What You Should Know About California SB 132, the Film and TV Tax Incentive Extension

On July 10, Governor Gavin Newsom signed into law California SB 132, extending the state's $330 million-a-year film and television tax incentive program through June 2030. The bill also enacted new diversity requirements for film and television projects applying for the program and made significant changes to the manner in which these tax credits can be utilized.

Under existing law, feature films, new television series, mini-series and pilots filmed in California are eligible for a 20% credit against the producing entity's California income tax liability for qualified expenditures, while independent films and relocating television series are eligible for a 25% tax credit, subject in both cases to 5-10% uplifts for qualified expenditures related to visual effects work, local labor hiring, and photography outside of the "Studio Zone" (a 30-mile radius around Los Angeles). In order to qualify for the higher 25% credit, a television series must have filmed its most recent season outside the state, while an applicant for an independent film must not be a publicly traded company (or subject to 25% or more ownership by one). The credit for a relocating television series will be reduced to 20% following the first season produced in California.

Qualified motion pictures must apply during the application periods stated on the California Film Commission's tax incentive application website. The Film Commission will then select from all eligible applicants those productions that are most likely to increase jobs and economic activity in the state based on a jobs ratio formula that takes into account both qualified and non-qualified wages plus additional points for out-of-zone filming, visual effects and music scoring and recording labor. Maximizing this formula, including any available bonus points, is critical to an applicant successfully securing limited available tax credits. Once selected, applicants must submit all additional required materials within three business days; therefore, applicants should have all materials ready for submission by the selection notice date set by the Film Commission for the applicable year as stated on its website.

New Diversity Workplan Checklist

Beginning in 2025, all productions applying for the tax credit will also be required to submit a diversity workplan checklist to qualify. As of the time of this writing, this checklist has not been made available to the public but will be developed by the California Film Commission. Failure to meet the diversity workplan requirement will result in a rejected application and, once accepted, the Film Commission is empowered to penalize a production in an amount equal to 4% of the total credit for failure to timely submit a full diversity workplan and/or interim and final assessments reflecting a good faith effort to meet the goals stated in such workplan. Given the potential size of such a reduction could amount to millions of dollars, it is important to strictly monitor compliance with these new requirements. Independent films with qualified expenditures of $10 million or less are exempt.

New Refund Provision

Perhaps the most significant and attractive change to the program is that the new bill adds a refund component to the tax credit. Under previous law, all tax credits awarded for film and television productions were non-transferable and non-refundable. This meant that the tax credit had to be used by the party receiving the credit to offset its own state income tax liability (excluding only credits issued to independent films, which could be transferred to third parties in order to cash-flow an essential part of any such film's finance plan). If the credits exceeded the company's state tax liability, then the company was unable to use the credit in the current taxable year. Beginning in 2025, production companies receiving the tax credit will be able to submit for a refund by the state to the extent the credit exceeds the company's state tax liability. In the case of large studios, this change should result in a substantial amount of refunds paid by state taxpayers to these companies over the course of the five-year extension but also attracts significant investment back into California by offering a tax incentive structure comparable to other states with robust refund or cash rebate programs.

Qualified Motion Pictures

In order to qualify for the film and television tax incentive program, a production must meet one of the following criteria:

• 75% or more of the production budget must be utilized for goods, services and wages within California;
• 75% or more of total principal photography days must occur within California (excluding backgrounds, visual effects, action and/or crowd scenes by the second/stunt/VFX units).

  The following types of productions are ineligible:

• Half-hour episodic television series (excluding relocating TV productions)
• Animation
• Awards Shows
• Clip-based programming
• Commercial advertising
• Current/public events programs
• Daytime dramas
• Documentaries
• Educational programming
• Game shows
• Music videos
• Private, non-commercial productions
• News programs
• Reality/Unscripted programming
• Student films
• Talk shows
• Telethons
• Variety programs
• Sexually explicit material

Links

California Film Commission Tax Credit Application

Jobs Ratio Calculator

Application Checklist (Non-Independent Productions)

Application Checklist (Independent Productions)

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For questions regarding California's film and television tax incentive program or assistance with the application process, please contact Brad Miller or Ian Brereton.