California has extended the film production tax credit through June, 2030, increased the fund to $750 million, and liberalized various provisions. This article provides a summary of the entire credit program incorporating the new provisions. The capitalized words used in this article have the meanings set forth in the glossary at the end.
1. Qualified Picture. The credit only applies to “Qualified Pictures,” which are audio-visual works (now including animated works) that are produced for distribution to the general public in any media and that are one of the following:
a. A Feature with a minimum Budget of $1 million.
b. A “new” (i.e., never aired or not aired for four years) TV Series produced in California with a minimum Budget of $1 million per episode and licensed for original distribution on basic cable;
c. An Independent Film; or
d. A TV Series that films a minimum of six episodes outside of California and for which the Production Company certifies to the Commission that availability of the Credit is the primary reason for relocating to California.
In addition, to be a “Qualified Picture,” all of the following conditions must be met:
a. Either 75% of principal photography must occur wholly within California or 75% of the Budget must be incurred for (i) the payment of services performed within California and (ii) the purchase or rental of property used within California. For a TV Series, this test would be applied to the aggregate production days for all episodes in the TV Series.
b. Completion (answer print or digital master) must occur within thirty months of the date on which the Commission approves the initial application.
c. The film cannot be a commercial, music video, home video, school project, news program, talk show, game show, sporting event, award show, telethon, reality television program, clip-based program, documentary, variety program, soap opera, strip show (i.e., multiple segments shot in one day), or pornography.
2. Amount of Credit. In general, the Credit is 35% of Creditable Costs, except that the Credit is 40% of Creditable Costs for (i) Independent Films and (ii) the first year for TV Series that filmed all prior seasons outside of California and for which the Production Company certifies that the Credit is the primary reason for relocating to California. The credit can be increased by up to an additional 10% depending on where production occurs and the residence of the workers. Creditable Costs are limited to $120 million for each Feature (but only $20 million for an Independent Film) and season of a TV Series. Starting with awards made in 2025-26, a production can receive an additional 4% credit if they submit a diversity work plan to the Commission and the Commission determines that the recipient has made a “good-faith effort” to achieve the goals in the work plan. Diversity work plans are now required to include goals broadly reflective of California’s population in terms of race, ethnicity, gender, disability status, and veteran status. The bill also requires inclusion of ZIP Code data related to employees’ primary residences to assess local hiring impacts. There’s also a “Career Pathways Training Program” (for an additional 2% credit) and set safety provisions.
3. Entitlement to Credit. The Credit is an offset against any California income or sales and use tax owed by the Production Company. If the Production Company is a pass-through entity, such as a partnership, an LLC, or an S corporation, the Credit against income taxes passes through to the owners.
4. Limitation on Amount of Total Credits. The Commission is directed to allocate up to $750 million of Credits for each fiscal year (from July 1 through June 30). If any portion of the $750 million of Credits is not used in any given fiscal year, the unused portion carries forward to subsequent years. However, only 8% of Credits each year is to be set aside for Independent Films. The Commission announces the window for submitting applications each year, and the Commission approves Credits for each year on a first-come, first-serve basis until the total Credits for that year are fully allocated. All applications received on the first day will be ordered by lottery, to avoid the need to camp out the night before and a stampede at the door. After the first year’s allotment has been fully allocated, the Commission has the authority to start the process over for applications for the subsequent year.
5. Initial Application. To apply for the Credit, the Production Company must submit an initial application to the Commission containing detailed information set forth in the statute thirty days prior to commencement of principal photography. Principal photography of the film or TV Series must commence during a window commencing after the Commission approves the initial application and ending no later than 180 days after that date (increased to 240 days if the Budget exceeds $100 million), with no more than a 100 day hiatus after such commencement. This means that the Production Company must hold up principal photography until the application is approved. The statute does not impose any time limits for approval on the Commission, but the Commission has indicated that it intends to approve applications promptly, with a target of perhaps two weeks.
The legislation requires feature film and television projects that apply for the credits, which are assigned based on jobs created, to report diversity statistics to the state and designate people to handle misconduct claims. The revised tax credit program would also require applicants to submit their policy prohibiting harassment and retaliation. In addition, major studios would have to report whether they have diversity programs. Applicants who receive the tax credit would help fund a program to train people from underrepresented communities to do “below the line” jobs on film sets.
6. Final Certification. Upon Completion, the Production Company then submits a request for final certification to the Commission setting forth additional detailed information set forth in the statute. Critically, one of the additional items of information requested is the copyright registration number, but it can take up to sixteen months after a copyright registration application is filed with the Copyright Office before a work is registered and the registration number is obtained. One solution to this is to pay the Copyright Office an additional $800 for expedited registration if the Production Company can show an urgent need related to “contractual or financial need,” and a pending state tax credit usually qualifies. The Commission is also required to implement some form of audit before the final Credit is approved.
7. Application to TV Series. The initial and final application process, and the determination of the Budget and Completion, for a TV Series is done by aggregating all episodes in a season.
8. Year of Use of Credit. The Credit is available in the tax year during which the Commission issues the final certificate authorizing the Credit, even if the Creditable Costs are incurred in prior tax years. If the Credit cannot be used in full in the relevant tax year, any excess is carried forward for five subsequent years.
9. Financing the Credit
a. Refundability. Production Companies can now make a one-time election to make the credit refundable. Taxpayers must first apply as much of their credit to their current tax liability as possible before the excess is refundable for that year. They can then elect to make 90% of the remaining total credit allocation refundable, but the use of such credits must be spread across the five taxable years beginning with the year of election.
b. Sale of Credit. The Production Company (and not its owners if it is a pass-through entity) for an Independent Film only (and not any other Qualified Picture) may make one sale of the Credit against income taxes (and not sales or use tax) to another party if, prior to the sale, the Production Company reports certain relevant information set forth in the statute to the Franchise Tax Board. However, the Credit may not be sold more than once, so brokers acting as financiers must be careful to structure the transaction as a “loan,” not a “purchase” and “resale,” of the Credit. As mentioned above, the Credit can be used against any sales and use tax that may be owed by the Production Company, but this provision does not apply to the buyer of the Credit. The sale of Credits for Independent Films is thus the only way to raise actual financing for the production of a film.
10. Glossary. I have taken some literary license here – in part based on interpretive guidance issued by the California Film Commission – in order to make the statute somewhat understandable:
a. “Budget” means an estimate of all expenses incurred with respect to a Qualified Picture during the Production Period. The statute states that the Budget must be the same as the budget used for all other purposes (the drafter must not know that films often have multiple budgets depending on who is asking!). The Budget includes the total budget for a Qualified Picture, including any portion funded by third parties. The Budget is relevant only for purposes of determining if an audio-visual work is a Qualified Picture, and it is not relevant for calculating the amount of the Credit. The Budget can exclude the completion bond fee if needed to come within the permitted caps on the Budget, but then the completion bond fee cannot be a Creditable Cost.
b. “Commission” means the California Film Commission.
c. “Completion” means completion of post-production. This should occur upon completion of the answer print for films and completion of the airmaster for television programs.
d. “Credit” means the California film production tax credit.
e. “Creditable Costs” means the expenses to which the Credit applies, which are expenses in the Budget incurred in connection with a Qualified Picture only for (i) the purchase or lease in California of tangible personal property used within California and (ii) all compensation for services rendered in California, excluding:
i. Payments to the Production Company or its affiliates;
ii. Expenses relating to the acquisition, development, financing, overhead, marketing, promotion, or distribution of the Qualified Picture; and
iii. Expenses relating to writers, directors, music directors, music composers, music supervisors, producers, and actors (other than extras).
f. “Feature” is a film intended for commercial distribution that has a running time of at least seventy-five minutes in length.
g. “Independent Film” means a Feature with a minimum Budget of $1 million if the Production Company for such film is not publicly traded and is not more than 30% owned, directly or indirectly, by publicly traded companies.
h. “Production Company” means the entity that pays the Creditable Costs.
i. “Production Period” means a period beginning from the earlier of the date (i) that there is a binding agreement for funding of the entire Budget and (ii) the Qualified Picture is greenlit (not defined), and which period continues until Completion. For TV Series, the Production Period would be determined with respect to the entire TV Series.
j. “Qualified Picture” has the meaning set forth in Paragraph 1.
k. “TV Series” means a television series with episodes at least forty minutes long.