 1, 2016, to be allocated by the California
Film Commission on and after4uiy- 12016January 1, 2015, and before
July 1, 2021. This bill would, as compared to the existing tax credits,
extend the scope of the credits for a qualified motion picture to the
applicable percentage of qualified expenditures up to $100,000,000,
would extend the credit to qualified expenditures for television pilot
episodes, quaked expenditures for grralied visual effects, and qualified
expenditures relating to music scoring and music editing tracicrecording
by musicians, would provide limited credit allocation priority for
specified television series, and would determine an applicable percentage
of 25% or 20% for qualified expenditures for television series relocating
to California based on the number of years the series has received the
credit since relocation to California and where in California photography
occurs. This bill would limit the aggregate amount of these new credits
to be allocated in each fiscal year to an unspecified amount, and would
also set aside specific credit allocation amounts for each fiscal year for
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independent films and for television series that relocate to California.
This bill would, for taxable years beginning on or after,Tanuary 1, 2016,
in lieu of the credits authorized under the Personal Income Tax Law
and the Corporation Tax Law for qualified motion pictures described
above, allow a credit against qualified state sales and use taxes, as
provided.
This bill would, for taxable years, beginning on or after Jams ny 1,
2016, additionally allow the credit under the Corporation Tax Law for
qualified expenditures for- the production of qual fed motion pictures
to reduce the tentative minimum tax.
The bill would state that its provisions are severable.
This bill would take effect immediately as a tax levy.
Vote: majority. Appropriation: no. Fiscal cormnittee: yes.
State - mandated local program: no.
The people of the State of California do enact as follows:
1 SECTION 1. Section 6902.5 of the Revenue and Taxation Code,
2 as added by Section I of'Chapter 10 of the Third Extraordinary
3 Session of the Statutes of 2009, is repealed.
4 .
5 (1) "Qualified taxpttyet�' ffleatis a person who is a qualified
6 ttotpayer within the metming of paragraph (4 7) of subdivisioft-(6)
of Seetion 17053.95 of 2368�.
8
9 that has been assigned any portion of the credit amount by t4w
10 qualified taxpayer pursuant to subdivision (e) of Seetion 23
11 "Credit
12 amount that would otherwise be allowed to a qualified taxpayer
13 pursuant to Section 17053.85 or 23685 but for the election made
14 .
15 " means the pro di 1 etion period as define
16 17053.9 5 or 23
17 " means any state sa
18
19 ott the operative date of the aet adding this seetion.
20 "
21 taxes" does not me Seetion 6951.2,
22 0
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4 allewecl
5 eleetian
6 taxes in
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M, PW,W. of the efedit afflatint assigned to it.
(2) No interest shad! be paid on any atftotittt reftmded or erefli
pursuant to paragraph (1).
(e) if the claimant does not eleet to obtain a reftmd or in
ease where the credit amount, or assigned portion, exeeed
amount of its claim for refund for the qualified sales and use taxes,
the claimant may, for the reporting perioels in the five years
following the last reporting pefioel as de8eribed in subparagrap
amount, or assigned poftion, agaitist the qualified sales and rise
taxes imposed during those repotting periods.
(f) Section 6961 shall apply to a" refmid, or part thereof-,
is erroneously made and any eyedit, or part thereof-, that is
erroneously allowed pursuant to this seettiOTI.
(g) The board shall provide an annual hs ing to the Frattehisc
Tax Board, in a form atid tttamier agreed upon by the board an
the Franchise Tax B rd, oF t4ie qualified taxpayers, or affiliMes
that have been assigned a portion oF the eredit allowed -a
Section 23685 pursuant to subdivision (e) of Seetion 23685, who�
during the year have made an itTevoeable e4eetion Pursuant t
section and the credit amount, or portion oF the efedit ,
claimed by each qualified taxpayer or a4iliate.
(h) The board may prescribe rules and regulations for th-e
administration of this section.
SEC. 2. Section 6902.5 of the Revenue and Taxation Code, as
added by Section I of Chapter 17 of the Third Extraordinary
Session of the Statutes of 2009, is amended to read.
6902.5. (a) For the purposes of this section:
(1) "Qualified taxpayer" means a person who is a qualified
taxpayer within the meaning of paragraph (17) of subdivision (b)
of Section 17053 85 _r 236 8t 17053.85, 17053.95, 23685, or
23695.
(2) Affiliate" means a qualified taxpayer's affiliated corporation
that has been assigned any portion of the credit amount by the
qualified taxpayer pursuant to subdivision (c) of Section 23685 or
subdivision (c) ofSection 23695.
(3) "Credit arnount" means an amount equal to the tax credit
amount that would otherwise be allowed to a qualified taxpayer
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pursuant to Section 4054. 8--5 17053.85, 17053.95, 23685,
or 23695 but for the election made pursuant to this section.
(4) "Production period" means the production period as defined
in paragraph (12 ) of subdivision of Section 17063.8c or-23686.
17053.85, 17053.95, 23685, or 23695.
(5) (A) "Qualified sales and use taxes" means any state sales
and use taxes imposed by Pail 1 (commencing with Section 6001),
on the operative date of the act adding this section.
(B) Notwithstanding subparagraph (A), "qualified sales and use
taxes" does not mean taxes imposed by Section 6051.2, 6051.5,
6201.2, 6201.5, Part 1.5 (commencing with Section 7200), Part
1.6 (commencing with Section 7251), or Section 35 ofArticle XIII
of the California Constitution.
(b) (1) A qualified taxpayer may, in lieu of claiming the credit
allowed by Section 17053. °T OT 85 oP 236855 17053.85, 17053.95, 23685,
or 23695 make an irrevocable election to apply the credit amount
against qualified sales and use taxes imposed on the qualified
taxpayer in accordance with this section.
(2) An affiliate may, in lieu of claiming the assigned portion of
the credit allowed by Section 23685 or 23695, make an irrevocable
election to apply the assigned portion of the credit amount against
qualified sales and use taxes imposed on the affiliate in accordance
with this section.
(c) (1) A qualified taxpayer or affiliate shall submit to the board
an irrevocable election, in a form as prescribed by the board, which
shall include, but not be limited to, the following information:
(A) Representation that the claimant is a qualified taxpayer or
an affiliate.
(B) Statement of the dates on which the production period began
and ended.
(C) The credit amount, and if an affiliate, the portion of the
credit amount assigned to it and documentation supporting the
assignment of that portion of the credit amount.
(D) The amount of qualified sales and use taxes the claimant
remitted to the board during the period connnencing on the first
day of the calendar quarter commencing immediately before the
beginning of the production period, and ending on the date the
claimant was required to file its most recent sales and use tax return
with the board.
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(E) A copy of the credit certificate issued pursuant to
subparagraph (C) of paragraph (2) of subdivision (g) of Section
17053.85 or 23685 or subparagraph (D) of paragraph (2) of
subdivision (g) of Section 17053.95 or 23695.
(2) The election shall be filed on or before the date on which
the qualified taxpayer or affiliate would first be allowed to claim
a credit pursuant to Section ""4O.� 17053.85, 17053.95,
23685, or 23695 on its tax return.
(d) (1) The claimant may elect to obtain a refund of qualified
sales and use taxes paid during the period described in
subparagraph (D) of paragraph (1) of subdivision (c). If the
claimant elects to obtain a refund of qualified sales and use taxes,
the claimant shall file a claim for refund with the irrevocable
election described in subdivision (c). The refund amount shall not
exceed, for a qualified taxpayer, the credit amount, or for an
affiliate, the portion of the credit amount assigned to it.
(2) No interest shall be paid on any amount refunded or credited
pursuant to paragraph (1).
(e) If the claimant does not elect to obtain a refimd or in the
case where the credit amount, or assigned portion, exceeds the
amount of its claim for refund for the qualified sales and use taxes,
the claimant may, for the reporting periods in the five years
following the last reporting period as described in subparagraph
(D) of paragraph (1) of subdivision (c), offset any remaining credit
amount, or assigned portion, against the qualified sales and use
taxes imposed during those reporting periods.
(1) Section 6961 shall apply to any refund, or part thereof, that
is erroneously made and any credit, or part thereof, that is
erroneously allowed pursuant to this section.
(g) The board shall provide an annual fisting to the Franchise
Tax Board, in a form and manner agreed upon by the board and
the Franchise Tax Board, of the qualified taxpayers, or affiliates
that have been assigned a portion of the credit allowed under
Section 23685 pursuant to subdivision (c) of Section 23685 or
Section 23695 pursuant to subdivision (c) of Section 23695, who,
during the year, have made an irrevocable election pursuant to this
section and the credit amount, or portion of the credit amount,
claimed by each qualified taxpayer or affiliate.
(h) The board may prescribe rules and regulations for the
administration of this section.
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SEC. 3. Section 17053.85 of the Revenue and Taxation Code
is amended to read:
17053.85. (a) (1) For taxable years beginning on or after
January 1, 2011, there shall be allowed to a qualified taxpayer a
credit against the "net tax," as defined in Section 17039, in an
amount equal to the applicable percentage, as specified in
paragraph (4), of the qualified expenditures for the production of -
a qualified motion picture in California.
(2) The credit shall be allowed for the taxable year in which the
California Film Conunission issues the credit certificate pursuant
to subdivision (g) for the qualified motion picture, and shall be for
the applicable percentage of all qualified expenditures paid or
incurred by the qualified taxpayer in all taxable years for that
qualified motion picture.
(3) The amount of the credit allowed to a qualified taxpayer
shall be limited to the amount specified in the credit certificate
issued to the qualified taxpayer by the California Film Comnnission
pursuant to subdivision (g).
(4) For purposes of paragraphs (1) and (2), the applicable
percentage shall be:
(A) Twenty percent of the qualified expenditures attributable
to the production of a qualified motion picture in California.
(B) Twenty -five percent of the qualified expenditures
attributable to the production of a qualified motion picture in
California where the qualified motion picture is a television series
that relocated to California or an independent film.
(b) For purposes of this section:
(1) "Ancillary product" means any article for sale to the public
that contains a portion of, or any element of, the qualified motion
picture.
(2) `Budgef'means an estimate of all expenses paid or incurred
during the production period of a qualified motion picture. It shall
be the same budget used by the qualified taxpayer and production
company for all qualified motion picture purposes.
(3) "Clip use" means a use of any portion of a motion picture,
other than the qualified motion picture, used in the qualified motion
picture.
(4) "Credit certificate" means the certificate issued by the
California Film Cormuission pursuant to subparagraph (C) of
paragraph (2) of subdivision (g).
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(5) (A) "Employee fringe benefits" means the amount allowable
as a deduction under this part to the qualified taxpayer involved
in the production of the qualified motion picture, exclusive of any
amounts contributed by employees, for any year during the
production period with respect to any of the following:
(i) Employer contributions under any pension, profit - sharing,
annuity, or similar plan.
(ii) Employer - provided coverage under any accident or health
plan for employees.
(iii) The employer's cost of life or disability insurance provided
to employees.
(B) Any amount treated as wages under clause (i) of
subparagraph (A) of paragraph (18) shall not be taken into account
under this paragraph.
(6) "Independent film" means a motion picture with a minimum
budget of one million dollars ($1,000,000) and a maximum budget
of ten million dollars ($10,000,000) that is produced by a company
that is not publicly traded and publicly traded companies do not
own, directly or indirectly, more than 25 percent of the producing
company.
(7) "Licensing" means any grant of rights to distribute the
qualified motion picture, in whole or in part.
(8) "New use" means any use of a motion picture in a medium
other than the mediuun for which it was initially created.
(9) (A) "Postproduction" means the final activities in a qualified
motion picture's production, including editing, foley recording,
automatic dialogue replacement, sound editing, scoring and music
editing, beginning and end credits, negative cutting, negative
processing and duplication, the addition of sound and visual effects,
soundmixing, film -to -tape transfers, encoding, and color correction.
(B) "Postproduction" does not include the manufacture or
shipping of release prints.
(10) "Preproduction" means the process of preparation for actual
physical production which begins after a qualified motion picture
has received a firm agreement of financial commitment, or is
greenlit, with, for example, the establishment of a dedicated
production office, the hiring of key crew members, and includes,
but is not limited to, activities that include location scouting and
execution of contracts with vendors of equipment and stage space.
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(11) "Principal photography" means the phase of production
during which the motion picture is actually shot, as distinguished
fi-om preproduction and postproduction.
(12) "Production period" means the period beginning with
preproduction and ending upon completion of postproduction.
(13) "Qualified entity" means a personal service corporation as
defined in Section 269A(b)(1) of the Internal Revenue Code, a
payroll services corporation, or any entity receiving qualified wages
with respect to services performed by a qualified individual.
(14') (A) "Qualified individual' means any individual who
performs services during the production period in an activity related
to the production of a qualified motion picture.
(B) "Qualified individual" shall not include either of the
following:
(i) Any individual related to the qualified taxpayer as described
in subparagraph (A), (B), or (C) of Section 5l(i)(1) of the Internal
Revenue Code.
(ii) Any 5- percent owner, as defined in Section 416(i)(1)(B) of
the hiternal Revenue Code, of the qualified taxpayer.
(15) (A) "Qualified motion picture" means a motion picture
that is produced for distribution to the general public, regardless
of medium, that is one of the following:
(i) A feature with a minimum production budget of one million
dollars ($1,000,000) and a maximum production budget of
seventy -five million dollars ($75,000,000).
(ii) A movie of the week or miniseries with a minimum
production budget of five hundred thousand dollars ($500,000).
(iii) A new television series produced in California with a
minimum production budget of one million dollars ($1,000,000)
licensed for original distribution on basic cable.
(iv) An independent film.
(v) A television series that relocated to California.
(B) To qualify as a "qualified motion picture," all of the
following conditions shall be satisfied:
(i) At least 75 percent of the production days occur wholly in
California or 75 percent of the production budget is incurred for
payment for services performed within the state and the purchase
or rental of property used within the state.
(ii) Production of the qualified motion picture is completed
within 30 months from the date on which the qualified taxpayer's
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application is approved by the California Film Commnission. For
purposes of this section, a qualified motion picture is "completed"
when the process of postproduction has been finished.
(iii) The copyright for the motion picture is registered with the
United States Copyright Office pursuant to Title 17 of the United
States Code.
(iv) Principal photography of the qualified motion picture
commences after the date on which the application is approved by
the California Film Commission, but no later than 180 days after
the date of that approval.
(C) For the purposes of subparagraph (A), in computing the
total wages paid or incurred for the production of a qualified
motion picture, all amounts paid or incurred by all persons or
entities that share in the costs of the qualified motion picture shall
be aggregated.
(D) "Qualified motion picture" shall not include commercial
advertising, music videos, a motion picture produced for private
noncommercial use, such as weddings, graduations, or as part of
an educational course and made by students, a news program,
current events or public events program, talk show, game show,
sporting event or activity, awards show, telethon or other
production that solicits funds, reality television program, clip -based
programming if more than 50 percent of the content is comprised
of licensed footage, documentaries, variety programs, daytime
dramas, strip shows, one -half hour (air time) episodic television
shows, or any production that falls within the recordkeeping
requirements of Section 2257 of Title 18 of the United States Code.
(16) "Qualified expenditures" means amounts paid or incurred
to purchase or lease tangible personal property used within this
state in the production of a qualified motion picture and payments,
including qualified wages, for services performed within this state
in the production of a qualified motion picture.
(17) (A) "Qualified taxpayer" means a taxpayer who has paid
or incurred qualified expenditures and has been issued a credit
certificate by the California Film Cormnission 'pursuant to
subdivision (g).
(B) In the case of any pass -thru entity, the determination of
whether a taxpayer is a qualified taxpayer tinder this section shall
be made at the entity level and any credit under this section is not
allowed to the pass -thru entity, but shall be passed through to the
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partners or shareholders in accordance with applicable provisions
of Part 10 (commencing with Section 17001) or Part 11
(cormriencing with Section 23001). For purposes of this paragraph,
"pass -thru entity" means any entity taxed as a partnership or "S"
corporation.
(18) (A) "Qualified wages" means all of the following:
(i) Any wages subject to withholding under Division 6
(commencing with Section 13000) of the Unemployment Insurance
Code that were paid or incurred by any taxpayer involved in the
production of a qualified motion picture with respect to a qualified
individual for services performed on the qualified motion picture
production within this state.
(ii) The portion of any employee fringe benefits paid or incurred
by any taxpayer involved in the production of the qualified motion
picture that are properly allocable to qualified wage amounts
described in clause (i).
(iii) Any payments made to a qualified entity for services
performed in this state by qualified individuals within the meaning
of paragraph (14).
(iv) Remuneration paid to an independent contractor who is a
qualified individual for services performed within this state by that
qualified individual.
(B) "Qualified wages" shall not include any of the following:
(i) Expenses, including wages, related to new use, reuse, clip
use, licensing, secondary markets, or residual compensation, or
the creation of any ancillary product, including, but not limited to,
a soundtrack album, toy, game, trailer, or teaser.
(ii) Expenses, including wages, paid or incurred with respect to
acquisition, development, turnaround, or any rights thereto.
(iii) Expenses, including wages, related to financing, overhead,
marketing, promotion, or distribution of a qualified motion picture.
(iv) Expenses, including wages, paid per person per qualified
motion picture for writers, directors, music directors, music
composers, music supervisors, producers, and performers, other
than background actors with no scripted lines.
(19) "Residual compensation" means supplemental
compensation paid at the time that a motion picture is exhibited
through new use, reuse, clip use, or in secondary markets, as
distinguished from payments made during production.
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1 (20) "Reuse" means any use of a qualified motion picture in the
2 same medium for which it was created, following the initial use
3 in that medium.
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(21) "Secondary markets" means media in which a qualified
motion picture is exhibited following the initial media in which it
is exhibited.
(22) "Television series that relocated to California" means a
television series, without regard to episode length or initial media
exhibition, that filmed all of its prior season or seasons outside of
California and for which the taxpayer certifies that the credit
provided pursuant to this section is the primary reason for
relocating to California.
(c) (1) Notwithstanding any other law, a qualified taxpayer
may sell any credit allowed under this section that is attributable
to an independent film, as defined in paragraph (6) of subdivision
(b), to an unrelated party.
(2) The qualified taxpayer shall report to the Franchise Tax
Board prior to the sale of the credit, in the form and manner
specified by the Franchise Tax Board, all required information
regarding the purchase and sale of the credit, including the social
security or other taxpayer identification number of the unrelated
party to whom the credit has been sold, the face amount of the
credit sold, and the amount of consideration received by the
qualified taxpayer for the sale of the credit.
(3) hi the case where the credit allowed under this section
exceeds the "net tax," the excess credit may be carried over to
reduce the "net tax" in the following taxable year, and succeeding
five taxable years, if necessary, until the credit has been exhausted.
(4) A credit shall not be sold pursuant to this subdivision to
more than one taxpayer, nor may the credit be resold by the
unrelated party to another taxpayer or other party.
(5) A party that has acquired tax credits under this section shall
be subject to the requirements of this section.
(6) In no event may a qualified taxpayer assign or sell any tax
credit to the extent the tax credit allowed by this section is claimed
on any tax return of the qualified taxpayer.
(7) In the event that both the taxpayer originally allocated a
credit under this section by the California Film Commission and
a taxpayer to whom the credit has been sold both claim the same
amount of credit on their tax returns, the Franchise Tax Board may
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disallow the credit of either taxpayer, so long as the statute of
limitations upon assessment remains open.
(8) Chapter 3.5 (commencing with Section 11340) of Part 1 of
Division 3 of Title 2 of the Government Code does not apply to
any standard, criterion, procedure, determination, rile, notice, or
guideline established or issued by the Franchise Tax Board
pursuant to this subdivision.
(9) Subdivision (g) of Section 17039 shall not apply to any
credit sold pursuant to this subdivision.
(10) For purposes of this subdivision, the unrelated party or
parties that purchase a credit pursuant to this subdivision shall be
treated as a qualified taxpayer pursuant to paragraph (1) of
subdivision (a).
(d) No credit shall be allowed pursuant to this section unless
the qualified taxpayer provides the following to the California
Film Commission:
(1) Identification of each qualified individual.
(2) The specific stmt and end dates of production.
(3) The total wages paid.
(4) The amount of qualified wages paid to each qualified
individual.
(5) The copyright registration number, as reflected on the
certificate of registration issued under the authority of Section 410
of Title 17 of the United States Code, relating to registration of
claim and issuance of certificate. The registration number shall be
provided on the return claiming the credit.
(6) The total amounts paid or incurred to purchase or lease
tangible personal property used in the production of a qualified
motion picture.
(7) Information to substantiate its qualified expenditures.
(8) Information required by the California Film Commission
under regulations promulgated pursuant to subdivision (g)
necessary to verify the amount of credit claimed.
(e) The California Film Commission may prescribe rules and
regulations to carry out the purposes of this section including any
rules and regulations necessary to establish procedures, processes,
requirements, and rules identified in or required to implement this
section. The regulations shall include provisions to set aside a
percentage of amival credit allocations for independent films.
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(f) If the qualified taxpayer fails to provide the copyright
registration number as required in paragraph (5) of subdivision
(d), the credit shall be disallowed and assessed and collected under
Section 19051 until the procedures are satisfied.
(g) For purposes of this section, the California Film Cormnission
shall do the following:
(1) On or after July 1, 2009, and before July 1, 2017, in Sao fewer
than rivo allocations per fiscal year; allocate tax credits to
applicants.
(A) Establish a procedure for applicants to file with the
California Film Cormnission a written application, on a form jointly
prescribed by the California Film Commission and the Franchise
Tax Board for the allocation of the tax credit. The application shall
include, but not be limited to, the following information:
(i) The budget for the motion picture production.
(ii) The number of production days.
(iii) A financing plan for the production.
(iv) The diversity of the workforce employed by the applicant,
including, but not limited to, the ethnic and racial makeup of the
individuals employed by the applicant during the production of
the qualified motion picture, to the extent possible.
(v) All members of a combined reporting group, if known at
the time of the application.
(vi) Financial information, if available, including, but not limited
to, the most recently produced balance sheets, annual statements
of profits and losses, audited or unaudited financial statements,
summary budget projections or results, or the fiuictional equivalent
of these documents of a partnership or owner of a single member
limited liability company that is disregarded pursuant to Section
23 03 8. The information provided pursuant to this clause shall be
confidential and shall not be subject to public disclosure.
(vii) The names of all partners in a partnership not publicly
traded or the names of all members of a limited liability company
classified as a partnership not publicly traded for California income
tax purposes that have a financial interest in the applicant's
qualified motion picture. The information provided pursuant to
this clause shall be confidential and shall not be subject to public
disclosure.
(viii) Detailed narratives, for use only by the Legislative
Analyst's Office in conducting a study of the effectiveness of this
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1 credit, that describe the extent to which the credit is expected to
2_ influence or affect filming and other business location decisions,
3 hiring decisions, salary decisions, and any other financial matters
4 of the applicant.
5 (ix) Any other information deemed relevant by the California
6 Film Commission or the Franchise Tax Board.
7 (B) Establish criteria, consistent with the requirements of this
8 section, for allocating tax credits.
9 (C) Determine and designate applicants who meet the
10 requirements of this section.
11 (D) Process and approve, or reject, all applications on a
12 first- come - first - served basis.
13 (E) - Subject to the annual cap established as provided in
14 subdivision (i), allocate an aggregate amount of credits under this
15 section and Section 23685, and allocate any canyover of
16 unallocated credits from prior years.
17 (2) Certify tax credits allocated to qualified taxpayers.
18 (A) Establish a verification procedure for the amount of qualified
19 expenditures paid or incurred by the applicant, including, but not
20 limited to, updates to the information in subparagraph (A) of
21 paragraph (1) of subdivision (g).
22 (B) Establish audit requirements that must be satisfied before
23 a credit certificate may be issued by the California Film
24 Cormmission.
25 (C) (i) Establish a procedure for a qualified taxpayer to report
26 to the California Film Conmmission, prior to the issuance of a credit
27 certificate, the following information:
28 (1) If readily available, a list of the states, provinces, or other
29 jurisdictions in which any member of the applicant's combined
30 reporting group in the same business unit as the qualified taxpayer
31 that, in the preceding calendar year, has produced a qualified
32 motion picture intended for release in the United States market.
33 For purposes of this clause, "qualified motion picture" shall not
34 include any episodes of a television series that were complete or
35 in production prior to July 1, 2009.
36 (II) Whether a qualified motion picture described in subelause
37 (1) was awarded any financial incentive by the state, province, or
38 other jurisdiction that was predicated on the performance of
39 primary principal photography or postproduction in that location.
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1 (ii) The California Film Comm ssion may provide that the report
2 required by this subparagraph be filed in a single report provided
3 on a calendar year basis for those qualified taxpayers that receive
4 multiple credit certificates in a calendar year.
5 (D) Issue a credit certificate to a qualified taxpayer upon
6 completion of the qualified motion picture reflecting the credit
7 amount allocated after qualified expenditures have been verified
8 under this section. The amount of credit shown in the credit
9 certificate shall not exceed the amount of credit allocated to that
10 qualified taxpayer pursuant to this section.
11 (3) Obtain, when possible, the following information from
12 applicants that do not receive an allocation of credit:
13 (A) Whether the qualified motion picture that was the subject
14 of the application was completed.
15 (B) If completed, in which state or foreign jurisdiction was the
16 primary principal photography completed.
17 (C) Whether the applicant received any financial incentives
18 from the state or foreign jurisdiction to make the qualified motion
19 picture in that location.
20 (4) Provide the Legislative Analyst's Office, upon request, any
21 or all application materials or any other materials received from,
22 or submitted by, the applicants, in electronic format when available,
23 including, but not limited to, information provided pursuant to
24 clauses (i) to (ix), inclusive, of subparagraph (A) of paragraph (1).
25 (5) The information provided to the California Film Commission
26 pursuant to this section shall constitute confidential tax information
27 for purposes of Article 2 (commencing with Section 19542) of
28 Chapter 7 of Part 10.2.
29 (h) (1) The California Film Commission shall annually provide
30 the Legislative Analyst's Office, the Franchise Tax Board, and the
31 board with a fist of qualified taxpayers and the tax credit amounts
32 allocated to each qualified taxpayer by the California Film
33 Commission. The list shall include the names and taxpayer
34 identification numbers, including taxpayer identification numbers
35 of each partner or shareholder, as applicable, of the qualified
36 taxpayer.
37 (2) (A) Notwithstanding paragraph (5) of subdivision (g), the
38 California Film Commission shall annually post on its Internet
39 Web site and make available for public release the following:
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(i) A table which includes all of the following information: a
list of qualified taxpayers and the tax credit amounts allocated to
each qualified taxpayer by the California Film Commission, the
number of production days in California the qualified taxpayer
represented in its application would occur, the number of California
jobs that the qualified taxpayer represented in its application would
be directly created by the production, and the total amount of
qualified expenditures expected to be spent by the production.
(ii) A narrative staff surmnaty describing the production of the
qualified taxpayer as well as background information regarding
the qualified taxpayer contained in the qualified taxpayer's
application for the credit.
(B) Nothing in this subdivision shall be construed to make the
information submitted by an applicant for a tax credit under this
section a public record.
(i) (1) The aggregate arnount of credits that may be allocated
in any fiscal year pursuant to this section and Section 23685 shall
be an amount equal to the stun of all of the following:
(A) One hundred million dollars ($100,000,000) in credits for
the 2009 -10 fiscal year and each fiscal year thereafter, through
and including the 2016 -17 fiscal year.
(B) The unused allocation credit amount, if any, for the
preceding fiscal year.
(C) The amount of previously allocated credits not certified.
(2) If the amount of credits applied for in any particular fiscal
year exceeds the aggregate amount of tax credits authorized to be
allocated under this section, such excess shall be treated as having
been applied for on the first day of the subsequent fiscal year.
However, credits may not be allocated from a fiscal year other
than the fiscal year in which the credit was originally applied for
or the inunediately succeeding fiscal year.
(3) Notwithstanding the foregoing, the California Film
Connnission shall set aside tip to ten million dollars ($10,000,000)
of tax credits each fiscal year for independent films allocated in
accordance with rules and regulations developed pursuant to
subdivision (e).
(4) Any act that reduces the amount that may be allocated
pursuant to paragraph (1) constitutes a change in state taxes for
the purpose of increasing revenues within the meaning of Section
3 of Article XIIIA of the California Constitution and may be passed
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by not less than two - thirds of all Members elected to each of the
two houses of the Legislature.
0) The California Film Commission shall have the authority to
allocate tax credits in accordance with this section and in
accordance with any regulations prescribed pursuant to subdivision
(e) upon adoption.
ornm�T
SEC. 4. Section 17053.95 is added to the Revenue and Taxation
Code, to read:
17053.95. (a) (1) For taxable years beginning on or after
January 1, 2016, there shall be allowed to a qualified taxpayer a
credit against the "net tax," as defined in Section 17039, in an
amount equal to the applicable percentage, as specified in
paragraph (4), of the qualified expenditures for the production of
a qualified motion picture in California. A credit shall not be
allowed under this section for any qualified expenditures for the
production of a motion picture in California if a credit has been
claimed for those same expenditures under Section 17053.85.
(2) The credit shall be allowed for the taxable year in which the
California Film Commission issues the credit certificate pursuant
to subdivision (g) for the qualified motion picture, but in no
instance prior to July 1, 2016, and shall be for the applicable
percentage of all qualified expenditures paid or incurred by the
qualified taxpayer in all taxable years for that qualified motion
picture.
(3) The amount of the credit allowed to a qualified taxpayer
shall be limited to the amount specified in the credit certificate
issued to the qualified taxpayer by the California Film Commission
pursuant to subdivision (g).
(4) For purposes of paragraphs (1) and (2), the applicable
percentage shall be:
(A) Twenty percent of the qualified expenditures attributable
to the production of a qualified motion picture in California,
including, but not limited to, a feature, up to one hundred million
dollars ($100,000,000) in quaked expenditures, or a television
series that relocated to California that is in its second or
subsequent years of receiving a tax credit allocation pursuant to
this section or Section 17053.85.
(B) Twenty -five percent of the qualified expenditures
attributable to the production of a qualified motion picture in
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California where the qualified motion picture is a television series
that relocated to California in its first year of receiving a tax credit
allocation pursuant to this section .
(C) Twenlyfiive percent of the qualified expenditures, up to ten
million dollars ($10,000,000), attributable to the production of
quaked motion picture that is an independent,filin.
(C)
(D) (i) The California Film Commission shall increase the
applicable percentage by 5 percent, not to exceed a maximum of
25 percent, if the qualified motion picture mimed or paid or
incurred outside the Los Angeles zone the qualified expenditures
relating to original photography outside the Los Angeles zone.
(ii) For purposes of this subparagraph:
(1) "Applicable period" means the period that commences with
pre preduetiarrpreproduction and ends when original photography
concludes. The applicable period includes the time necessary to
strike a remote location and return to the Los Angeles zone.
(II) "Los Angeles zone" means the area within a circle 30 miles
in radius from Beverly Boulevard and La Cienaga Boulevard, Los
Angeles, California, and includes Agua Dulce, Castaic, including
Lake Castaic, Leo Carillo State Beach, Ontario International
Airport, Piro, and Pomona, including the Los Angeles County
Fairgrounds. The Metro Goldwyn Mayer, Inc. Conejo Ranch
property is within the Los Angeles zone.
(1I1) "Original photography" includes principal
photography and reshooting original
footage.
(IV) "Qualified expenditures relating to original photography
outside the Los Angeles zone" means amounts paid or incurred
during the applicable period for tangible personal property
purchased or leased and used or consumed outside the Los Angeles
zone and relating to original photography outside the Los Angeles
zone and qualified wages paid for services performed outside the
Los Angeles zone and relating to original photography outside the
Los Angeles zone.
(D)
(E) Twenty -five percent of the qualified expenditures relating
to music scoring and music-editing track recording by musicians
attributable to the production of a qualified motion picture in
California.
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1 (F) Twenty-five percent of the quaked expenditures relating
2 to quaked visual effects.
3 (b) For purposes of this section:
4 (1) "Ancillary product" means any article for sale to the public
5 that contains a portion of, or any element of, the qualified motion
6 picture.
7 (2) `Budget" means an estimate of all expenses paid or incurred
8 during the production period of a qualified motion picture. It shall
9 be the same budget used by the qualified taxpayer and production
10 company for all qualified motion picture purposes.
11 (3) "Clip use" means a use of any portion of a motion picture,
12 other than the qualified motion picture, used in the qualified motion
13 picture.
14 (4) "Credit certificate" means the certificate issued by the
15 California Film Cornmission pursuant to subparagraph (C) of
16 paragraph (2) of subdivision (g).
17 (5) (A) "Employee fringe benefits" means the amount allowable
18 as a deduction under this part to the qualified taxpayer involved
19 in the production of the qualified motion picture, exclusive of any
20 amounts contributed by employees, for any year during the
21 production period with respect to any of the following:
22 (i) Employer contributions under any pension, profit - sharing,
23 annuity, or similar plan.
24 (ii) Employer- provided coverage under any accident or health
25 plan for employees.
26 (iii) The employer's cost of life or disability insurance provided
27 to employees.
28 (B) Any amount treated as wages under clause (i) of
29 subparagraph (A) of paragraph -(18) (20) shall not be taken into
30 account under this paragraph.
31 (6) "Independent film" means a motion picture with a minimu=m
32 budget of one million dollars ($1,000,000) ariel a maximunt buds
33 often i"'"" ' ° " °" ' X09 WO) that is produced by a company
34 that is not publicly traded and publicly traded companies do not
35 own, directly or indirectly, more than 25 percent of the producing
36 company.
37 (7) "Licensing" means any grant of rights to distribute the
38 qualified motion picture, in whole or in part.
39 (8) "New use" means any use of a =notion picture in a medium
40 other than the medium for which it was initially created.
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(9) `Pilotfor a new television series" means the initial episode
produced for a proposed television series.
(10) (A) "Postproduction " means the final
activities in a qualified motion picture's production, including
editing, foley recording, automatic dialogue replacement, sound
editing, scoring, music track recording by musicians and music
editing, beginning and end credits, negative cutting, negative
processing and duplication, the addition of sound and visual effects,
sound mixing, film -to -tape transfers, encoding, and color
correction.
(B) Postproduction"does not include the
manufacture or shipping of release prints or their equivalent.
(4-G)
(11) "Preproduction" means the process of preparation for actual
physical production which begins after a qualified motion picture
has received a fine agreement of financial commitment, or is
greenlit, with, for example, the establishment of a dedicated
production office, the hiring of key crew members, and includes,
but is not limited to, activities that include location scouting and
execution of contracts with vendors of equipment and stage space.
(12) "Principal photography" means the phase of production
during which the motion picture is actually shot, as distinguished
from preproduction and - pest- preduefr m postproduction.
(13) "Production period" means the period beginning with
preproduction and ending upon completion of- post- pr-edttetieii
postproduction.
f�
(14) "Qualified entity" means a personal service corporation as
defined in Section 269A(b)(1) of the Internal Revenue Code, a
payroll services corporation, or any entity receiving qualified wages
with respect to services performed by a qualified individual.
(15) " Qualifiedexpenditures "nreansamountspaidorincur•red
for tangible personal properly purchased or leased, and used,
within this state in the production of a quaked nnotion picture
and paynnents, including qualitied wages, for services perforrrned
within this state in the production of'a qualified rnotion picture.
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1 (16) (A) "Qualified individual" means any individual who
2 performs services during the production period in an activity related
3 to the production of a qualified motion picture.
4 (B) "Qualified individual" shall not include either of the
5 following:
6 (i) Any individual related to the qualified taxpayer as described
7 in subparagraph (A), (B), or (C) of Section 51(i)(1) of the Internal
8 Revenue Code.
9 (ii) Any 5- percent owner, as defined in Section 416(i)(1)(B) of
10 the Internal Revenue Code, of the qualified taxpayer.
11 (i-5j
12 (17) (A) "Qualified motion picture" means a motion picture
13 that is produced for distribution to the general public, regardless
14 of medium, that is one of the following:
15 (i) A feature with a minimum production budget of one million
16 dollars ($1,000,000).
17 (ii) A movie of the week or miniseries with a minimum
18 production budget of five hundred thousand dollars ($500,000).
19 (iii) A new one -hour television series of episodes longer than
20 40 minutes each of running time, exclusive of commercials, that
21 is produced in California, with a minimum production budget of
22 one million dollars ($1,000,000) per episode.
23 (iv) An independent film.
24 (v) A television series that relocated to California.
25 (vi) A pilot for a new television series that is longer than 40
26 minutes of running thee, exclusive of commercials, that is produced
27 in California, and with a minimum production budget of one
28 million dollars ($1,000,000).
29 (B) To qualify as a "qualified motion picture," all of the
30 following conditions shall be satisfied:
31 (i) At least 75 percent of the principal photography days occur
32 wholly in California or 75 percent of the production budget is
33 incurred for payment for services performed within the state and
34 the purchase or rental of property used within the state.
35 (ii) ,Production of the qualified motion picture is completed
36 within 30 months from the date on which the qualified taxpayer's
37 application is approved by the California Film Commission. For
38 purposes of this section, a qualified motion picture is "completed"
39 when the process of– post– produetion postproduction has been
40 finished.
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(iii) The copyright for the motion picture is registered with the
United States Copyright Office pursuant to Title 17 of the United
States Code.
(iv) Principal photography of the qualified motion picture
commences after the date on which the application is approved by
the California Film Commission, but no later than 180 days after
the date of that approval unless death, disability, or disfigurement
of the director or of a principal cast member, an act of God,
including, but not limited to, fire, flood, earthquake, storm,
hurricane, or other natural disaster, terrorist activities, or
government sanction has directly prevented a production's ability
to begin principal photography within the prescribed 180 -day
commencement period.
(C) For the proposes of subparagraph (A), in computing the
total wages paid or incurred for the production of a qualified
motion picture, all amounts paid or incurred by all persons or
entities that share in the costs of the qualified motion picture shall
be aggregated.
(D) "Qualified motion picture" shall not include cormnercial
advertising, music videos, a motion picture produced for private
noncommercial use, such as weddings, graduations, or as part of
an educational course and made by students, a news program,
current events or public events program, talk show, game show,
sporting event or activity, awards show, telethon or other
production that solicits funds, reality television program, clip -based
programming if more than 50 percent of the content is comprised
of licensed footage, documentaries, variety programs, daytime
dramas, strip shows, one -half hour (air time) episodic television
shows, or any production that falls within the recordkeeping
requirements of Section 2257 of Title 18 of the United States Code.
for tangible personal propet—yptivehased or !eased, and used, wi i
(18) (A) "Qualified taxpayer" means a taxpayer who has paid
or incurred qualified expenditures and has been issued a credit
certificate by the California Film Commission pursuant to
subdivision (g).
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(B) In the case of any pass -thin entity, the determination of
whether a taxpayer is a qualified taxpayer under this section shall
be made at the entity level and any credit under this section is not
allowed to the pass -thin entity, but shall be passed through to the
partners or shareholders in accordance with applicable provisions
of Part 10 ( cormnencing with Section 17001) or Part 11
(commencing with Section 23001). For purposes of this paragraph,
"pass -thru entity" means any entity taxed as a partnership or "S"
corporation.
(19) "Qualified visual effects" means visual effects where at
Least 75percentor a mirnirmmn often million dollars ($10,000, 000)
of the qualified expenditures for the visual effects is paid or
incurred in California.
(20) (A) "Qualified wages" means all of the following:
(i) Any wages subject to withholding under Division 6
(commencing with Section 13000) of the Unernployment Insurance
Code that were paid or incurred by any taxpayer involved in the
production of a qualified motion picture with respect to a qualified
individual for services performed on the qualified motion picture
production within this state.
(ii) The portion of any employee fringe benefits paid or incurred
by any taxpayer involved in the production of the qualified motion
picture that are properly allocable to qualified wage amounts
described in clauses (i), (iii), and (iv).
(iii) Any payments made to a qualified entity for services
performed in this state by qualified individuals within the meaning
of paragraph -(14) (16).
(iv) Remuneration paid to an independent contractor who is a
qualified individual for services performed within this state by that
qualified individual.
(B) "Qualified wages" shall not include any of the following:
(i) Expenses, including wages, related to new use, reuse, clip
use, licensing, secondary markets, or residual compensation, or
the creation of any ancillary product, including, but not limited to,
a soundtrack album, toy, game, trailer, or teaser.
(ii) Expenses, including wages, paid or incurred with respect to
acquisition, development, turnaround, or any rights thereto.
(iii) Expenses, including wages, related to financing, overhead,
marketing, promotion, or distribution of a qualified motion picture.
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(iv) Expenses, including wages, paid per person per qualified
motion picture for writers, directors, music directors, music
composers, music supervisors, producers, and performers, other
than background actors with no scripted lines.
(21) "Residual compensation" means supplemental
compensation paid at the time that a motion picture is exhibited
through new use, reuse, clip use, or in secondary markets, as
distinguished fiom payments made during production.
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(22) "Reuse" means any use of a qualified motion picture in the
same medium for which it was created, following the initial use
in that medium.
(23) "Secondary markets" means media in which a qualified
motion picture is exhibited following the initial media in which it
is exhibited.
(2-2)
(24) "Television series that relocated to California" means a
television series, without regard to episode length or initial media
exhibition, that filmed all of its prior season or seasons outside of
California and for which the taxpayer certifies that the credit
provided pursuant to this section is the primary reason for
relocating to California.
produced for a proposed television series.
(25) "Visual effects" means the creation, alteration, or
enhancement of'images that cannot be coptu ed on a set or location
during live action photography and therefore is accomplished in
postproductt'on. It includes, but is not limited to, matte paintings,
animation, set extensions, contputer- generated objects, characters
and environments, contpositing (combining hvo or more elements
in a final image), and wire removals. "Visual effects" does not
inchrde fidly animated projects, whether created by traditional or
digital means.
(c) (1) Notwithstanding any other law, a qualified taxpayer
may sell any credit allowed under this section that is attributable
to an independent film, as defined in paragraph (6) of subdivision
(b), to an unrelated party.
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(2) The qualified taxpayer shall report to the Franchise Tax
Board prior to the sale of the credit, in the form and manner
specified by the Franchise Tax Board, all required information
regarding the purchase and sale of the credit, including the social
security or other taxpayer identification number of the unrelated
party to whom the credit has been sold, the face amount of the
credit sold, and the amount of consideration received by the
qualified taxpayer for the sale of the credit.
(3) In the case where the credit allowed under this section
exceeds the "net tax," the excess credit may be carried over to
reduce the "net tax" in the following taxable year, and succeeding
five taxable years, if necessary, until the credit has been exhausted.
(4) A credit shall not be sold pursuant to this subdivision to
more than one taxpayer, nor may the credit be resold by the
unrelated party to another taxpayer or other party.
(5) A party that has acquired tax credits under this section shall
be subject to the requirements of this section.
(6) In no event may a qualified taxpayer assign or sell any tax
credit to the extent the tax credit allowed by this section is claimed
on any tax return of the qualified taxpayer.
(7) In the event that both the taxpayer originally allocated a
credit under this section by the California Film Cornrnission and
a taxpayer to whom the credit has been sold both claim the same
amount of credit on their tax returns, the Franchise Tax Board may
disallow the credit of either taxpayer, so long as the statute of
limitations upon assessment remains open.
(8) Chapter 3.5 (eornrnencing with Section 11340) of Part 1 of
Division 3 of Title 2 of the Government Code does not apply to
any standard, criterion, procedure, determination, rule, notice, or
guideline established or issued by the Franchise Tax Board
pursuant to this subdivision.
(9) Subdivision (g) of Section 17039 shall not apply to any
credit sold pursuant to this subdivision.
(10) For purposes of this subdivision, the unrelated party or
parties that purchase a credit pursuant to this subdivision shall be
treated as a qualified taxpayer pursuant to paragraph (1) of
subdivision (a).
(d) No credit shall be allowed pursuant to this section unless
the qualified taxpayer provides the following to the California
Film Commission:
97
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(1) Identification of each qualified individual.
(2) The specific start and end dates of production.
(3) The total wages paid.
(4) The amount of qualified wages paid to each qualified
individual.
(5) The copyright registration number, as reflected on the
certificate of registration issued under the authority of Section 410
of Title 17 of the United States Code, relating to registration of
claim and issuance of certificate. The registration number shall be
provided on the return claiming the credit.
(6) The total amounts paid or incurred to purchase or lease
tangible personal property used in the production of a qualified
motion picture.
(7) Information to substantiate its qualified expenditures.
(8) Information required by the California Film Commission
under regulations promulgated pursuant to subdivision (g)
necessary to verify the amount of credit claimed.
(e) (1) The California Film Commission may prescribe rules
and regulations to carry out the purposes of this section including
any rules and regulations necessary to establish procedures,
processes, requirements, application fee structure, and rules
identified in or required to implement this section, including credit
and Logo requirements. The regulations shall include provisions
to set aside a percentage of annual credit allocations for
independent films and television series relocating to California,
pursuant to subdivision (i).
(2) Implementation of tl7is sectior7 is deemed an en7erger7cy and
necessary for the imnsediate preservation of the public peace,
health, andsafeo) orgeneral welfare and therefore, the California
Filn7 Commission is hereby authorized to adopt emergency
regulations necessary to implement this section during the 2014 15
fiscal year in accordance with the rulemalcing provisions of the
Administrative Procedures Act (Chapter 3.5 (connnencing with
Section 11340) ofPart I ofDivision 3 of Title 2 ofthe Government
Code).
(f) If the qualified taxpayer fails to provide the copyright
registration number as required in paragraph (5) of subdivision
(d), the credit shall be disallowed and assessed and collected under
Section 19051 until the procedures are satisfied.
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-29— AB 1839
(g) For purposes of this section, the California Film Commission
shall do the following:
(1) On or after danuary 1, 2015, and before July 1, 2021, in no
fewer than two allocation procedures per fiscal year•, allocate tali
credits to applicants.
(A) Establish a procedure for applicants to file with the
CaliforniaFihn Cornrnission a written application, on a form jointly
prescribed by the California Film Commission and the Franchise
Tax Board for the allocation of the tax credit. The application shall
include, but not be limited to, the following information:
(i) The budget for the motion picture production.
(ii) The number of production days.
(iii) A financing plan for the production.
(iv) The diversity of the workforce employed by the applicant,
including, but not limited to, the ethnic and racial makeup of the
individuals employed by the applicant during the production of
the qualified motion picture, to the extent possible.
(v) All members of a combined reporting group, if known at
the time of the application.
(vi) Financial information, if available, including, butnotlimited
to, the most recently produced balance sheets, annual statements
of profits and losses, audited or unaudited financial statements,
sununary budget projections or results, or the functional equivalent
of these documents of a partnership or owner of a single member
limited liability company that is disregarded pursuant to Section
23038. The information provided pursuant to this clause shall be
confidential and shall not be subject to public disclosure.
(vii) The names of all partners in a partnership not publicly
traded or the names of all members of a limited liability company
classified as apartnership not publicly traded for California income
tax purposes that have a financial interest in the applicant's
qualified motion picture. The information provided pursuant to
this clause shall be confidential and shall not be subject to public
disclosure.
(viii) Detailed narratives, for use only by the Legislative
Analyst's Office in conducting a study of the effectiveness of this
credit, that describe the extent to which the credit is expected to
influence or affect filming and other business location decisions,
97
AB 1839 —30—
1 hiring decisions, salary decisions, and any other financial matters
2 of the applicant.
3 (ix) Any other information deemed relevant by the California
4 Film Commission or the Franchise Tax Board.
5 (B) Establish criteria, consistent with the requirements of this
6 section, for allocating tax credits. applicants who meet the
7 (C) Determine and designate app
8 requirements of this section.
9 (p) proeess -(i) Exceptas provided in subparagraph (2), p ocess '
10 and approve, or reject, all applications on a first- come - first - served
11 basis.
12 (ti) Any new one -hozrr television series, as described in cause
13 (iii) of subparagraph (A) ofpar•agraph (17) ofsubdivision (b) any
14 television series that relocated to Cahfor7zia, as described in clause
15 (v) of sub aragraph (A) 0f paragraph (17) ofsubdiviston (b), and
16 any new one -hour television series based on a pilot for a new
17 television series, described in paragraph (9) of subdivision (b),
18 that has been approved and issued a credit allocation by the
19 California Film Commission either under this section or Section
20 17053.85 shall be placed at the top of the queue for a9 open
21 allocation period once in each subsequent year in the life of that
22 television series whenever credits are allocated within a fiscal
23 year:
24 (E) Subject to the annual cap established re provided is
25 subdivision (i), allocate an aggregate amount of credits under this
26 section and Section 23695, and allocate any carryover of
27 unallocated credits from prior years.
28 (2) Certify tax credits allocated to qualified taxpayers.
29 (A) Establish a verification procedure for the amount of qualified
30 expenditures paid or incurred by the applicant, including, but not
31 limited to, updates to the information in subparagraph (A) of
32 paragraph (1) of subdivision (g).
33 (B) Establish audit requirements that must be satisfied before
34 a credit certificate may be issued by the California Film
35 Commission. report
36 (C) (i) Establish aprocedure for a qualified issuance to
a cred t
37 to the California Film Commission, prior
39 certificate, the following information:
39 (1) If readily available, a list of the states, provinces, or other
40 jurisdictions in which any member of the applicant's combined
97
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1 reporting group in the same business unit as the qualified taxpayer r
2 that, in the preceding calendar year, has produced a qualified
3 motion picture intended for release motion Uniteed picture" shall arket-
4 For purposes of this clause, ,qualified
5 include any episodes of a television series that were complete or
6 in production prior to July 1, 2016.
7 (I1) Whether a qualified motion picture described in subelause
8 (1) was awarded any financial incentive by the state, province, or
9 primary mi jurisdiction pri icipal that ggrap predicated 017Poth ;performance roduction
10 primary principal photography or
11 in that location. ovide that the report
12 (ii) The CaliforniaFilm Conunission may provide
13 required by this subparagraph be filed in a single report provided
14 on a calendar year basis for those qualified taxpayers that receive
15 multiple credit certificates in a calendar year.
16 (D) Issue a credit certificate to a qualified taxpayer upon
17 completion of the qualified motion picture reflecting the credit
18 amount allocated after qualified expenditures have been verified
19 under this section. The amount of credit shown in the credit
20 certificate shall not exceed the amount of credit allocated to that
21 qualified taxpayer pursuant to this section. information from
22 (3) Obtain, when possible, the following
23 applicants that do not receive an allocation of credit:
24 (A) Whether the qualified motion picture that was the subject
25 of the application was completed.
26 (B) If completed, in which state or foreign jurisdiction was the
27 primary principal photography completed.
28 (C) Whether the applicant received any financial incentives
29 from the state or foreign jurisdiction to make the qualified motion
30 picture in that location.
31 (4) provide the Legislative Analyst's Office, upon request, any
rials or any other materials received from,
32 or all application mate
33 or submitted by, the applicants, in electonic format when available,
34 including, but not limited to, information proviodfdapurs ht to
35 clauses (i) to (ix), inclusive, of subparagraph (A) p g' p, O.
36 (5) The infonnationprovidedto the California Film Cormnission
37 pursuant to this section shall constitute confidential tax information
38 for purposes of Article 2 (commencing with Section 19542) of
39 Chapter 7 of part 10.2.
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AB 1839 —32—
1 (h) (1) The Californin Film Counnission shall annually provide
2 the Legislative Analysts Office, the Franchise Tax Board, and the
3 board with a list of qualified taxpayers and the tax credit amounts
4 allocated to each qualified taxpayer by the California Film
5 Commission. The list shall include the names and taxpayer
identification numbers
6 identification numbers, including taxpay licable of the qu lified
7 of each partner or shareholder, as app
8 taxpayer. of subdivision (g), the
9 (2) (A) Notwithstanding paragraph ( 5 )
10 California Fihn Coramission shall annually post on its Internet
11 Web site and malce available for public release the information: a
12 (i) A table which includes all of the following to
13 list of qualified taxpayer by and e tax crec F'lm Commission, o et he
14 each qualified
15 number of production days in California the qualified taxpayer
167 job that in its application
fled taxpayer would
p represented its application onlWo is
18 be directly created by the production, and the total amount of
19 qualified expenditures expected to be spent by the production.
20 (ii) A narrative staff summary describing the production of the
21 qualified taxpayer as well as background information reg d g
22 the qualified taxpayer. contained in the qualified taxpayer
23 application for the credt. construed to make the
24 (B) Nothing in this subdivision 1 can l : a tax credit
under this
25 information submitted by an app
26 section a public record.
2'7 (i) (1) The aggregate amount of credits that may allocated
28 in any fiscal year pursuant to this section and Section 2 3695 shall
2
29 be an amount equal to the sum of all f he following:
fiscal year
30 (A) _dollars ($_) in
31 and each fiscal year thereafter, through and including the 2020 -21
32 fiscal year.
33 (B) The unused allocation credit amount, if any, fort the
34 preceding fiscal year.
35 (C) The amount of previously allocated credits not certified.
36 (2) (A) Notwithstanding the foregoing, the California Fill"
37 Connnission shall set aside the enfs ara rah (1) or twee y Million
38 specified in subparagraph ax credits of pr each fiscal year for independent
39 dollars ($20,000,000)
97
-33— AB 1839
1 films allocated in accordance with rules and regulations developed
2 pursuant to subdivision (c)•
3 (B) Notwithstanding the foregoing, the California Fihn
4 Commission shall set aside up to t hirty million dollars
5 ($30,000,000) of tax credit each fiscal year for television series
6 that relocated to California in its first year of receiving a tax credit
7 allocation pursuant to this section allocated in accordance with
8 rales Any act developed pursuant
amount tth tbnaysbe allocated
9 (3) Any
h (1) constitutes a change in state taxes for
10 pursuant to paragrap
11 the purpose of increasing revenues within the meaning of Section
12 3 passed by not less than two-thirds of all Member lectedrto eabh Constitution and
13 p Y
14 of the two houses of the Legislature.
15 0) The California Fihn Commission shall have the authority to
16 allocate tax credits in accordance with this section and in
17 accordance with any regulations prescribed pursuant to subdivision
18 (e) upon adoption.
19 SEC. 5. Section 23036 of the Revenue and Taxation Coe is
20 amended to read:
21 23036. (a) (1) The terra includes any ci the following:
22 (A) The tax unposed under Chapter 2 (conuuencingwith Section
23 23101).
24 (B) The tax hnposed ender Chapter 3 ( cormnencing with Section
25 23501).
26 (C) The tax on unrelated business taxable income, nnpose
27 under Section 23731.
28 (D) The tax on S corporations imposed under Section 23802.
29 (2) The term "tax" does not include any amount irparagraph psednder
30 paragraph (1) of subdivision (e) of Section 24667 or (2)
31 of subdivision (f) of Section 24667.
32 (b) For purposes ofArticle 5 (commencing with Section 1966 1)
33 of Chapter 2, Article 3 (commencing with Section 19031) of
34 Chapter 4, Article 6 (commencing with Section 19101) of Chapter
35 4, and Chapter 7 (commencing with Section 19501) of Part 10.2,
36 and for purposes of Sections 18601, 19001, and 19005, the term
37 "tax" also includes all of the following:
38 (1) The tax on Ihnited partnerships, imposed under Section
39 17935, the tax on limited under
d liability companies, i
40 Section 17941, and the tax on registered limited liability
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AB 1839
1 partnerships and foreign limited liability partnerships unposed
2 under Section 17948.
3 (2) The alternative minimum tax imposed under Chapter 2.5
4 (commencing with Section 23400).
5 (3) The tax on built -in gains of S corporations, imposed under
6 Section 23809.
cess passive investment income of
7 (4) The tax on ex
8 corporations, unposed under Section 2381 1.
9 (e) Notwithstanding any other provision of this part, credits are
10 allowed against the "tax" in the following order:
11 (1) Credits that do not contain carryover provisions.
12 (2) Credits that, when the credit exceeds the "tax, allow the
14 yearssexept carried
those credits offset
atta e allowed to reduce succeeding
15 below the tentative minimum tax, as defined by Section 23455.
16 The order of credits within this paragraph shall be determined by
17 the Franchise Tax Board.
18 (3) The minimum tax credit allowed by Section 23453.
19 (4) Credits that are allowed to reduce the "tax" below the
20 tentative mhnimurn tax, as defined by Section 23455.
21 (5) Credits for taxes withheld under Section 18662.
22 (d) Notwithstanding any other provision of this part, each of
23 the following applies:
24 (1) A credit may not reduce al of�subdry sin (a) Of
25 minimum tax (as defined by paragraph
26 Section 23455), except the follow mega' Section 23601 (relating to
27 (A) The credit allowed by
28 solar energy).
29 (B) The credit allowed by former Section 23601.4 (relating to
30 solar energy).
31 (C) The credit allowed by former Section 23601.5 (relating to
32 solar energy)• relat n to research
33 (D) The credit allowed by Section 23609 (relating
34 expenditures).
35 (E) The credit allowed by former Section 23609.5 (relating to
36 clinical testing expenses). n
37 (F) The credit allowed by Section 23610.5 (relating to
38 low - income housing). former Section 23612 (relating to
39 (G) The credit allowed by
40 sales and use tax credit).
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-35— AB 1839
1 (11) The credit allowed by Section 23612.2 (relating to enterprise
2 zone sales or use tax credit).
3 (I) The credit allowed by former Section 23612.6 (relating to
4 Los Angeles Revitalization Zone r tax c ed23622 (relating to
5 (J) The credit allowed by me
6 enterprise zone hiring credit). enterprise
7 ((K) The credit allowed by Section 23622.7 (relating to enter
8 zone hiring credit).
9 (L) The credit allowed by former Section 23623 (relating to
10 program area hiring credit).
1 I (M) The credit allowed by forner Section 23623.5 (relating to
12 Los Angeles Revitalization Zone hiring credit). (relating to
13 (N) The credit allowed by former Section 23625 (' g
14 Los Angeles Revitalization Zone hiring credit).
15 (0) The credit allowed by Section 23633 (relating to targeted
16 tax area sales or use tax credit).
17 (p) The credit allowed by Section 23634 (relating to targeted
18 tax area hiring credit). latin 7 to
19 (Q) The credit allowed by forner Section 23649 (relating
20 qualified (R) For taxable years begimring on or after lanuaalified motion
22 credit allowed by Section 23685 (relating to q
23 pictures).
24 (S) For taxable years beginning on or offer J0111100' li7ed rnotio 7
25 the credit allowed by Section 23695 (relating tog f
26 pictures).
27 (2) A credit against the tax may not reduce the minumun
2 (co
28 franchise tax imposedunder Chapter mmencing with Section
29 23101). partially or totally denied tinder
30 (e) Any credit which is p Y
ears if necessary, if the
31 subdivision (d) is allowed to be carried over to reduce the "tax
32 in the following year, and succeeding years
33 provisions relating to that credit include a provision to allow a
34 carryover of the unused portion of that credit. carryover from a
35 (f) Unless otherwise provided, any remaining Y
36 credit that has been repealed or made inoperative is allowed to be
37 carried over under the provisions of that section as it read
38 irmnediately prior to being repealed or becoming inoperative. 39 (g) Unless otherwise provided, if two or more taxpayers share
39 eligible for a tax credit allowed under this
40 in costs that would is
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AB 1839
1 part, each taxpayer is eligible to receive the tax credit m proporiton
2 to his or her respective share of the costs paid of incurred.
3 (h) Unless otherwiseYhi provided, ar s co the
nputed at the Sceorpoorati on
4 any credit allowed by p for the credit
5 level, and any limitation on the expenses qualifying for to the S
6 or limitation upon the amount of the credit app
7 corporation and to each shareholder.
g (i) (1) with respect to any taxpayer that directly or indirectly
business n disregarded
9 onin In y regulations thereunder,
10 purposes pursuant o23038 and
11 the amount of any credit or credit carryfor assn allowable limited
any
12 taxable year attributable to the dis�eg naedbusiness entity is 1nnited
13 In accordance with paragraphs O (3).
14 (2) The amount of any credit otherwise allowed under this part,
a for
15 including any credit carryover from prior years, that may e applied
16 to reduce the taxpayer's "tax," as defined in subdivision O>
determined
17 the taxable year is limited to am amount equal to the excess of the
18 taxpayer's regular tax (as defined in Section 23455),
19 by including income attributable to the disre r oee they t xpayer entity
20 that generated the credit or credit caryover,
21 regular tax (as defined in Section 23455), determnned by excluding
22 the income attributable to that disreg d t business eed in Section
23 is not allowed if the taxpayer's regular
income
24 23455), detemuned by including the me attributable to the
25 disregarded business entity is less than the taxpayer's regular tax
26 (as defined in Section 23455), determined by excluding the income
27 attributable to the disregarded business d pursuant to the section
28 (3) If the amount of a credit allowed p
29 establishing the credit exceeds the amount allowable under this
carried
30 subdivision in taxable leyear,t puns rant to subdivisions (d), (e),
31 over to subsequent lux
32 and (0•
33 0) (1) Unless of a nerr orsha eholde rof an eligible pass -thru
34 taxpayer that is a p 2 an credit passed through to the
35 entity described in paragraph (2), y ]nnin on or after
36 taxpayer in the taxpayer's first taxable year beg g
37 the date the credit is no longer noperative, o d ng thelrepeal of the
38 taxpayer in that taxable year,
39 statute authorizing the credit prior to the close of that taxable year.
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1 (2) For purposes oft his subdivision, "eligible pass -thin entity" return on a
ar ba rt ner suant to Section s
18566, and that is entitled to
3 fiscal yea
4 a credit pursuant to this part for the taxable year that begins during
5 the last year a credit is operative. at become inoperative
6 (3) This subdivision applies to credits th
7 on or after erative the Revenue adding
this v
Taxa ionC de is
g SEC. 6.
9 amended to read on or after January
10 23685. (a) (1) For taxable yearsbegiallified taxpayer a credit
11 1, 2011, there shall be allowed to a q
12 against the "tax," as defined in Section 230n paragraph ), of the
13 to the applicable percentage, as pecifi ion of a qualified) motion
14 qualified expenditures for the produc
15 picture in California.
16 (2) The credit shall be allowed for the taxable year in which tile
17 California Film coil -tore q °alified motion p toreeiand shall be for
18 to subdivision (g) ualified expenditures paid or
19 the applicable percentage of all q al all taxable years for that
20 incurred by the qualified taxpayer
21 qualified motion picture• qualified taxpayer
22 (3) The amount of the credit allowed to a q
23 shall be limited to the taxpayer er bsthe California Fil n Conan ssion
24 issued to the qualified tax ay y 1 and (2), the applicable
25 pursuant to subdivision (g ( )
26 (4) For purposes of paragraphs
27 percentage shall be: lified expenditures attributable
28 (A) Twenty percent of the qua
five percent of the qualified expenditures
29 to the production of a qualified motion picture in California.
30 (B) Twenty ualified motion picture in
31 attributable to the P-0, r�� nog o picture is a television series
32 California where the q
33 that relocated to California or an independent film.
34 (b) For purposes Oft is section:
35 (1) "Ancillary product" means any article for sale i the public
36 that contains a portion of, or any element of, the qualified motion
37 picture.
38 (2) "Budget" means an estimate of
alified expenses It shall
39 during the production period of a q
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AB 1839
1 be the same budget used by the qualified taxpayer and production
2 company for all qualified motion picture
orpon of aS notion picture,
3 (3) ,Clip use" means a use of any p qualified motion
4 other than the qualified motion picture, used in the
5 picture. issued by the
6 (4) "Credit certificate" nea the co subparagraph t (C) of
7 California Film Commission Pursuant to
8 paragraph (2) of subdivision (g)•
9 (5) (A) "Employee fringe benefits" means the axpa er involved
10 as a deduction under this part to the qualified e exclusive
ees, for any year during the
11 in the production of the qualified motion picture, exclusive o any
12 amounts contributed by employ
13 production period with respect to any of tensihe following:
14 (i) Employer contributions under any p oh, profit - sharing,
15 annuity, or similar ov ded coverage under any accident or health
16 (ii) Employer -p'
e
17 plan for employees.
employer's cost of life or disability insurance provid
IS (iii) The e
19 to employees. s under clause (i) of
20 (B) Any amount treated as wage
21 subparagraph (A) of paragraph (18) shall 110 t be taken into account
22 under this paragraph.
23 (6) "Independent film" means a motion picture with a mimmurn
000 000) and a maximum budget
that is produced by a company
24 budget of one million dollars
ublicly traded companies do not
25 often million dollars ($10,000,000 percent of the producing
26 that is not publicly traded and p
27 own, directly or indirectly, more than 25 p
28 company. rant of rights to distribute the
29 (7) "Licensing' means any g art.
30 qualified motion picture, in whole or in p
31 (8i qualified
use means any use of a motion picture in a medium
A `Post roduction" means the final activities in a qualified
32 other than the medium for which it was initially created.
33 (9) O eanst e fi editing, foley recording,
34 motion pictue's Production,
and end credits, negative cutting, negative
35 automatic dialogue replacement, sound editing, scoring an music
36 editing, beginning.
37 processing and duplication, the addition of sound and visual effects,
38 souB)mixing' olduction " "edoesf note include tile d manufactureoor
39
40 shipping of release prints.
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AB 1839
—39—
(10) "preproduction" means the process of preparation for actual
alified
z physical production which begins after a qu motion Picture
3 has received a firm agreement of financial commitment, or is
4 greenlit, with, for example, the establisl embers, s, a dedicated
5 production office, the hiring of key crew members, and includes,
6 but is not limited to, activities that include location scouting and
means the phase of production
7 execution of contracts with vendors of equipment and stage space.
8 (11) "principal photography"
9 during which the motion picture is actually shot, as distinguished
10 from preproduction and ostprneans the period beginning with
11 (12) "production p ost reduction.
12 preproduction and ending upon completion erp p'
13 (13) "Qualified entity" means a personal service corporation as
14 defined in Section 269A(b)(1) of the Internal Revenue Code, a
15 payroll services corporation, or any entity receiving qualified wages
15 with respect to services performed by a qualified individual.
17 (14) (A) "Qualified individual" means any individual who
18 performs servicesdurngthe pro uctio picture. an activity related
19 to the production of a qualified
20 (B) "Qualified individual" shall not include either of the
u
21 following:
individual related to the qualified taxpayer as describe
22 (i) Any
23 in subparagraph (A), (B)> or (C) of Section 51(1)(1) of the Internal
24 Revenue Code. O 1 B of
25 (ii) Any 5- percent owner, as defined in Section 416 i O( )
26 the Internal Revenue Code, of the qualified taxpayer.
27 (15) (A) "Qualified motion picture means a motion picture
28 that is produced for distribution to the general public, regardless
29 of medium, that is one of the following: et of one million
30 (i) A feature with a minimum product on budg
31 dollars ($1,000,000) and a maximum production budget of
32 seventy -five million dollars ($75,000,000).
33 (ii) A movie of the week or miniseries with a ramirmun
34 production budget of five hundred thodd in California with a
35 (iii) A new television series produce
36 minimum prodr etion budget of one million dollars ($1,000,000)
37 licensed for original distribution on basic cable.
38 (iv) An filol.
39 (v) A television series that relocated to California
97
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AB 1839
1 (B) To qualify as a "qualified motion picture" all of the
2 following conditions shall be satisfied:
3 (i) At least 75 percent of the production days occur wholly in
4 California or 75 percent of the production budget is incurred for
5 payment for services performed within the state and the purchase
6 or rental of property used within
feed motion picture is completed
7 (ii) Production of the q taxpayer
within 30 months fiom the date
C on which alifornia tFil qualified
Coxmniss on. For
9 application is approved by
10 purposes of this section, a qualified motion picture is "completed'
11 when the process of postproduction has been finished.
12 (iii) The copyright for the motion picture is registered with the
13 United States Copyright Office pursuant to Title 17 of the United
14 States Code. ualified motion picture
15 (iv) Principal photography of the qualified by
16 commences after the date on which the application is approved
17 the California Filly, Corrunission, but no later than 180 days after
18 the date of that approval. in computing the
19 (C) For the purposes of subparagral rod�etion of a qualified
20 total wages paid or incurred for then all person
or
21 motion picture, all amounts paid or incurred by P
22 entities that share in the costs of the qua"
23 motion picture shall
23 be aggregated.
24 (D) "Qualified motion picture" shall not include corrunexcia
25 advertising, music videos, a motion picture produced for private
25 noncorrunercial use, such as weddings, graduations, or as part of
27 air educational course and rode by students, a news program,
28 current events or public events program, talk show, game show,
ram, cli based
29 sporting event ox activity, awards show, telethon or otter
30 production that solicits funds, Seaercent of the content t is comprised
31 prograrmning if more than 50 p ro rams, daytime
32 of licensed footage, documentaries, variety programs,
33 dramas, strip shows, one -half hour (air time) episodic television
34 shows, or any production that falls within the recoates ode.
35 requirements of Section 2257 of Title 18 of the United States Code.
36 (16) "Qualified expenditures
e personal property paid
d within rths
37 to purchase or lease tang p
38 state in the production of a qualified motion picture an in this scat
39 including qualified wages, for services performed within this state
40 in the production of a qualified motion picture.
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1 (17) (A) "Qualified taxpayer" means a taxpayer who has paid
2 or incurred qualified expendihues and has been issued pusuant credit
o
3 certificate by the California Fihn Coimnission p
4 subdivision (g)- the determination of
5 (B) (i) hi the case of any p ass -
6 whether a taxpayer is a qualified taxpayer under this section shall on
is not
7 be made at the entity level and but shall be passed th ough to the
8 allowed to the pass entity,
9 partners or shareholders
(co nmenc nlg accordance
Section 117001) 1 or Part provisions
11
10 of Part 10 ( paragraph,
11 (commencing with Section 23001). For purposes artners ip °r S"
12 "pass -thm entity" means ally entity taxed as a p
13 corporation. corporation, the credit allowed under
14 (ii) In the case of an "S" p an "S" corporation as a credit
15 this section shall not be used by
16 against a tax imposed under Chapter 4.5 (eornmeneing with Section
17 23800) of Part 11 of Division 2xneans all of the following:
18 (18) (A) "Qualified wages"
19 (i) Any wages subject to withholding under Division 6
20 (cormnencingwith Section 13000) oftheUner aploT meet ns in the
21 Code that were paid or incurred by any taxpayer qualified
22 production of a gialified motion picture v ,notion picture
23 individual for services performed on the qualified
24 production within this state. benefits paid
25 (ii) The portion of any employee fringe lified motion
26 by any taxpayer involved in the production Of the ed wage amounts
27 picture that are properly allocable to qualifi
28 described in clause (i). ualified entity for services
29 (iii) Any payments made to a g
30 performed in this state by qualified individuals within the meaning
31 of paragraph (14).
muneration paid to an independent contractor who is a
32 (iv) Re med within this state by that
33 qualified individual for services performed
34 qualified individual.
35 (B) "Qualified wages" shall not include any of the following:
36 (i) Expenses, including wages, related to new use, reuse, clip coiripensation, or
37 use, licensing, secondary markets, or residual butlitnitedto,
38 the creation of any ancillary Product, in cluding, not
39 a soundtrack album, toy, game, trailer, or teaser.
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I (ii) Expenses, including wages, paid or incurred with respect to
2 acquisition, development, turnaround, or any rights thereto.
3 (iii) Expenses, including wages, related to financing, overhead,
4 marketing, promotion, or distribution of a qualified motion picture.
5 (iv) Expenses, including wages, paid per person per qualified
6 motion Picture for writers, directors, music directors, music
7 composers, music supervisors, producers, and performers, other
8 than background actors with no scripted lines.
eans supplemental
9 (19) "Residual compensation"
10 compensation paid at the time that o laof Se ondary rma 1 etbs,t a
11 through new use, r-use e is made during production.
12 distinguished from pay qualified motion picture in the
13 (20) "Reuse" means any use of a
ich it was created, following the initial use
14 same medium for wh
15 in that medium. qualified
16 (21) "Secondary markets" means media in which a q
17 motion picture is exhibited following the initial media in which it
I8 is exhibited.
19 (22) "Television series that relocated to California" means
ssle
series, re to gard td f
0 lof p prior season or easonsOus
21
television
xribition that fihned a
22 California and for which the taxpayer certifies that the credit
23 provided p ursuant to this section is the primacy reason for
24 relocating to California. r of Section 230365 in
25 (c) (1) Notwithstanding subdivision O
taxpayer's tax liability computed under this part, a qualified
26 the case where the credit allowed by this section exceeds the
27 elect to assign any portion of the credit allowed
28 taxpayer may
year in which the credit is allowed. For purposes of this
29 under this section to one or more affiliated corporations or each
30 taxable y provided in
31 subdivision, "affiliated corporation' has the meaning p'
32 subdivision (b) of Section 25110, as that section was amended by
ear in which the credit is allowed, except that "100 percent is
33 Chapter 881 of the Statutes of 1993, as of the last day of the eilt" s
34 y ' ' percent" wherever it appears in the
35 substituted for "more than 50 p
36 section, and "voting o sno the Stock"
ection, substituted for "voting
3� stock" wherever it app (1):
38 (2) The election provided in paragraph ethod elected by the q ualified
39 (A) May be based on any
40 taxpayer that originally receives the credit.
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1 (B) Shall be irrevocable for the taxable year the credit is allowed,
2 once made.
3 (C) May be changed for any subsequent taxable year if the
4 election to make the assignment is expressly shown on each of the
5 returns of the qualified taxpayer and the qualified taxpayer's
6 affiliated corporations that assign and receive the credits.
7 (D) Shall be reported to the Franchise Tax Board, in the form
8 and manner specified by the Franchise Tax Board, along with all
9 required information regarding the assigmnent of the credit,
10 including the corporation number, the federal employer
11 identification number, or other taxpayer identification number of
12 the assignee, and the amount of the credit assign. taxpayer
13 (3) (A) Notwithstanding any other law, a qualified tax P Y
14 may sell any credit allowed under this section that is attributable
15 to an independent film, as defined in paragraph (6) of subdivision
16 (b), to an unrelated party.
17 (B) The qualified taxpayer shall report to the Franchise Tax
18 Board prior to the sale of the credit, in the form and manner
19 specified by the Franchise Tax Board, all required information
20 regarding the purchase and sale of the credit, including the social
21 security or other taxpayer identification number of the unrelated
22 party to whom the credit has been sold, the face amount of the
23 credit sold, and the amount of consideration received by the
24 qualified taxpayer for the sale of the credit.
25 (4) In the case where the credit allowed raider this section
26 exceeds the "tax," the excess credit may be carried over to reduce
27 the "tax" in the following taxable year, and succeeding five taxable
28 years, if necessary, until the credit has been exhausted.
29 (5) A credit shall not be sold pursuant to this subdivision to
30 more than one taxpayer, nor may the credit be resold by the
31 unrelated party to another taxpayer or other party.
32 (6) A party that has been assigned or acquired tax credits under
33 this paragraph shall be subject to the requirements of this section.
34 (7) In no event may a qualified taxpayer assign or sell any tax
35 credit to the extent the tax credit allowed by this section is claimed
36 on any tax return of the qualified taxpayer.
37 (8) In the event that both the taxpayer originally allocated a
38 credit under this section by the California Film Connnssion and same
39 a xpayer mt of credit on their tax returns, s, the Franchise Tax Boar
40 aot nd may
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AB 1839
I disallow the credit of either taxpayer, so long as the statute of
2 limitations upon assessment remains Often •
3 (9) Chapter 3.5 (commencing with Section 11340) of Part 1 of
procedure, determination, rule, notice, or
f the Goveiroment Code does not apply to
4 Division 3 of Title 2 o
5 any standard, criterion, p' r
6 guideline established or issued by the Franchise Tax Boar
7 pursuant to this subdivision. 1 to any
8 (10) Subdivision (i) of Section 23036 shall not apply
9 credit sold pursuant to this subdivision.
10 (11) For purposes of this subdivision:
1 shall be treated as a qualified
11 (A) An affiliated corporation or corporations that are assigned
12 a credit pursuant to paragraph (1) h subdivision (a)
13 taxpayer pursuant toparagraph
14 (B) The unrelated party or parties fira taxpayer pursuant
15 to paragraph (3) shall be treated as a qualified
16 to paragraph (1) of subdivision (a)•
17 (d) No credit shall be allowed pursuant to tlto section
California
18 the qualified taxpayer provides the following
19 Film Commission: ualified individual.
20 (1) Identification of each q
21 (2) The specific start and end dates of production. qualified
22 (3) The total wag paid. qualified wages paid to each q
23 (4) The amount of q
24 individual.
25 (5) The copyright registration number, as reflected on the
26 of Titlet17 of the United sSta es Code, relat relating
to registration lo
27 istration number shall be
28 claim and issuance of certificate. The leg purchase or lease
29 Provided on the return claiva d or incurrred top qualified
30 (6) The total amounts p
31 tangible personal property used in the production of a q
32 motion Picture' ualified expenditures.
33 (7) Information to substantiate its q
34 (8) Information required by the California Film Commission
35 under regulations promulgated pursuant to subdivision (g)
prescribe rules and
35 necessary to verify the amount of credit clainre .
37 (e) The California Fit -1 Commission may p'
y procedures, 39 regulations to carry out the pru'poses of this section including any
wired to implement this
39 rules and regulations necessai to establish roce ores, p
40 requirements, and rules identified in or req
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AB 1839
—45—
1 section. The regulations shall include provisions to set aside a
Pip the copyright
2 percentage of anuual credit allocations for independent fi ms•
3 (f) if the qualified taxpayer rer fails to rap h (5) of subdivision
4 registration number as required in p g "
5 (d), the credit shall be disallowed and assessed and collected tinder
6 Section 19051 until the procedures are satisfied.
7 (g) For purposes of this section, the California Film Commission
8 shall do the following: 2017, in no fewer
9 (1) On or after July 1, 2009,�a al year, allocate tax credits to
10 than two allocations Pei" f J licants to file with the
11 applicants. ointl
12 (A) Establish a procedure for app
13 California Film Commission a written application, d a form j Y
14 p' application shall
prescribed by the California Fihn Commission and the Franchise
15 Tax Board for the allocation of the following information:
e acat
16 include, but not be limited to, production.
17 (i) The budget for the motion picture
The number of production days.
19 (iii) A financing plan for the production' licant, red by
20 (iv) The diversity of theworkforce e ehnic and racial mlalwup of the
but not limited to applicant during the production of
21 includuig, ed b the app
22 individuals employ icture, to the extent possiblle if known at
23 the qualified motion p
24 (V).. All rnernbers of a combined reporting group �
hcation• but not 1united
25 the tme of the app
26 (vi) Financial inform oduced balanceesheets annual statements
27 to, the most recently p' statements,
equivalent
28 of profits and losses, audited or unaudited financial statemen s,
or the functional
partners up or owner of a single member
29 stumnary budget projections or results, pursuant to Section
30 of these docmnents of a p pursuant d this clause shall be
31 limited liability company that is disregarded p
32 23038. The information provided p ublic, disclosure.
33 confidential and shall not be subject.' op partnership not p ublicly
34 (vii) The names of all partners n a
of all members 35 traded or the names a tner hip not publicly traded for Cab formal? o t s
36 classified asap ursuant to
37 tax Purposes. that av The inf financial p n- nt to
38 qualified moton Picture.
39 this clause shall be confidential and shall not be subject to public
40 disclosure-
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AB 1839 Legislative
1 (viii) Detailed narratives, for use only of the Leg
2 Analyst's Office in conducting a study of the effectiveness of this
3 credit, that describe the extent and other business location decisions
4 influence or affect filming
5 hiring decisions, salary decisions, and any other financial matters
6 of the applicant.
7 (ix) Any other information deemed relevant by the California
8 Fihn Commission or the Franchise Tax Board.
9 (B) Establish criteria, consistent with the requirements of this
10 section, for allocating tax credits. applicants who meet the
11 (C) Determine and designate
12 requirements of this section. all app lications on a
13 (D) process and approve, or reject,
14 first -come- first - served basis. rovided in as
15 (E) Subject to the annual cap eamount odf credits under this
16 subdivision (i), allocate an aggregate
17 section and Section 17053•85'd allocate any carryover of
18 unallocated credits from prior y ea s
19 (2) Certify tax credits allocated to qualified taxpayers. ed
20 (A) Establish a veriineurr,d by the a for cant, including, but ot
21 expenditures paid or incurred by the app
22 limited to, updates to the information in subparagraph (A) of
23 paragraph (1) of subdivision (g):
24 (B) Establish audit requirements that roust be satisfied before
25 a credit certificate may be issued by the California Film
26 Colrunission. roced ire for a qualified taxpayer to report
27 (C) (i) Establish a p' prior to the issuance of a credit
28 to the California Film Conan ssionI p' or other
29 certificate, the following information: provinces,
30 (1) if readily available, a list of the states, p' of tile applicant's combined
31 jurisdictions In ' Lensan i business unit as the qualified taxpayer
32 reporting g' p has produced a qualified
33 that, In the preceding calendar year, p
" ualified motion picture" shall not
34 motion picture intended for release in the United States market.
t.
35 For purposes of this clause, q
36 inchrde any episodes of a television series that were complete or
37 in production prior to July 1, 2009.
38 (11) Whether a qualified motion picture described in ovine, 0
ncial incentive by
39 (I) was awarded any fina the state, Prince,
-47— AB 1839
1 other jurisdiction that was predicated on the performance of
2 primary principal photography or postproduction in that location.
3 (ii) The California Film Commission 1-nay provide that the report
4 required by this subparagraph be filed in a single report provided
5 on a calendar year basis for those qualified taxpayers that receive
6 multiple credit certificates in a calendar year.
7 (D) Issue a credit certificate to a qualified taxpayer upon
8 completion of the qualified motion picture reflecting the credit
9 amount allocated after qualified expenditures have been verified
10 under this section. The amount of credit shown in the credit
11 certificate shall not exceed the amount of credit allocated to that
12 qualified taxpayer pursuant to this section.
13 (3) Obtain, when possible, the following information from
14 applicants that do not receive an allocation of credit:
15 (A) Whether the qualified motion picture that was the subject
16 of the application was completed.
17 (B) If completed, in which state or foreign jurisdiction was the
18 primary principal photography completed.
19 iin Whether the applicant received any financial incentives
20 from the state or foreign jurisdiction to make the qualified motion
21 picture in that location. on request, any
22 (4) Provide the Legislative Analyst's Office, up q
23 or all application materials or any other materials received from,
24 or submitted by, the applicants, in electronic format when available,
25 including, but not limited to, information provided pursuant to
26 clauses (i) to (ix), inclusive, of subparagraph (A) of paragraph (1).
27 (5) The information provided to the California Film Commission
28 pursuant to this section shall constitute confidential tax information
29 for purposes of Article 2 (cormmencing with Section 19542) of
30 Chapter 7 of Part 10.2.
31 (h) (1) The California FilmConmmssichshall annuallyprovide
32 the Legislative Analyst's Office, the Franchise Tax Board, and the
33 board with a list of qualified taxpayers and the tax credit amounts
34 allocated to each qualified taxpayer by the California Film
35 Commission. The list shall include the names and taxpayer
36 identification numbers, including taxpayer identification numbers
37 of each partner or shareholder, as applicable, of the qualified
38 taxpayer.
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AB 1839 —48
1 (2) (A) Notwithstanding paragraph (5) of subdivision (g), the
2 California Film Commission shall annually post on its Internet
3 web site and make available for public release the following:
4 (i) A table which includes all of the following information: a
5 list of qualified taxpayers and the tax credit amounts allocated to
6 each qualified taxpayer by the California Film Commission, the
7 number of production days in California the qualified taxpayer
8 represented in its application would occur, the number of California
9 jobs that the qualified taxpayer represented in its application would
10 be directly created by the production, and the total amount of
1 t qualified expenditures expected to be spent by the production.
12 (ii) A narrative staff summary describing the production of the
13 qualified taxpayer as well as background information regarding
14 the qualified taxpayer contained in the qualified taxpayer's
15 application for the credit.
16 (B) Nothing in this subdivision shall be construed to make the
17 information submitted by an applicant for a tax credit under this
18 section a public record.
19 (i) (1) The aggregate amount of credits that may be allocated
20 in any fiscal year pursuant to this section and Section 17053.85
21 shall be an amount equal to the sum of all of the following:
22 (A) One hundred million dollars ($100,000,000) in credits for
23 the 2009 -10 fiscal year and each fiscal year thereafter, through
24 and including the 2016 -17 fiscal year.
25 (B) The unused allocation credit amount, if any, for the
26 preceding fiscal year.
27 (C) The amount of previously allocated credits not certified.
28 (2) If the amount of credits applied for in any particular fiscal
29 year exceeds the aggregate amount of tax credits authorized to be
30 allocated under this section, such excess shall be treated as having
31 been applied for on the first day of the subsequent fiscal year.
32 However, credits may not be allocated from a fiscal year other
33 than the fiscal year in which the credit was originally applied for
34 or the immediately succeeding fiscal year.
35 (3) Notwithstanding the foregoing, the California Film
36 Cormnission shall set aside up to ten nnillion dollars ($10,000,000)
37 of tax credits each fiscal year for independent films allocated in
38 accordance with rules and regulations developed pursuant to
39 subdivision (.e).
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1 (4) Any act that reduces the amount that may be allocated
2 pursuant to paragraph (1) constitutes a change in state taxes for
3 the purpose of increasing revenues within the meaning of Section
4 3 ofArticle XIIIA of the California Constitution and may be passed
5 by not less than two- thirds of all Members elected to each of the
6 two houses of the Legislature.
7 0) The California Fihn Commission shall have the authority to
8 allocate tax credits in accordance with this section and in
9 accordance with any regulations prescribed pursuant to subdivision
10 (e) upon adoption.
11
12 SEC. 7. Section 23695 is added to the Revenue and Taxation
13 Code, to read:
14 23695. (a) (1) For taxable years beginning on or after January
15 1, 2016, there shall be allowed to a qualified taxpayer a credit
16 against the "tax," as defined in Section 23036, in an amount equal
17 to the applicable percentage, as specified in paragraph (4), of the
18 qualified expenditures for the production of a qualified motion
19 picture in California. A credit shall not be allowed under this
20 section for any qualified expenditures for the production of a
21 motion picture in California if a credit has been claimed for those
22 same expenditures under Section2369 23685.
23 (2) The credit shall be allowed for the taxable year in which the
24 California Film Conunission issues the credit certificate pursuant
25 to subdivision (g) for the qualified motion picture, but in no
26 instance prior to July 1, 2016, and shall be for the applicable
27 percentage of all qualified expenditures paid or incurred by the
28 qualified taxpayer in all taxable years for that qualified motion
29 picture.
30 (3) The amount of the credit allowed to a qualified taxpayer
31 shall be limited to the amount specified in the credit certificate
32 issued to the qualified taxpayer by the California Film Conunission
33 pursuant to subdivision (g).
34 (4) For purposes of paragraphs (1) and (2), the applicable
35 percentage shall be:
36 (A) Twenty percent of the qualified expenditures attributable
37 to the production of a qualified motion picture in California,
38 including, but not limited to, a feature, up to one hundred million
39 dollars ($100,000,000) in qualified expenditures, or a television
40 series that relocated to California that is in its second or
97
AB 1839
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subsequent years of receiving a tax credit allocation pursuant to
this section or Section 23685.
(B) Twenty -five percent of the qualified expenditures
attributable to the production of a qualified motion picture in
California where the qualified motion picture is a television series
that relocated to California in its first year of receiving a tax credit
allocation pursuant to this section .
(C) Tiventy -five percent of the qualified expenditures, up to tern
million dollars ($10, 000, 000), attributable to the production of a
quaked motion picture that is an independentfrbrn.
(i) The California Film Commission shall increase the
applicable percentage by 5 percent, not to exceed a maximum of
25 percent, if the qualified motion picture paid or
incurred outside the Los Angeles zone the qualified expenditures
relating to original photography outside the Los Angeles zone.
(ii) For purposes of this subparagraph:
(I) `Applicable period" means the period that commences with
preproduction and ends when original photography concludes. The
applicable period includes the time necessary to strike a remote
location and return to the Los Angeles zone.
(11) "Los Angeles zone" means the area within a circle 30 miles
in radius from Beverly Boulevard and La Cienaga Boulevard, Los
Angeles, California, and includes Agra Dulce, Castaic, including
Lake Castaic, Leo Carillo State Beach, Ontario International
Airport, Piru, and Pomona, including the Los Angeles County Fair
grounds. The Metro Goldwyn Mayer, Inc. Conejo Ranch property
is within the Los Angeles zone.
(III) "Original photography" includes principal
photography and reshooting original
footage.
(IV) "Qualified expenditures relating to original photography
outside the Los Angeles zone" means amounts paid or incurred
during the applicable period for tangible personal property
purchased or leased and used or consumed outside the Los Angeles
zone and relating to original photography outside the Los Angeles
zone and qualified wages paid for services performed outside the
Los Angeles zone and relating to original photography outside the
Los Angeles zone.
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(E) Twenty-five percent of the qualified expenditures relating
to music scoring and music edifing track recording by musicians
attributable to the production of a qualified motion picture in
California.
(F) Twenty-five percent of the qualified expenditures relating
to qualified visual effects.
(b) For purposes of this section:
(1) "Ancillary product" means any article for sale to the public
that contains a portion of, or any element of, the qualified motion
picture.
(2) `Budget" means an estimate of all expenses paid or incurred
during the production period of a qualified motion picture. It shall
be the same budget used by the qualified taxpayer and production
company for all qualified motion picture purposes.
(3) "Clip use" means a use of any portion of a motion picture,
other than the qualified motion picture, used in the qualified motion
picture.
(4) "Credit certificate" means the certificate issued by the
California Film Commission pursuant to subparagraph (C) of
paragraph (2) of subdivision (g).
(5) (A) "Employee fringe benefits" means the amount allowable
as a deduction under this part to the qualified taxpayer involved
in the production of the qualified motion picture, exclusive of any
amounts contributed by employees, for any year during the
production period with respect to any of the following:
(i) Employer contributions under any pension, profit - sharing,
annuity, or similar plan.
(ii) Employer- provided coverage render any accident or health
plan for employees.
(iii) The employer's cost of life or disability insurance provided
to employees.
(13) Any amount treated as wages under clause (i) of
subparagraph (A) of paragraph -" (20) shall not be taken into
account under this paragraph.
(6) "Independent film" means a motion picture with a minimum
budget of one million dollars ($1,000,000) and amaximiumbtt4ppt
often milliort 00 000) that is produced by a company
that is not publicly traded and publicly traded companies do not
own, directly or indirectly, more than 25 percent of the producing
company.
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(7) "Licensing" means any grant of rights to distribute the
qualified motion picture, in whole or in part.
(8) "New use" means any use of a motion picture in a medium
other than the medium for which it was initially created.
(9) "Pilot for a new television series" means the initial episode
produced for a proposed television series.
(10) (A) "Post production" "Postproduction" means the final
activities in a qualified motion picture's production, including
editing, foley recording, automatic dialogue replacement, sound
editing, scoring, music track recording by musicians and music
editing, beginning and. end credits, negative cutting, negative
processing and duplication, the addition of sound and visual effects,
sou ndmixitng, sound mixing; film -to -tape transfers, encoding, and
color correction.
(B) `Postproduction" does not include the
manufacture or shipping of release prints or their equivalent.
(11) "Preproduction" means the process ofpreparation for actual
physical production which begins after a qualified motion picture
has received a firm agreement of financial commitment, or is
greenlit, with, for example, the establishment of a dedicated
production office, the hiring of key crew members, and includes,
but is not limited to, activities that include location scouting and
execution of contracts with vendors of equipment and stage space.
(12) "Principal photography" means the phase of production
during which the motion picture is actually shot, as distinguished
from preproduction and -pest-preduetian postproduction.
(12)
(13) "Production period" means the period beginning with
preproduction and ending upon completion ofd
postproduction.
f�
(14) "Qualified entity" means a personal service corporation as
defined in Section 269A(b)(1) of the Internal Revenue Code, a
payroll services corporation, or any entity receiving qualified wages
with respect to services performed by a qualified individual.
(1 S) "Qtialied expenditures "means amounts paid or inciirred
for tangible personal property purchased or leased, and used,
97