Lawmakers protest new limits on film tax credits

California Legislators Push for Exemption of Film and TV Tax Credits

More than three dozen California legislators are urging Governor Gavin Newsom to exempt the state’s film and television production incentive program from a recently enacted cap on corporate tax credits. They warn that without intervention, the program will be “significantly kneecapped.”

Although the state’s budget has already been approved, the lawmakers argue that a solution must be found before the end of the year to ensure that production companies do not lose the full value of tax credits they earned in exchange for creating middle-class entertainment industry jobs. This call to action comes in the form of a letter dated Friday, addressed to Newsom, State Senate President Pro Tempore Monique Limón, and Assembly Speaker Robert Rivas.

The letter emphasizes that tax credits earned for creating jobs in motion picture and television production differ from those provided for research and development. It states that the new legislation creates short-term budget savings by reneging on commitments made to the entertainment industry and the working families who depend on it for their livelihoods.

This development follows Governor Newsom signing his final state budget as California’s governor, a $351.7-billion spending plan that includes new limitations on corporate tax credits. The budget contains a provision that restricts the maximum tax credit companies can claim in a given year to $5 million or 50% of a company’s state tax liability, whichever is greater.

Hollywood industry representatives had previously warned the governor’s office that these new restrictions could negatively impact the state’s production incentive program, which was recently bolstered to an annual cap of $750 million. The film and TV industry in Southern California has faced challenges in recovering from the effects of the pandemic, the dual writers’ and actors’ strikes in 2023, and the exodus of production to other states and countries.

Assemblyman Rick Chavez Zbur (D-Los Angeles), chair of the Assembly Democratic Caucus, noted that members who voted for the budget bill believed there was a carve-out for the film and TV tax credit program. “I don’t think that anyone understood what this cap was, what it did, and that it effectively kneecapped and reverses the progress that we made last year,” Zbur said in an interview. He added that the changes, which were perceived as minor, are actually significant and could lead to substantial job losses if not corrected.

The new changes to the state’s film and TV tax credit program, which included expanded eligibility for additional shows and films, came after intense lobbying from studios and industry workers. They argued that more funding was necessary to lure production back from other states and countries.

Last week, the California Film Commission stated that the expanded tax credit program was set to deliver $6.6 billion in direct production spending in-state and more than 34,000 cast and crew jobs across the 170 total film and TV shows that received production incentives this year.