California’s Film Tax Credit Aims to Get a One Up on Georgia (1)

California Gov. Gavin Newsom (D) signed SB 132 into law on July 10 amid an ongoing strike by the Writers Guild of America and with the looming threat of a SAG-AFTRA strike that came to fruition late last week. The new law extends through 2032 the existing film tax credit, which was set to expire on June 30, 2025.

Film Credit 4.0, designed to compete with Georgia’s film tax credit, features some new and interesting twists.

One of the biggest criticisms of Film Credit 3.0 was that it was nonrefundable. The only thing a production could do if the credit exceeded the tax liability was carry the credit forward. If a studio had no tax liability, the credit was worthless, because it would expire before the studio could use it. And while California is home to several major production companies, only two—the Walt Disney Co. and NBCUniversal Media LLC—had enough tax liability to take full advantage of the program, leaving everyone else effectively shut out.

Film Credit 4.0 solves that problem, allowing production companies to get a refund even when they have no tax liability. For small independent films, defined as films with qualified expenditures under $10 million, that’s where the story ends. But for films with qualified expenditures above $10 million, there’s one small catch.

Productions over the $10 million threshold get 96% of the credit automatically. To get the remaining 4%, films must submit a diversity work plan and meet above-the-line (actors, directors, producers) and below-the-line (crew) diversity requirements. If the production meets one requirement, it gets an additional 2%. If it meets both, it gets the full credit.

This bill comes none too soon, as Texas, New York, and New Jersey have all passed bills that give or increase tax incentives to attract more productions, including subsidizing Netflix’s construction of new studio space in New Jersey. And Nevada, California’s closest neighbor, continues trying to lure productions away, though its most recent attempt to pass a modified film tax credit was unsuccessful.

So how does Film Credit 4.0 compare to Georgia’s film credit? Will it steal back production work that is headed to or filming in the Peach State? Maybe. The main focus of production companies was to make the credit refundable. Georgia’s credit is nonrefundable—though it is transferable—so in that respect California has caught up.

But there are still significant differences. Georgia’s film credit applies to any production, be it game show, talk show, film, or episodic television. By contrast, California excludes commercial advertising, music videos, talk shows, game shows, sporting events, awards shows, reality television programs, documentaries, variety programs, daytime dramas, half-hour episodic television shows, and pornography. In addition, Georgia requires that production companies spend at least $500,000, whereas California requires a minimum $1 million.

Despite those differences, California should be able to attract or keep more productions and achieve a more equal competitive footing with its film rivals. All it has to do is wait until 2025.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Gregory A. Zbylut is a tax attorney and partner at Breyer Andrew, a boutique law firm in Los Angeles. His practice consists largely of individuals and businesses in the entertainment industry and other high-net-worth clients.

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