SACRAMENTO—The State Senate Revenue & Taxation Committee is scheduled to conduct a hearing in Sacramento on Aug. 7 to consider an anti-runaway production initiative that would establish a wage-based tax credit in California, effective July 2004. The State Assembly recently passed the proposed piece of legislation by a landslide vote (SHOOT, 7/7, p. 1).
The State Senate becomes the lone, albeit major hurdle for the bill to clear. If the Senate gives a thumbs-up to the tax credit, Gov. Gray Davis (D-Calif.) is expected to sign the measure into law. Davis initially proposed the anti-runaway bill during a luncheon gathering of Hollywood labor leaders in January (SHOOT, 1/18, p. 1).
The tax credit, if enacted, would apply to California-based productions—including commercials, TV movies and independent features—with worker wages between $200,000 and $10 million. The amount of the tax credit would be 15 percent of the first $25,000 in qualified wages per workers. In order to be eligible for the incentive, at least 50 percent of the production would have to take place in California.
The bill would provide the wage tax credit from ’04 through the ’08-’09 fiscal year. Several industry organizations have expressed support for the measure, including the Directors Guild of America and the Association of Independent Commercial Producers.
However, the anti-runaway measure figures to meet resistance in the California Senate, particularly in that the latest state analysis has pegged the net cost of the tax credit at some $520 million during its projected five-year span. That’s $105 million more than the originally estimated cost, as computed by the State Franchise Tax Board.
Tax credit
The California wage tax credit is similar to a federal proposal currently in the U.S. Senate and House of Representatives (SHOOT, 10/16/01, p. 1). That federal bill—which, in sharp contrast to the California legislation, doesn’t presently apply to commercials—is seeking attachment to a major piece of mainstream legislation (SHOOT, 6/28, p. 1). At one point early on, Gov. Davis was considering a 25 percent wage tax credit in line with the federal measure. But he reduced the tax credit proposal to 15 percent and put off the start date to the ’04-’05 fiscal year in light of the state budgetary deficit, which has since mushroomed to an estimated $23 billion-plus for the ’02-’03 fiscal year. Still, the California bill’s backers are hopeful that the deficit will be reduced by ’04, and that the magnitude of the runaway problem for the state’s economy will help push the legislation through.
But even if the bill passes both houses and is signed by Gov. Davis this year, there’s no guarantee it will take effect in the ’04-’05 fiscal year. A state budget deficit crisis in ’04 could cause legislators to reconsider.
In a statement released by his office, Gov. Davis related: "In January, I called for legislation that would stop competitors from stealing this $31 billion industry at cheaper rates. With this bill we took a proactive, more competitive approach, and I am confident it will work. Providing production companies with tax breaks puts us in a better position to fight for jobs, and keeps more than two-hundred-thousand Californians working and contributing to our economy."
