Filming in Local Jurisdictions is Good Business – CA Tax Credits Help Keep Jobs in California

By Gary Wartik
April 2, 2014

We at Vision Economics have struggled, as have others, with the concept of granting government tax credits in order to support a specific local industry.  Teachers and others understandably looking for more state funding have recently reaffirmed their opposition to California income tax credits to the film industry (film and television production) as providing assistance for special interests.

Available data reflects that California tax credits and those offered by other states have a direct impact on the industry born in Hollywood nearly one hundred years ago. In brief, the more tax credits offered by other jurisdictions, the more California loses production days, and the more negative economic impact there is locally.  California ranks fourth behind Louisiana, Canada and Great Britain in film production. Fifteen years ago 64 percent of the top 25 live-action movies were filmed in California. In 2013 only 8 percent were filmed here.  California is struggling to hold onto that level of activity, and perhaps increase it.

Even other countries, such as Iceland, Canada and Great Britain have been offering California’s film industry tax breaks to produce entertainment in their realm.  The result has been a flurry of both “runaway production” and action in the California legislature to stem the flow.

Effective April 1, Great Britain now offers a 25 percent tax credit on the first $33 million of film budget expenditures on qualified expenses, and 20 percent thereafter, with no cap on the total expenditures.  The changes effectively amount to a 50 percent increase in the value of “tax relief” for the California film industry across the Atlantic.  Iceland’s new tax credit on Icelandic taxes is 20 percent, open ended.  Louisiana, North Carolina and Texas have also increased tax subsidies for the film industry during the last twelve months, and they too have enjoyed increased production days, mostly at California’s expense.  Interestingly, in Louisiana a state report indicates that the subsidy of the film industry there actually costs the state money, the only such report by a major jurisdiction in the United States.

California’s $100 million film and television tax credit program generated an 11 percent return on investment in its first three years, according to an economic analysis by the Southern California Association of Governments.  It was established to slow the loss of productions to other states offering their own financing incentives.  Action is pending in the legislature to extend and expand the program.  Research by the industry reflects, according to a recent report from the San Fernando Valley Business Journal, that tax credits were issued to 109 film projects, which generated $248 million in state and local tax revenues, $4.3 billion in economic activity and $1.6 billion in labor income, supporting 22,300 jobs, during 2013.

The current California program offers tax credits of up to 25 percent to film and create television productions, on a lottery basis, with total credits capped at $100 million annually. The tax credits apply only to California income tax obligations.  The top individual income tax rate is 11.3 percent, while the tax rate for C corporations is 8.84 percent.

Still, the latest report found that California continues to lose market share, with 75 percent of 41 live-action features with budgets in excess of $75 million filmed outside the state in the 2013 fiscal year. The industry report recommends lifting the $100 million California budget cap on films eligible for the tax credits.

Pending legislation in the California Senate would extend the program for two years and would allow films of any size to apply, but only allow the credit for the first $100 million in expenditures. The legislation also would allow television pilots to seek credits.  California’s Film Commission is responsible for administering the tax credits.

Vision Economics joins economic development professionals, city managers and others in supporting the California film industry to the greatest practical extent possible as long as it can be demonstrated that the state and local governments receive a return on the investment.

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