California Lawmakers Reach Deal to Amend Production Tax Incentive Ahead of Deadline

California lawmakers have unveiled a new trailer bill that will make changes to the state’s expanded production tax incentive program after a law capping annual tax credits for all businesses passed earlier this summer.

On June 29, Senate Bill 122 was passed into law by Gov. Gavin Newsom as part of the state’s annual budget, capping the amount of tax credits any business can receive at $5 million or 70% of total liability per year, whichever is greater. The bill was passed as a way to raise revenue from corporate taxes by closing loopholes.

But SB 122 sparked alarm among studios and entertainment unions, as the law threatened to undermine the industry’s efforts to make California more competitive as a film and TV production hub by expanding the state’s production incentive cap from $330 million to $750 million last year. With the $5 million annual cap in place, industry advocates like the Entertainment Union Coalition and the Motion Picture Association warned that it would take longer for major studio productions to receive the tax credits they earned while making it more difficult for independent productions to sell the credits to potential financiers.

A new trailer bill, Assembly Bill 186, seeks to mitigate this with changes to the incentive program. The bill was printed Friday afternoon hours ahead of the deadline to submit new bills before the final day of the Sacramento legislative session on Monday. AB 186 will be among a flurry of dozens of bills that lawmakers will vote on, though it is expected to pass.

AB 186 will accelerate payouts for productions approved under the most recent version of the incentive program with a payout over two years rather than five and lower the discount on refunds for the credits from 10% to 5%.

The bill also expands the carry forward provisions of tax credits earned under earlier versions of the program from 10 to 15 years, meaning that studios still receiving credits for productions completed several years ago can still receive the full value of their credits as long as the studios have a project approved for tax credits under the current program.

Independent productions will also be fully exempt from the SB 122 annual cap, though the trailer bill stops short of extending that exemption to major studio productions. Insiders with knowledge of the talks in Sacramento between lawmakers tell TheWrap that there was concern that a full exemption for all productions would cause businesses from other industries to push for exemptions of their own, undermining the effectiveness of SB 122.

More to come…