Movement is afoot in the state legislature on an anti-runaway measure designed to encourage production of features, TV programs and commercials in California. At press time, supporters were hoping to gain passage for the bill by the time the current legislative session is scheduled to adjourn on Sept. 9. If two-thirds of legislators vote in its favor, the refundable tax credit incentive would then go to Gov. Arnold Schwarzenegger (R-CA) for his signature. With the governor’s approval, the bill would take effect on January 1, 2006.
The incentive, should it come to fruition in its present form, would reserve a portion of the available tax credits specifically for commercials. That spot-friendly provision is generally believed to be a first in anti-runaway legislation.
Per the measure–Assembly Bill (AB) 777–a refundable tax credit of 12 percent would apply to qualified wages, as well as certain production and post expenditures incurred in the making of spots in California. In the give-and-take wrangling that was going on in the legislature as SHOOT went to press, key provisions of the measure could change. At last look, the maximum annual amount any company could receive in refundable tax credits for commercials was $500,000. The tax credits apply to new spot business for California, meaning that the qualifying expenditures for a production house in 2006 are those that exceed the amount that the company spent in California during ’05. The tax incentive program for commercials is tied to annual spending by a company instead of being paid out on a per-project basis.
There isn’t yet a definitive dollar amount 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 publicly known.
Prospects for the bill’s passage remained very much up in the air at press time, particularly with two-thirds approval needed in the state legislature. Opponents have voiced concern on several fronts, including questioning the fiscal prudence of granting refundable tax credits to major studio features that might be shot in California anyway.
SPOT STRIDES
Whatever the outcome, the fact that the legislation designates a tax credit pool specifically for spots is a major breakthrough, related Steve Caplan, executive VP of the Association of Independent Commercial Producers (AICP). “On the part of legislators, it shows a deep recognition of the importance of commercials to the state’s economy,” said Caplan.
Actually, just getting commercials included in the anti-runaway bill represents a major stride forward for the ad community. Earlier, a similar bill was recently introduced in the California Senate; it primarily covered features, with commercials not eligible for tax incentives. That legislation was succeeded by AB 777, which is sponsored by Assembly Speaker Fabian Nunez (D-Los Angeles) and reportedly has the backing of Gov. Schwarzenegger.
A number of AICP member companies have been lobbying for AB777’s passage, sending letters of support to key legislators in both houses.
Certain productions do not qualify for the tax credits, including news and current event programs, talk shows, game shows, sports, awards shows, reality TV, telethons, documentaries, daytime dramas, and any theatrical feature in which 80 percent or more of the content is computer-generated.
Per the bill’s current language, the funds for the tax credit are slated to come out of the state’s general fund beginning next year, with new annual outlays thereafter. The program would be administered by the California Film Commission and the Franchise Tax Board.
