“Wait ’til next year.” That’s the perennial battle cry for fans of sports teams that fail to win the championship. And it’s the mantra that proponents of anti-runaway legislation in California must adopt as hopes have been dashed for the immediate passage of a tax incentive bill designed to encourage production of features, TV programs and commercials in the Golden State. The measure, Assembly Bill (AB) 777, fell short of needed votes in the Senate during the state legislature’s latest session, which adjourned on Sept. 9.
Exactly what the prospects are for the tax break next year remain uncertain. On one hand, there’s cause for optimism as the bill’s author, Assembly Speaker Fabian Nunez (D-Los Angeles), and other legislature leaders have sent a letter to Gov. Arnold Schwarzenegger (R-CA), asking him to include the tax incentive measure in his proposed 2006-’07 state budget, which is scheduled to be first presented in January. Such a request is uncommon in legislative circles, underscoring the commitment of key leaders in both houses to bring the measure to fruition.
Nunez and Republican Assembly leader Kevin McCarthy (R-Bakersfield), Senate president Don Perata (D-Oakland) and Senate Republican leader Dick Ackerman (R-Irvine) signed the letter, which read in part, “Although the clock ran out during this session for this legislation, we are committed to including industry tax incentives in the budget we pass next year.”
Clearly the backing of leadership in the State Senate and Assembly bodes well, as does the fact that Gov. Schwarzenegger has expressed support for such tax incentive-driven legislation to help spur on filming in California. However, the legislative waters are murky to say the least–and it’s anyone’s guess if they will be easily navigated in January. The governor’s approval rating has declined significantly in recent months, and he has arguably cast his political lot with the results of a special election that he’s called for in November. The results of that election spanning several ballot initiatives/propositions will reflect the governor’s clout–or lack thereof–and help to shape the legislative climate come early ’06.
The proposed incentive will also have to continue to reckon with opposition from watchdog tax groups. Indeed the granting of a tax break to the filmmaking industry might still be difficult for some legislators to reconcile at a time when California faces a major budget deficit that could translate into further cuts in core services. Supporters of the bill counter that the incentive will add to the tax base. In their aforementioned letter to the governor, Nunez, Perata, Ackerman and McCarthy cited a recent Los Angeles County Economic Development Corp. Study which found that a film with an average budget of $70 million, for example, generates at least $10.6 million in state sales and income tax.
SPOT LANGUAGE INTACT
The resolve of Senate and Assembly leaders to keep the tax incentive alive means that the bill remains in its current form, inclusive of commercials. Furthermore, per the measure’s language, a portion of the available tax credits will be set aside specifically for spots shot in California. That ad-friendly provision is generally believed to be a first in anti-runaway legislation.
Per AB 777, a refundable tax credit of 12 percent would apply to qualified wages, as well as to certain production and post expenditures incurred in the making of commercials in California. The maximum annual amount any company could receive in refundable tax credits for spots is $500,000. The tax credits, if passed, would apply to new commercialmaking business for California, meaning that the qualifying expenditures for a production house would be those that exceed the amount that the company spent in California during the previous year. The tax incentive program for commercials is tied to annual spending by a company instead of being paid out on a per-project basis.
A definitive dollar amount hasn’t yet been formally attached to the tax credits provided by the overall bill spanning features, TV and commercials. According to some published estimates, the bottom line could approach $100 million. But others contend the total will fall far short of that figure. How much of the total will be apportioned for commercials still isn’t known.
Steve Caplan, executive VP of the Association of Independent Commercial Producers (AICP), expressed disappointment that the bill did not make its way out of the legislature during its most recent session. However, Caplan said he was encouraged by the proactive stance of key legislators to make the tax incentive proposal a reality by pushing to get it written into the ’06-’07 state budget. And he remains hopeful that the governor will act accordingly, based on his support for the anti-runaway legislation.
