BILL NUMBER: AB 1069 AMENDED
BILL TEXT
AMENDED IN SENATE AUGUST 31, 2011
AMENDED IN SENATE JULY 13, 2011
AMENDED IN ASSEMBLY MAY 18, 2011
INTRODUCED BY Assembly Member Fuentes
(Principal coauthors: Assembly Members Gatto, Hall, and Smyth)
(Coauthors: Assembly Members Butler, Ma, and Portantino)
( Coauthors: Senators
Alquist, Pavley, and Price )
FEBRUARY 18, 2011
An act to add Section 17053.86 to, and to repeal and
amend Sections 17053.85 and 23685 of , the Revenue and
Taxation Code, relating to taxation, to take effect immediately, tax
levy.
LEGISLATIVE COUNSEL'S DIGEST
AB 1069, as amended, Fuentes. Income taxes: credits: film:
extension.
The Personal Income Tax Law and the Corporation Tax Law authorize
various credits against the taxes imposed by those laws,
including a credit against those taxes for taxable years beginning on
or after January 1, 2011, in an amount equal to a specified
percentage of the qualified expenditures, as defined, attributable to
the production of a qualified motion picture in California, or,
where the qualified motion picture has relocated to California or is
an independent film, as provided. Existing law requires the
California Film Commission to allocate the tax credits until July 1,
2014, and limits the aggregate amount of qualified motion
pictures credits that may be allocated to qualified
motion pictures in any fiscal year to $100,000,000,
through the 2013-14 fiscal year.
This bill, under the Personal Income Tax Law and the Corporation
Tax Law, would extend the California Film Commission's requirement to
allocate the tax credits 5 one
additional years year , until July 1,
2019 2015 . This bill would also extend
the limit on the aggregate amount of credits that may be allocated
through the 2018-19 2014-15 fiscal
year. This bill would require the California Film Commission to
provide the Legislative Analyst's Office with specified application
materials, and would require the Legislative Analyst's Office to
conduct release publicly and provide to the
Assembly Committee on Revenue and Taxation and the Senate Committee
on Governance and Finance a study relating to the
economic activity created by evaluating the economic
effects and administration of this credit, as prescribed. By
expanding the crime relating to the disclosure of information from
specified returns, reports, or documents, this bill would impose a
state-mandated local program. This bill would also require the
Direc tor of Finance to eliminate the extension of the
allocation of the film tax credit, described above, from July 1,
2014, to July 1, 2015, inclusive, if the higher revenue forecast, as
specified, projects General Fund revenues of less than
$87,452,500,000 and if a specified budget provision is operative.
The California Constitution requires the state to reimburse local
agencies and school districts for certain costs mandated by the
state. Statutory provisions establish procedures for making that
reimbursement.
This bill would provide that no reimbursement is required by this
act for a specified reason.
This bill would take effect immediately as a tax levy.
Vote: majority. Appropriation: no. Fiscal committee: yes.
State-mandated local program: yes.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. Section 17053.85 of the Revenue and Taxation Code, as
added by Section 4 of Chapter 10 of the 3rd Extraordinary Session of
the Statutes of 2009, is repealed.
SEC. 2. Section 17053.85 of the Revenue and Taxation Code, as
added by Section 4 of Chapter 17 of the 3rd Extraordinary Session of
the Statutes of 2009, is amended to read:
17053.85. (a) (1) For taxable years beginning on or after January
1, 2011, there shall be allowed to a qualified taxpayer a credit
against the "net tax," as defined in Section 17039, in an amount
equal to the applicable percentage, as specified in paragraph (4), of
the qualified expenditures for the production of a qualified motion
picture in California.
(2) 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, 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) 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).
(4) For purposes of paragraphs (1) and (2), the applicable
percentage shall be:
(A) Twenty percent of the qualified expenditures attributable to
the production of a qualified motion picture in California.
(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 or an independent film.
(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 (C) of paragraph
(2) 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 (18) 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) and a maximum budget of
ten million dollars ($10,000,000) 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) "Licensing" means any grant of rights to distribute the
qualified motion picture, in whole or in part.
(8) "New use" means any use of a motion picture in a medium other
than the medium for which it was initially created.
(9) (A) "Postproduction" means the final activities in a qualified
motion picture's production, including editing, foley recording,
automatic dialogue replacement, sound editing, scoring and music
editing, beginning and end credits, negative cutting, negative
processing and duplication, the addition of sound and visual effects,
soundmixing, film-to-tape transfers, encoding, and color correction.
(B) "Postproduction" does not include the manufacture or shipping
of release prints.
(10) "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.
(11) "Principal photography" means the phase of production during
which the motion picture is actually shot, as distinguished from
preproduction and postproduction.
(12) "Production period" means the period beginning with
preproduction and ending upon completion of postproduction.
(13) "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.
(14) (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.
(15) (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) and a maximum production budget of seventy-five
million dollars ($75,000,000).
(ii) A movie of the week or miniseries with a minimum production
budget of five hundred thousand dollars ($500,000).
(iii) A new television series produced in California with a
minimum production budget of one million dollars ($1,000,000)
licensed for original distribution on basic cable.
(iv) An independent film.
(v) A television series that relocated to California.
(B) To qualify as a "qualified motion picture," all of the
following conditions shall be satisfied:
(i) At least 75 percent of the production days occur wholly in
California or 75 percent of the production budget is incurred for
payment for services performed within the state and the purchase or
rental of property used within the state.
(ii) Production of the qualified motion picture is completed
within 30 months from the date on which the qualified taxpayer's
application is approved by the California Film Commission. For
purposes of this section, a qualified motion picture is "completed"
when the process of postproduction has been finished.
(iii) The copyright for the motion picture is registered with the
United States Copyright Office pursuant to Title 17 of the United
States Code.
(iv) Principal photography of the qualified motion picture
commences after the date on which the application is approved by the
California Film Commission, but no later than 180 days after the date
of that approval.
(C) For the purposes of subparagraph (A), in computing the total
wages paid or incurred for the production of a qualified motion
picture, all amounts paid or incurred by all persons or entities that
share in the costs of the qualified motion picture shall be
aggregated.
(D) "Qualified motion picture" shall not include commercial
advertising, music videos, a motion picture produced for private
noncommercial use, such as weddings, graduations, or as part of an
educational course and made by students, a news program, current
events or public events program, talk show, game show, sporting event
or activity, awards show, telethon or other production that solicits
funds, reality television program, clip-based programming if more
than 50 percent of the content is comprised of licensed footage,
documentaries, variety programs, daytime dramas, strip shows,
one-half hour (air time) episodic television shows, or any production
that falls within the recordkeeping requirements of Section 2257 of
Title 18 of the United States Code.
(16) "Qualified expenditures" means amounts paid or incurred to
purchase or lease tangible personal property 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 taxpayer" means a taxpayer who has paid or
incurred qualified expenditures and has been issued a credit
certificate by the California Film Commission pursuant to subdivision
(g).
(B) In the case of any passthrough entity, the determination of
whether a taxpayer is a qualified taxpayer under this section shall
be made at the entity level and any credit under this section is not
allowed to the passthrough entity, but shall be passed through to the
partners or shareholders in accordance with applicable provisions of
Part 10 (commencing with Section 17001) or Part 11 (commencing with
Section 23001). For purposes of this paragraph, "passthrough entity"
means any entity taxed as a partnership or "S" corporation.
(18) (A) "Qualified wages" means all of the following:
(i) Any wages subject to withholding under Division 6 (commencing
with Section 13000) of the Unemployment Insurance Code that were paid
or incurred by any taxpayer involved in the production of a
qualified motion picture with respect to a qualified individual for
services performed on the qualified motion picture production within
this state.
(ii) The portion of any employee fringe benefits paid or incurred
by any taxpayer involved in the production of the qualified motion
picture that are properly allocable to qualified wage amounts
described in clause (i).
(iii) Any payments made to a qualified entity for services
performed in this state by qualified individuals within the meaning
of paragraph (14).
(iv) Remuneration paid to an independent contractor who is a
qualified individual for services performed within this state by that
qualified individual.
(B) "Qualified wages" shall not include any of the following:
(i) Expenses, including wages, related to new use, reuse, clip
use, licensing, secondary markets, or residual compensation, or the
creation of any ancillary product, including, but not limited to, a
soundtrack album, toy, game, trailer, or teaser.
(ii) Expenses, including wages, paid or incurred with respect to
acquisition, development, turnaround, or any rights thereto.
(iii) Expenses, including wages, related to financing, overhead,
marketing, promotion, or distribution of a qualified motion picture.
(iv) Expenses, including wages, paid per person per qualified
motion picture for writers, directors, music directors, music
composers, music supervisors, producers, and performers, other than
background actors with no scripted lines.
(19) "Residual compensation" means supplemental compensation paid
at the time that a motion picture is exhibited through new use,
reuse, clip use, or in secondary markets, as distinguished from
payments made during production.
(20) "Reuse" means any use of a qualified motion picture in the
same medium for which it was created, following the initial use in
that medium.
(21) "Secondary markets" means media in which a qualified motion
picture is exhibited following the initial media in which it is
exhibited.
(22) "Television series that relocated to California" means a
television series, without regard to episode length or initial media
exhibition, that filmed all of its prior season or seasons outside of
California and for which the taxpayer certifies that the credit
provided pursuant to this section is the primary reason for
relocating to California.
(c) (1) Notwithstanding any other law, a qualified taxpayer may
sell any credit allowed under this section that is attributable to an
independent film, as defined in paragraph (6) of subdivision (b), to
an unrelated party.
(2) The qualified taxpayer shall report to the Franchise Tax Board
prior to the sale of the credit, in the form and manner specified by
the Franchise Tax Board, all required information regarding the
purchase and sale of the credit, including the social security or
other taxpayer identification number of the unrelated party to whom
the credit has been sold, the face amount of the credit sold, and the
amount of consideration received by the qualified taxpayer for the
sale of the credit.
(3) In the case where the credit allowed under this section
exceeds the "net tax," the excess credit may be carried over to
reduce the "net tax" in the following taxable year, and succeeding
five taxable years, if necessary, until the credit has been
exhausted.
(4) A credit shall not be sold pursuant to this subdivision to
more than one taxpayer, nor may the credit be resold by the unrelated
party to another taxpayer or other party.
(5) A party that has acquired tax credits under this section shall
be subject to the requirements of this section.
(6) In no event may a qualified taxpayer assign or sell any tax
credit to the extent the tax credit allowed by this section is
claimed on any tax return of the qualified taxpayer.
(7) In the event that both the taxpayer originally allocated a
credit under this section by the California Film Commission and a
taxpayer to whom the credit has been sold both claim the same amount
of credit on their tax returns, the Franchise Tax Board may disallow
the credit of either taxpayer, so long as the statute of limitations
upon assessment remains open.
(8) Chapter 3.5 (commencing with Section 11340) of Part 1 of
Division 3 of Title 2 of the Government Code does not apply to any
standard, criterion, procedure, determination, rule, notice, or
guideline established or issued by the Franchise Tax Board pursuant
to this subdivision.
(9) Subdivision (g) of Section 17039 shall not apply to any credit
sold pursuant to this subdivision.
(10) For purposes of this subdivision, the unrelated party or
parties that purchase a credit pursuant to this subdivision shall be
treated as a qualified taxpayer pursuant to paragraph (1) of
subdivision (a).
(d) No credit shall be allowed pursuant to this section unless the
qualified taxpayer provides the following to the California Film
Commission:
(1) Identification of each qualified individual.
(2) The specific start and end dates of production.
(3) The total wages paid.
(4) The amount of qualified wages paid to each qualified
individual.
(5) The copyright registration number, as reflected on the
certificate of registration issued under the authority of Section 410
of Title 17 of the United States Code, relating to registration of
claim and issuance of certificate. The registration number shall be
provided on the return claiming the credit.
(6) The total amounts paid or incurred to purchase or lease
tangible personal property used in the production of a qualified
motion picture.
(7) Information to substantiate its qualified expenditures.
(8) Information required by the California Film Commission under
regulations promulgated pursuant to subdivision (g) necessary to
verify the amount of credit claimed.
(e) The California Film Commission may prescribe rules and
regulations to carry out the purposes of this section including any
rules and regulations necessary to establish procedures, processes,
requirements, and rules identified in or required to implement this
section. The regulations shall include provisions to set aside a
percentage of annual credit allocations for independent films.
(f) If the qualified taxpayer fails to provide the copyright
registration number as required in paragraph (5) of subdivision (d),
the credit shall be disallowed and assessed and collected under
Section 19051 until the procedures are satisfied.
(g) For purposes of this section, the California Film Commission
shall do the following:
(1) On or after July 1, 2009, and before July 1, 2019
2015 , allocate tax credits to applicants.
(A) Establish a procedure for applicants to file with the
California Film Commission a written application, on a form jointly
prescribed by the California Film Commission and the Franchise Tax
Board for the allocation of the tax credit. The application shall
include, but not be limited to, the following information:
(i) The budget for the motion picture production.
(ii) The number of production days.
(iii) A financing plan for the production.
(iv) The diversity of the workforce employed by the applicant,
including, but not limited to, the ethnic and racial makeup of the
individuals employed by the applicant during the production of the
qualified motion picture, to the extent possible.
(v) All members of a combined reporting group and any members to
which the credit is assigned, including, if readily available, the
states, provinces, or other jurisdictions in which any of those
members finance motion picture productions.
(vi) Financial information, if available, including, but not
limited to, the most recently produced balance sheets, annual
statements of profits and losses, audited or unaudited financial
statements, summary budget projections or results, or the functional
equivalent of these documents of a partnership or owner of a single
member limited liability company that is disregarded pursuant to
Section 23038. The information provided pursuant to this clause shall
be confidential and shall not be subject to public disclosure.
(vii) The names of all partners in a partnership not publicly
traded or the names of all members of a limited liability company
classified as a partnership not publicly traded for California income
tax purposes. The information provided pursuant to this clause shall
be confidential and shall not be subject to public disclosure.
(viii) Detailed narratives, for use only by the Legislative
Analyst's Office in conducting a study of the effectiveness of this
credit, that describe the extent to which the credit is expected to
influence or affect filming and other business location decisions,
hiring decisions, salary decisions, and any other financial matters
of the applicant.
(v)
(ix) Any other information deemed relevant by the
California Film Commission or the Franchise Tax Board.
(B) Establish criteria, consistent with the requirements of this
section, for allocating tax credits.
(C) Determine and designate applicants who meet the requirements
of this section.
(D) Process and approve, or reject, all applications on a
first-come-first-served basis.
(E) Subject to the annual cap established as provided in
subdivision (i), allocate an aggregate amount of credits under this
section and Section 23685, and allocate any carryover of unallocated
credits from prior years.
(2) Certify tax credits allocated to qualified taxpayers.
(A) Establish a verification procedure for the amount of qualified
expenditures paid or incurred by the applicant , including, but
not limited to, updates to the information in subparagraph (A) of
paragraph (1) of subdivisio n (g) .
(B) Establish audit requirements that must be satisfied before a
credit certificate may be issued by the California Film Commission.
(C) Issue a credit certificate to a qualified taxpayer upon
completion of the qualified motion picture reflecting the credit
amount allocated after qualified expenditures have been verified
under this section. The amount of credit shown in the credit
certificate shall not exceed the amount of credit allocated to that
qualified taxpayer pursuant to this section.
(3) (A) Provide the
Legislative Analyst's Office with all application materials
sent to the film commission, including, but not limited to, all of
the following:
(i) The expenditures of the applicants, by type of production and
recipient, for both those qualified for the credit and those not
qualified.
(ii) The applicant's amount of sales and use tax paid and
financial situation, including, but not limited to, earnings, profits
and losses, United States Security and Exchange Commission filings,
and annual reports for all subsidiaries and principals, and
competitive environment.
(iii) Evidence, when possible, that filming or activity would have
occurred elsewhere but for the credit.
(iv) For all qualified taxpayers that are part of the controlled
group, for every year it applies and in the year the credit is
received, a list of all other members of the commonly controlled
group, as defined in Section 25105, or members of the combined
reporting group, as defined in Section 25106.5(b)(3) of Title 18 of
the California Code of Regulations, that filmed productions or
planned to film productions.
(v) The number of applicants that have applied for the credit and
the number of qualified taxpayers that have received the credit.
(vi) The total amount of qualified wages paid on the qualified
motion picture project when the credit is applied for and when the
tax credit certificate is received.
(B) All information shared with the Legislative Analyst's Office
shall be confidential.
(C) To the extent
the film commission is required to amend its application form to
collect the information required by this paragraph, the film
commission shall not be subject to the requirements of Chapter 3.5
(commencing with Section 11340) of Part 1 of Division 3 of Title 2 of
the Government Code for purposes of adopting those amendments to the
application form. , upon request, any
application materials or any other materials received from
applicants, including, but not limited to, information in electronic
format when available.
(A) Financial information, including, but not limited to,
statements of profits and losses of a partnership or of an owner of a
single member limited liability company that is disregarded pursuant
to Section 23038.
(B) The names of all members of the qualified taxpayer's combined
reporting group and any member to which the credit is assigned.
(C) The names of all partners in a partnership or the names of all
members of a limited liability company classified as a partnership
for California income tax purposes that is not publicly traded.
(D) The sales price of a credit certificate provided by the
Franchise Tax Board. The Franchise Tax Board, upon request and
subject to confidentiality requirements, shall provide aggregate
information on the identity of the qualified taxpayer, the amount of
the credit, and the credit recipient.
(h) The California Film Commission shall provide the Franchise Tax
Board and the board annually with a list of qualified taxpayers and
the tax credit amounts allocated to each qualified taxpayer by the
California Film Commission. The list shall include the names and
taxpayer identification numbers, including taxpayer identification
numbers of each partner or shareholder, as applicable, of the
qualified taxpayer.
(i) (1) The aggregate amount of credits that may be allocated in
any fiscal year pursuant to this section and Section 23686 shall be
an amount equal to the sum of all of the following:
(A) One hundred million dollars ($100,000,000) in credits for the
2009-10 fiscal year and each fiscal year thereafter, through and
including the 2018-19 2014-15 fiscal
year.
(B) The unused allocation credit amount, if any, for the preceding
fiscal year.
(C) The amount of previously allocated credits not certified.
(2) If the amount of credits applied for in any particular fiscal
year exceeds the aggregate amount of tax credits authorized to be
allocated under this section, such excess shall be treated as having
been applied for on the first day of the subsequent fiscal year.
However, credits may not be allocated from a fiscal year other than
the fiscal year in which the credit was originally applied for or the
immediately succeeding fiscal year.
(3) Notwithstanding the foregoing, the California Film Commission
shall set aside up to ten million dollars ($10,000,000) of tax
credits each fiscal year for independent films allocated in
accordance with rules and regulations developed pursuant to
subdivision (e).
(4) Any act that reduces the amount that may be allocated pursuant
to paragraph (1) constitutes a change in state taxes for the purpose
of increasing revenues within the meaning of Section 3 of Article
XIII A of the California Constitution and may be passed by not less
than two-thirds of all Members elected to each of the two houses of
the Legislature.
(j) The California Film Commission shall have the authority to
allocate tax credits in accordance with this section and in
accordance with any regulations prescribed pursuant to subdivision
(e) upon adoption.
(k) (1) The Legislative Analyst's Office shall conduct a
study to assess the total economic activity generated by productions
that have received a tax certificate and productions that were
allocated a tax credit certificate pursuant to this section and
Section 23685. The total economic activity includes, but is not
limited to, output, employment, labor income, and payments for goods
and services utilized in productions. The study shall report the
statewide direct, indirect, and induced activity and shall include
the impact of the deferred claiming of the credit.
(2) In the conduct
of the study, the State Board of Equalization, the Franchise Tax
Board, the Employment Development Department, and other relevant
agencies are authorized
to share information, including the listing under subdivision (g) of
Section 6902.5, but shall retain taxpayer confidentiality. The
information provided subject to this subdivision shall be subject to
Section 19542. , on or before January 1, 2015, and on
or before January 1, 2017, release publicly and provide to the
Assembly Committee on Revenue and Taxation and the Senate Committee
on Governance and Finance a study evaluating the economic effects and
administration of the tax credit program described in this section
and related sections of this code.
(2) In conducting the study, the Legislative Analyst's Office may
request application materials, sent to and received by the California
Film Commission, including, but not limited to, both of the
following:
(A) The estimated expenditures of the applicants, and the
estimated and certified expenditures of the qualified taxpayers, the
type of production, and the company name of the applicant or the
qualified taxpayer.
(B) For all qualified taxpayers that are part of the controlled
group, for every year an application is made and in the year the
credit is received, a list of all other members of the commonly
controlled group, as defined in Section 25105, or members of the
combined reporting group, as described in Section 25106.5(b)(3) of
Title 18 of the California Code of Regulations, that filmed
productions or planned to film productions.
(3) (A) For purposes of assisting the Legislative Analyst's Office
in the conduct of the study, the State Board of Equalization, the
Franchise Tax Board, the Employment Development Department, and other
relevant agencies are authorized to share information with the
Legislative Analyst's Office, including the listing under subdivision
(g) of Section 6902.5, but shall retain taxpayer confidentiality.
The information provided subject to this subdivision shall be subject
to Section 19542. The Legislative Analyst's Office may publish
statistics in conjunction with its study that are derived from tax
agency information and information provided by the California Film
Commission, so long as the published information is classified to
prevent the identification of particular taxpayers, reports, and tax
returns, or the publication of the percentage of dividends paid by
any corporation that is deductible by the recipient under Part 11
(commencing with Section 23001).
(B) The Franchise Tax Board shall provide the Legislative Analyst'
s Office the sales price of a credit certificate that was sold.
(3)
(4) The studies shall be reported to the appropriate
Assembly and Senate committees relating to revenue and taxation.
SEC. 3. Section 17053.86 is added to the
Revenue and Taxation Code , to read:
17053.86. On or after January 1, 2012, the Director of Finance
shall eliminate the allocation of the film tax credit from July 1,
2014, to July, 1, 2015, inclusive, pursuant to Sections 17053.85 and
23685, if the higher revenue forecast determined pursuant to
subdivision (a) of Section 3.94 of Chapter 41 of the Statutes of 2011
projects General Fund revenues for the 2011-12 fiscal year of less
than eighty-seven billion four hundred fifty-two million five hundred
thousand dollars ($87,452,500,000), and if subdivision (b) of
Section 3.94 of Chapter 41 of the Statutes of 2011 is operative.
SEC. 3. SEC. 4. Section 23685 of the
Revenue and Taxation Code, as added by Section 9 of Chapter 10 of
the 3rd Extraordinary Session of the Statutes of 2009, is repealed.
SEC. 4. SEC. 5. Section 23685 of the
Revenue and Taxation Code, as added by Section 9 of Chapter 17 of
the 3rd Extraordinary Session of the Statutes of 2009, is amended to
read:
23685. (a) (1) For taxable years beginning on or after January 1,
2011, there shall be allowed to a qualified taxpayer a credit
against the "tax," as defined in Section 23036, in an amount equal to
the applicable percentage, as specified in paragraph (4), of the
qualified expenditures for the production of a qualified motion
picture in California.
(2) 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, 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) 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).
(4) For purposes of paragraphs (1) and (2), the applicable
percentage shall be:
(A) Twenty percent of the qualified expenditures attributable to
the production of a qualified motion picture in California.
(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 or an independent film.
(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 (C) of paragraph
(2) 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 (18) 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) and a maximum budget of
ten million dollars ($10,000,000) 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) "Licensing" means any grant of rights to distribute the
qualified motion picture, in whole or in part.
(8) "New use" means any use of a motion picture in a medium other
than the medium for which it was initially created.
(9) (A) "Postproduction" means the final activities in a qualified
motion picture's production, including editing, foley recording,
automatic dialogue replacement, sound editing, scoring and music
editing, beginning and end credits, negative cutting, negative
processing and duplication, the addition of sound and visual effects,
soundmixing, film-to-tape transfers, encoding, and color correction.
(B) "Postproduction" does not include the manufacture or shipping
of release prints.
(10) "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.
(11) "Principal photography" means the phase of production during
which the motion picture is actually shot, as distinguished from
preproduction and postproduction.
(12) "Production period" means the period beginning with
preproduction and ending upon completion of postproduction.
(13) "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.
(14) (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.
(15) (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) and a maximum production budget of seventy-five
million dollars ($75,000,000).
(ii) A movie of the week or miniseries with a minimum production
budget of five hundred thousand dollars ($500,000).
(iii) A new television series produced in California with a
minimum production budget of one million dollars ($1,000,000)
licensed for original distribution on basic cable.
(iv) An independent film.
(v) A television series that relocated to California.
(B) To qualify as a "qualified motion picture," all of the
following conditions shall be satisfied:
(i) At least 75 percent of the production days occur wholly in
California or 75 percent of the production budget is incurred for
payment for services performed within the state and the purchase or
rental of property used within the state.
(ii) Production of the qualified motion picture is completed
within 30 months from the date on which the qualified taxpayer's
application is approved by the California Film Commission. For
purposes of this section, a qualified motion picture is "completed"
when the process of postproduction has been finished.
(iii) The copyright for the motion picture is registered with the
United States Copyright Office pursuant to Title 17 of the United
States Code.
(iv) Principal photography of the qualified motion picture
commences after the date on which the application is approved by the
California Film Commission, but no later than 180 days after the date
of that approval.
(C) For the purposes of subparagraph (A), in computing the total
wages paid or incurred for the production of a qualified motion
picture, all amounts paid or incurred by all persons or entities that
share in the costs of the qualified motion picture shall be
aggregated.
(D) "Qualified motion picture" shall not include commercial
advertising, music videos, a motion picture produced for private
noncommercial use, such as weddings, graduations, or as part of an
educational course and made by students, a news program, current
events or public events program, talk show, game show, sporting event
or activity, awards show, telethon or other production that solicits
funds, reality television program, clip-based programming if more
than 50 percent of the content is comprised of licensed footage,
documentaries, variety programs, daytime dramas, strip shows,
one-half hour (air time) episodic television shows, or any production
that falls within the recordkeeping requirements of Section 2257 of
Title 18 of the United States Code.
(16) "Qualified expenditures" means amounts paid or incurred to
purchase or lease tangible personal property 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 taxpayer" means a taxpayer who has paid or
incurred qualified expenditures and has been issued a credit
certificate by the California Film Commission pursuant to subdivision
(g).
(B) (i) In the case of any passthrough entity, the determination
of whether a taxpayer is a qualified taxpayer under this section
shall be made at the entity level and any credit under this section
is not allowed to the passthrough entity, but shall be passed through
to the partners or shareholders in accordance with applicable
provisions of Part 10 (commencing with Section 17001) or Part 11
(commencing with Section 23001). For purposes of this paragraph,
"passthrough entity" means any entity taxed as a partnership or "S"
corporation.
(ii) In the case of an "S" corporation, the credit allowed under
this section shall not be used by an "S" corporation as a credit
against a tax imposed under Chapter 4.5 (commencing with Section
23800) of Part 11 of Division 2.
(18) (A) "Qualified wages" means all of the following:
(i) Any wages subject to withholding under Division 6 (commencing
with Section 13000) of the Unemployment Insurance Code that were paid
or incurred by any taxpayer involved in the production of a
qualified motion picture with respect to a qualified individual for
services performed on the qualified motion picture production within
this state.
(ii) The portion of any employee fringe benefits paid or incurred
by any taxpayer involved in the production of the qualified motion
picture that are properly allocable to qualified wage amounts
described in clause (i).
(iii) Any payments made to a qualified entity for services
performed in this state by qualified individuals within the meaning
of paragraph (14).
(iv) Remuneration paid to an independent contractor who is a
qualified individual for services performed within this state by that
qualified individual.
(B) "Qualified wages" shall not include any of the following:
(i) Expenses, including wages, related to new use, reuse, clip
use, licensing, secondary markets, or residual compensation, or the
creation of any ancillary product, including, but not limited to, a
soundtrack album, toy, game, trailer, or teaser.
(ii) Expenses, including wages, paid or incurred with respect to
acquisition, development, turnaround, or any rights thereto.
(iii) Expenses, including wages, related to financing, overhead,
marketing, promotion, or distribution of a qualified motion picture.
(iv) Expenses, including wages, paid per person per qualified
motion picture for writers, directors, music directors, music
composers, music supervisors, producers, and performers, other than
background actors with no scripted lines.
(19) "Residual compensation" means supplemental compensation paid
at the time that a motion picture is exhibited through new use,
reuse, clip use, or in secondary markets, as distinguished from
payments made during production.
(20) "Reuse" means any use of a qualified motion picture in the
same medium for which it was created, following the initial use in
that medium.
(21) "Secondary markets" means media in which a qualified motion
picture is exhibited following the initial media in which it is
exhibited.
(22) "Television series that relocated to California" means a
television series, without regard to episode length or initial media
exhibition, that filmed all of its prior season or seasons outside of
California and for which the taxpayer certifies that the credit
provided pursuant to this section is the primary reason for
relocating to California.
(c) (1) Notwithstanding subdivision (i) of Section 23036,
relating to credits attributable to a passthrough business entity,
in the case where the credit allowed by this section
exceeds the taxpayer's tax liability computed under this part, a
qualified taxpayer may elect to assign any portion of the credit
allowed under this section to one or more affiliated corporations for
each taxable year in which the credit is allowed. For purposes of
this subdivision, "affiliated corporation" has the meaning provided
in subdivision (b) of Section 25110, as that section was amended by
Chapter 881 of the Statutes of 1993, as of the last day of the
taxable year in which the credit is allowed, except that "100 percent"
is substituted for "more than 50 percent" wherever it appears in the
section, and "voting common stock" is substituted for "voting stock"
wherever it appears in the section.
(2) The election provided in paragraph (1):
(A) May be based on any method selected by the qualified taxpayer
that originally receives the credit.
(B) Shall be irrevocable for the taxable year the credit is
allowed, once made.
(C) May be changed for any subsequent taxable year if the election
to make the assignment is expressly shown on each of the returns of
qualified taxpayer and a qualified taxpayer's affiliated corporations
that assign and receive the credits.
(3) (A) Notwithstanding any other law, a qualified taxpayer, may
sell any credit allowed under this section that is attributable to an
independent film, as defined in paragraph (6) of subdivision (b), to
an unrelated party.
(B) The qualified taxpayer shall report to the Franchise Tax Board
prior to the sale of the credit, in the form and manner specified by
the Franchise Tax Board, all required information regarding the
purchase and sale of the credit, including the social security or
other taxpayer identification number of the unrelated party to whom
the credit has been sold, the face amount of the credit sold, and the
amount of consideration received by the qualified taxpayer for the
sale of the credit.
(4) In the case where the credit allowed under this section
exceeds the "tax," the excess credit may be carried over to reduce
the "tax" in the following taxable year, and succeeding five taxable
years, if necessary, until the credit has been exhausted.
(5) A credit shall not be sold pursuant to this subdivision to
more than one taxpayer, nor may the credit be resold by the unrelated
party to another taxpayer or other party.
(6) A party that has been assigned or acquired tax credits under
this paragraph shall be subject to the requirements of this section.
(7) In no event may a qualified taxpayer assign or sell any tax
credit to the extent the tax credit allowed by this section is
claimed on any tax return of the qualified taxpayer.
(8) In the event that both the taxpayer originally allocated a
credit under this section by the California Film Commission and a
taxpayer to whom the credit has been sold both claim the same amount
of credit on their tax returns, the Franchise Tax Board may disallow
the credit of either taxpayer, so long as the statute of limitations
upon assessment remains open.
(9) Chapter 3.5 (commencing with Section 11340) of Part 1 of
Division 3 of Title 2 of the Government Code does not apply to any
standard, criterion, procedure, determination, rule, notice, or
guideline established or issued by the Franchise Tax Board pursuant
to this subdivision.
(10) Subdivision (i) of Section 23036 shall not apply to any
credit sold pursuant to this subdivision.
(11) For purposes of this subdivision:
(A) An affiliated corporation or corporations that are assigned a
credit pursuant to paragraph (1) shall be treated as a qualified
taxpayer pursuant to paragraph (1) of subdivision (a).
(B) The unrelated party or parties that purchase a credit pursuant
to paragraph (3) shall be treated as a qualified taxpayer pursuant
to paragraph (1) of subdivision (a).
(d) No credit shall be allowed pursuant to this section unless the
qualified taxpayer provides the following to the California Film
Commission:
(1) Identification of each qualified individual.
(2) The specific start and end dates of production.
(3) The total wages paid.
(4) The amount of qualified wages paid to each qualified
individual.
(5) The copyright registration number, as reflected on the
certificate of registration issued under the authority of Section 410
of Title 17 of the United States Code, relating to registration of
claim and issuance of certificate. The registration number shall be
provided on the return claiming the credit.
(6) The total amounts paid or incurred to purchase or lease
tangible personal property used in the production of a qualified
motion picture.
(7) Information to substantiate its qualified expenditures.
(8) Information required by the California Film Commission under
regulations promulgated pursuant to subdivision (g) necessary to
verify the amount of credit claimed.
(e) The California Film Commission may prescribe rules and
regulations to carry out the purposes of this section including any
rules and regulations necessary to establish procedures, processes,
requirements, and rules identified in or required to implement this
section. The regulations shall include provisions to set aside a
percentage of annual credit allocations for independent films.
(f) If the qualified taxpayer fails to provide the copyright
registration number as required in paragraph (5) of subdivision (d),
the credit shall be disallowed and assessed and collected under
Section 19051 until the procedures are satisfied.
(g) For purposes of this section, the California Film Commission
shall do the following:
(1) On or after July 1, 2009, and before July 1, 2019
2015 , allocate tax credits to applicants.
(A) Establish a procedure for applicants to file with the
California Film Commission a written application, on a form jointly
prescribed by the California Film Commission and the Franchise Tax
Board for the allocation of the tax credit. The application shall
include, but not be limited to, the following information:
(i) The budget for the motion picture production.
(ii) The number of production days.
(iii) A financing plan for the production.
(iv) The diversity of the workforce employed by the applicant,
including, but not limited to, the ethnic and racial makeup of the
individuals employed by the applicant during the production of the
qualified motion picture, to the extent possible.
(v) All members of a combined reporting group and any members to
which the credit is assigned, including, if readily available, the
states, provinces, or other jurisdictions in which any of those
members finance motion picture productions.
(vi) Financial information, if available, including, but not
limited to, the most recently produced balance sheets, annual
statements of profits and losses, audited or unaudited financial
statements, summary budget projections or results, or the functional
equivalent of these documents of a partnership or owner of a single
member limited liability company that is disregarded pursuant to
Section 23038. The information provided pursuant to this clause shall
be confidential and shall not be subject to public disclosure.
(vii) The names of all partners in a partnership not publicly
traded or the names of all members of a limited liability company
classified as a partnership not publicly traded for California income
tax purposes. The information provided pursuant to this clause shall
be confidential and shall not be subject to public disclosure.
(viii) Detailed narratives, for use only by the Legislative
Analyst's Office in conducting a study of the effectiveness of this
credit, that describe the extent to which the credit is expected to
influence or affect filming and other business location decisions,
hiring decisions, salary decisions, and any other financial matters
of the applicant.
(v)
(ix) Any other information deemed relevant by the
California Film Commission or the Franchise Tax Board.
(B) Establish criteria, consistent with the requirements of this
section, for allocating tax credits.
(C) Determine and designate applicants who meet the requirements
of this section.
(D) Process and approve, or reject, all applications on a
first-come-first-served basis.
(E) Subject to the annual cap established as provided in
subdivision (i), allocate an aggregate amount of credits under this
section and Section 17053.85, and allocate any carryover of
unallocated credits from prior years.
(2) Certify tax credits allocated to qualified taxpayers.
(A) Establish a verification procedure for the amount of qualified
expenditures paid or incurred by the applicant ,
including, but not limited to, updates to the information in
subparagraph (A) of paragraph (1) of subdivision (g) .
(B) Establish audit requirements that must be satisfied before a
credit certificate may be issued by the California Film Commission.
(C) Issue a credit certificate to a qualified taxpayer upon
completion of the qualified motion picture reflecting the credit
amount allocated after qualified expenditures have been verified
under this section. The amount of credit shown in the credit
certificate shall not exceed the amount of credit allocated to that
qualified taxpayer pursuant to this section.
(3) (A) Provide the
Legislative Analyst's Office with all application materials
sent to the film commission, including, but not limited to, all of
the following:
(i) The expenditures of the applicants, by type of production and
recipient, for both those qualified for the credit and those not
qualified.
(ii) The applicant's amount of sales tax and financial situation,
including, but not limited to, earnings, profits and losses, United
States Security and Exchange Commission filings, and annual reports
for all subsidiaries and principals, and competitive environment.
(iii) Evidence, when possible, that filming or activity would have
occurred elsewhere but for the credit.
(iv) For all qualified taxpayers that are part of the controlled
group for every year it applies and in the year the credit is
received, a list of all other members of the commonly controlled
group, as defined in Section 25105, or members of the combined
reporting group, as defined in paragraph (3) of subdivision (b) of
Section 25106.5 of Title 18 of the California Code of Regulations,
that filmed productions or planned to film productions.
(v) The number of applicants that have applied for the credit and
the number of qualified taxpayers that have received the credit.
(vi) The total amount of qualified wages paid on the qualified
motion picture when the credit is applied for and when the tax credit
certificate is received.
(B) All information shared with the Legislative Analyst's Office
shall be confidential.
(C) To the extent
the film commission is required to amend its application form to
collect the information required by this paragraph, the film
commission shall not be subject to the requirements of Chapter 3.5
(commencing with Section 11340) of Part 1 of Division 3 of Title 2 of
the Government Code for purposes of adopting those amendments to the
application form. , upon request, any application
materials or any other materials received from applicants, including,
but not limited to, information in electronic format when available.
(A) Financial information, including, but not limited to,
statements of profits and losses of a partnership or of an owner of a
single member limited liability company that is disregarded pursuant
to Section 23038.
(B) The names of all members of the qualified taxpayer's combined
reporting group and any member to which the credit is assigned.
(C) The names of all partners in a partnership or the names of all
members of a limited liability company classified as a partnership
for California income tax purposes that is not publicly traded.
(D) The sales price of a credit certificate provided by the
Franchise Tax Board. The Franchise Tax Board, upon request and
subject to confidentiality requirements, shall provide aggregate
information on the identity of the qualified taxpayer, the amount of
the credit, and the credit recipient.
(h) The California Film Commission shall provide the Franchise Tax
Board and the board annually with a list of qualified taxpayers and
the tax credit amounts allocated to each qualified taxpayer by the
California Film Commission. The list shall include the names and
taxpayer identification numbers, including taxpayer identification
numbers of each partner or shareholder, as applicable, of the
qualified taxpayer.
(i) (1) The aggregate amount of credits that may be allocated in
any fiscal year pursuant to this section and Section 17053.85 shall
be an amount equal to the sum of all of the following:
(A) One hundred million dollars ($100,000,000) in credits for the
2009-10 fiscal year and each fiscal year thereafter, through and
including the 2018-19 2014-15 fiscal
year.
(B) The unused allocation credit amount, if any, for the preceding
fiscal year.
(C) The amount of previously allocated credits not certified.
(2) If the amount of credits applied for in any particular fiscal
year exceeds the aggregate amount of tax credits authorized to be
allocated under this section, such excess shall be treated as having
been applied for on the first day of the subsequent fiscal year.
However, credits may not be allocated from a fiscal year other than
the fiscal year in which the credit was originally applied for or the
immediately succeeding fiscal year.
(3) Notwithstanding the foregoing, the California Film Commission
shall set aside up to ten million dollars ($10,000,000) of tax
credits each fiscal year for independent films allocated in
accordance with rules and regulations developed pursuant to
subdivision (e).
(4) Any act that reduces the amount that may be allocated pursuant
to paragraph (1) constitutes a change in state taxes for the purpose
of increasing revenues within the meaning of Section 3 of Article
XIII A of the California Constitution and may be passed by not less
than two-thirds of all Members elected to each of the two houses of
the Legislature.
(j) The California Film Commission shall have the authority to
allocate tax credits in accordance with this section and in
accordance with any regulations prescribed pursuant to subdivision
(e) upon adoption.
(k) (1) The Legislative Analyst's Office shall conduct a
study to assess the total economic activity generated by productions
that have received a tax credit certificate and productions that were
allocated a tax credit certificate pursuant to this section and
Section 17053.85. The total economic activity includes, but is not
limited to, output, employment, labor income, and payments for goods
and services utilized in productions. The study shall report the
statewide direct, indirect, and induced activity and shall include
the impact of the deferred claiming of the credit.
(2) In the conduct
of the study, the State Board of Equalization, the Franchise Tax
Board, the Employment Development Department, and other relevant
agencies are authorized to share information, including the listing
under subdivision (g) of Section 6902.5, but shall retain taxpayer
confidentiality. The information provided subject to this subdivision
shall be subject to Section 19542. , on or before
January 1, 2015, and on or before January 1, 2017, release
publicly and provide to the Assembly Committee on Revenue and
Taxation and the Senate Committee on Governance and Finance a study
evaluating the economic effects and administration of the tax credit
program described in this section and related sections of this code.
(2) In conducting the study, the Legislative Analyst's Office may
request application materials, sent to and received by the California
Film Commission, including, but not limited to, both of the
following:
(A) The estimated expenditure of the applicants, and the estimated
and certified expenditures of the qualified taxpayers, the type of
production, and the company name of the applicant of the qualified
taxpayer.
(B) For all qualified taxpayers that are part of the controlled
group, for every year an application is made and in the year the
credit is received, a list of all other members of the commonly
controlled group, as defined in Section 25105, or members of the
combined reporting group, as described in Section 25106.5(b)(3) of
Title 18 of the California Code of Regulations, that filmed
productions or planned to film productions.
(3) (A) For purposes of assisting the Legislative Analyst's Office
in the conduct of the study, the State Board of Equalization, the
Franchise Tax Board, the Employment Development Department, and other
relevant agencies are authorized to share information with the
Legislative Analyst's Office, including the listing under subdivision
(g) of Section 6902.5, but shall retain taxpayer confidentiality.
The information provided subject to this subdivision shall be subject
to Section 19542. The Legislative Analyst's Office may publish
statistics in conjunction with its study that are derived from tax
agency information and information provided by the California Film
Commission, so long as the published information is classified to
prevent the identification of particular taxpayers, reports, and tax
returns, or the publication of the percentage of dividends paid by
any corporation that is deductible by the recipient under Part 11
(commencing with Section 23001).
(B) The Franchise Tax Board shall provide the Legislative Analyst'
s Office the sales price of a credit certificate that was sold.
(3)
(4) The studies shall be reported to the appropriate
Assembly and Senate committees relating to revenue and taxation.
SEC. 5. SEC. 6. No reimbursement is
required by this act pursuant to Section 6 of Article XIII B of the
California Constitution because the only costs that may be incurred
by a local agency or school district will be incurred because this
act creates a new crime or infraction, eliminates a crime or
infraction, or changes the penalty for a crime or infraction, within
the meaning of Section 17556 of the Government Code, or changes the
definition of a crime within the meaning of Section 6 of Article XIII
B of the California Constitution.
SEC. 6. SEC. 7. This act provides
for a tax levy within the meaning of Article IV of the Constitution
and shall go into immediate effect.