AB1377 - Income taxes: credits: motion picture credit.

CALIFORNIA LEGISLATURE— 2025–2026 REGULAR SESSION Assembly Bill No. 1377 Introduced by Assembly Member McKinnor (Coauthors: Assembly Members Flora, Ortega, and Celeste Rodriguez) (Coauthor: Senator Smallwood-Cuevas) February 21, 2025 An act to amend Sections 17053.98, 17053.98.1, 23698, and 23698.1 of the Revenue and Taxation Code, relating to taxation, to take effect immediately, tax levy. LEGISLATIVE COUNSEL'S DIGEST AB 1377, as introduced, McKinnor. Income taxes: credits: motion picture credit. The Personal Income Tax Law and the Corporation Tax Law allow various credits against the taxes imposed by those laws, including numerous motion picture credits. Existing law, for taxable years beginning on or after January 1, 2025, allows a motion picture credit (motion picture credit 4.0) to be allocated by the California Film Commission on or after July 1, 2025, and before July 1, 2030, in an amount equal to 20% or 25% of qualified expenditures for the production of a qualified motion picture in this state, and limits the aggregate amount of the credit that may be allocated for a fiscal year to $330,000,000, as specified. Existing law requires the California Film Commission to certify a credit amount equal to 96 percent of the total credit allocated to a qualified taxpayer, unless the qualified taxpayer chooses to submit a diversity workplan and the California Film Commission determines that the qualified taxpayer has met or made a good-faith effort to meet the diversity goals in its diversity workplan, as specified. This bill, for motion picture credit 4.0, if a qualified taxpayer chooses to submit a diversity workplan, would remove the good faith effort standard, and instead would require the California Film Commission to determine whether the qualified taxpayer met the diversity goals in its diversity workplan, as provided. The bill would also correct erroneous cross-references in those provisions. Existing law also allows a credit for taxable years beginning on or after January 1, 2022, and before January 1, 2032, in an amount equal to 20% or 25%, or as modified, of qualified expenditures paid or incurred during the taxable year by a qualified motion picture produced in this state at a certified studio construction project. Existing law defines a qualified motion picture for these purposes in the same manner as the motion picture credit and additionally requires that the qualified motion picture provide a diversity workplan that is approved by the commission. Existing law requires the California Film Commission to increase a qualified motion picture applicant’s credit percentage by 4 percentage points if the applicant has met or made a good faith effort to meet the diversity goals in its diversity workplan. This bill, for taxable years beginning on or after January 1, 2025, would remove the good faith effort standard, and instead would allow the California Film Commission to increase a qualified motion picture applicant’s credit percentage by 4 percentage points if the applicant has met the diversity goals in its diversity workplan. This bill would include a change in state statute that would result in a taxpayer paying a higher tax within the meaning of Section 3 of Article XIII A of the California Constitution, and thus would require for passage the approval of 2 / 3 of the membership of each house of the Legislature. This bill would take effect immediately as a tax levy. Digest Key Vote: 2/3 Appropriation: NO Fiscal Committee: YES Local Program: NO Bill Text The people of the State of California do enact as follows: SECTION 1. Section 17053.98 of the Revenue and Taxation Code is amended to read: 17053.98. (a) (1) For taxable years beginning on or after January 1, 2020, there shall be allowed to a qualified taxpayer a credit against the “net tax,” as defined in Section 17039, subject to a computation and ranking by the California Film Commission in subdivision (g) and the allocation amount categories described in subdivision (i), in an amount equal to 20 percent or 25 percent, whichever is the applicable credit percentage described 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 or 17053.95. (2) Except as otherwise provided in this section, 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, 2020, 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) (A) 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). (B) In determining the amount specified in the credit certificate in subparagraph (A), the California Film Commission shall be limited to the following amounts of qualified expenditures for each qualified motion picture: (i) In the case of a feature, up to one hundred million dollars ($100,000,000). (ii) In the case of a miniseries described in clause (ii) of subparagraph (A) of paragraph (18) of subdivision (b), up to one hundred million dollars ($100,000,000). (iii) In the case of a television series described in clause (iii) or clause (v) of subparagraph (A) of paragraph (18) of subdivision (b), up to one hundred million dollars ($100,000,000) per season. (iv) In the case of an independent film, up to ten million dollars ($10,000,000). (4) For purposes of paragraphs (1) and (2), the applicable credit 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 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, Section 17053.85, or Section 17053.95. (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) Twenty-five percent of the qualified expenditures attributable to the production of a qualified motion picture that is an independent film. (D) Additional credits shall be allowed for the production of a qualified motion picture whose applicable credit percentage is determined pursuant to subparagraph (A), in an aggregate amount not to exceed 5 percent of the qualified expenditures under that subparagraph, as follows: (i) (I) Five percent of qualified expenditures, excluding qualified wages described in subparagraph (E), relating to original photography outside the Los Angeles zone. (II) For purposes of this clause and subparagraph (E): (ia) “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. (ib) “Los Angeles zone” means the area within a circle 30 miles in radius from Beverly Boulevard and La Cienega Boulevard, Los Angeles, California, and includes Agua Dulce, Castaic, including Castaic Lake, Leo Carrillo State Beach, Ontario International Airport, Piru, and Pomona, including the Los Angeles County Fairgrounds. The Metro-Goldwyn-Mayer, Inc. Conejo Ranch property is within the Los Angeles zone. (ic) “Original photography” includes principal photography and reshooting original footage. (id) “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. (ii) Five percent of the qualified expenditures relating to qualified visual effects attributable to the production of a qualified motion picture in California. (E) (i) Notwithstanding subparagraph (D), an amount equal to 10 percent of qualified wages paid for services performed relating to original photography outside of the Los Angeles zone to qualified individuals who reside in California but outside the Los Angeles zone shall be allowed as an additional credit for the production of a qualified motion picture whose applicable credit percentage is determined pursuant to subparagraph (A). (ii) Notwithstanding subparagraph (D), an amount equal to 5 percent of qualified wages paid for services performed relating to original photography outside of the Los Angeles zone to qualified individuals who reside in California but outside the Los Angeles zone shall be allowed as an additional credit for the production of a qualified motion picture whose applicable credit percentage is determined pursuant to subparagraph (B) or (C). (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 (D) of paragraph (3) 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 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 (21) 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) 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) “Jobs ratio” means the amount of qualified wages paid to qualified individuals divided by the amount of tax credit, not including any additional credit allowed pursuant to subparagraphs (D) and (E) of paragraph (4) of subdivision (a), as computed by the California Film Commission. For the purposes of the calculation of the jobs ratio only, 70 percent of qualified expenditures for visual effects paid to third-party vendors for work performed in California shall be deemed to be qualified wages paid to a qualified individual. (8) “Licensing” means any grant of rights to distribute the qualified motion picture, in whole or in part. (9) “New use” means any use of a motion picture in a medium other than the medium for which it was initially created. (10) “Pilot for a new television series” means the initial episode produced for a proposed television series. (11) (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. (12) “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. (13) “Principal photography” means the phase of production during which the motion picture is actually shot, as distinguished from preproduction and postproduction. (14) “Production period” means the period beginning with preproduction and ending upon completion of postproduction. (15) “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. (16) “Qualified expenditures” means amounts paid or incurred for tangible personal property purchased or leased, and 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 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 51(i)(1) of the Internal Revenue Code. (ii) Any 5-percent owner, as defined in Section 416(i)(1)(B) of the Internal Revenue Code, of the qualified taxpayer. (18) (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). (ii) A miniseries consisting of two or more episodes, each longer than 40 minutes of running time, exclusive of commercials, that is produced in California, with a minimum production budget of one million dollars ($1,000,000) per episode. (iii) A new television series of episodes longer than 40 minutes each of [Text truncated for display. Full text available on Congress.gov.]