February 3, 2023

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Gov. Newsom aims to make the California film tax credit refundable

2 min read

California Gov. Gavin Newsom on Tuesday pledged to make the state’s film and TV tax credit refundable, a major change to the program that marks a significant boon for studios.

If approved by the Legislature, the change would allow companies with lower California tax liabilities — particularly streaming services like Netflix — to still benefit from the state’s production subsidies.

Newsom has previously said he supports extending the $330 million program for an additional five years through 2030 and reiterated that commitment Tuesday.

Several other states — including major film incentive states like Georgia and New York — have already made their tax credits refundable or transferable.

“California is now in a position where we think we need to be able to offer that option,” said Nancy Ray Stone, deputy director of the state’s film and TV tax credit program. “There are a lot of companies that want to film in California, but they can’t use the credit if they don’t have a tax liability, and so California is not an option.”

The Motion Picture Association has previously lobbied for change, and last year commissioned a report from the Los Angeles Economic Development Corporation that included refundability among its recommendations.

Under the current program, companies can receive tax credits worth 25% or 20% of their production costs. The program is capped at $330 million per year, although Newsom temporarily expanded it to $420 million over two years in 2021.

The credit allows companies to offset their liability for state income, sales and use taxes. The two major studios — Disney and NBCUniversal — have significant tax liabilities in the state because they operate theme parks, which generate sales taxes.

But credit is less valuable to companies that don’t have such ancillary lines of business.

“It opens up the program to more potential applicants, which is a good thing,” Stone said.

The credit will be refundable at a discount, so companies cannot exchange $1 of credit for $1 of cash. There may also be limits on the total amount of credits that can be paid back at any one time, although some details have yet to be determined.

Under Newsom’s proposal, the retroactive provision applies only to Program 4.0, which runs from 2025 to 2030. It is not clear whether companies that have already accumulated a large stockpile of unused credits will be able to exchange them

In Georgia — where film tax credits topped $1.2 billion last year — companies are allowed to sell their credits, typically for about 85 to 90 cents on the dollar. This allows companies that are not based in the state to still use the program

In California, credits for independent productions are also transferable.

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