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California Introduces Film and Production Credit

 

May 28, 2009
By Phillip L. Jelsma

Beginning June 1, 2009 the California Film Commission will make available applications for a new film and television production tax incentive. Applications will not be accepted prior to July 1, 2009 on a first come first serve basis.

The credit is allowed against income or sales and use taxes for “qualified expenditures” (defined below) beginning tax years on or after January 1, 2011. Only credits issued to a “independent film” may be transferred or sold to an unrelated party. Credits can generally carry over for five years and may be transferred to an affiliate.

A credit is available only for a “qualified motion picture” which will earn either a 20% or 25% credit. A qualified motion picture must have:

  1. 75% of the total production days or total production budget spent in California;
  2. principal photography must commence not later than 180 days after application approval; and
  3. post production must be completed within 30 months after receiving tax credit approval.

The following motion pictures are eligible for a 20% tax credit:

  1. Feature films with a minimum cost of $1 million and a maximum $75 million production budget.
  2. Movies of the week or miniseries with a $500,000 minimum production budget.
  3. New television series licensed for original distribution on basic cable ($1 million minimum production budget).

The motion pictures eligible for a 25% credit include:

  1. A television series that filmed all of its prior seasons outside of California.
  2. An independent film with a production budget of $1 to $10 million that is produced by a company that is not publicly traded and of which public companies do not own more than 25% of the producing company.

The tax credits available for “qualified expenditures”, including amounts paid or incurred for the purchase or lease of tangible property and qualified wages for services performed in California.

The following costs are not “qualified expenditures”:

  1. Costs incurred prior to application approval.
  2. Wages paid to writers, directors, music directors, composers, music supervisors, producers and performers, other than background actors with no scripted lines.
  3. Expenses, including wages, related to new, reused, clipuse, licensing, secondary markets, residual compensation or the creation of any ancillary produced item, including but not limited to a sound track album, toy, game, trailer or teaser.
  4. Expenses related to acquisition, development, turnaround, or any rights thereto; financing, overhead, marketing, promotion or production of a qualified motion picture.
  5. Federal and state income taxes.
  6. Other expenses, and completion bonds.

Applications must be submitted on or after July 1 to the California Film Commission and applications must be submitted at least 30 calendar days prior to the start of the principal photography. Applications will be accepted until the credits are exhausted. Within 15 days of receiving the requested supporting materials, the CFC will notify the applicant of accepted or rejected status. If credits are approved, production must begin for principal photography no later than 180 days after approval date. If the application is accepted, the primary producers, UMP and production accountant or other appropriate personnel are required to attend a meeting with the CFC.

More information is available on the San Diego Film Commission or CFC website. Draft regulations can be accessed here. If you have questions, please contact Phil Jelsma at 858.367.7675 or pjelsma@cgs3.com or.