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RPVCCA_CC_SR_2014_03_18_J_Film_Tax_CreditsCITY OF RAJiCHO PALOS VERDES MEMORANDUM TO: FROM: DATE: SUBJECT: HONORABLE MAYOR & CITY COUNCIL MEMBERS CAROLYNN PETRU, AICP, ACTING CITY MANAGER~ MARCH 18, 2014 ASSEMBLY BILL NO. 1839 (GATTO) REGARDING CALIFORNIA FILM TAX CREDITS Project Manager: Kit Fox, AICP, Senior Administrative Analys~ RECOMMENDATION ~ Authorize the Mayor to sign a multi-city letter of support for Assembly Bill No. 1839 (Gatto), as requested by Los Angeles Mayor Eric Garcetti. BACKGROUND Mayor Duhovic was invited to attend the Convening of Los Angeles County Regional Mayors on March 14, 2014, which was coordinated by the Office of Los Angeles Mayor Eric Garcetti. Among the items to be discussed was the film industry and the local economy. Mayor Garcetti is a strong proponent of location filming in the Los Angeles region as a driver of economic development, and he sought support from the region's mayors for Assembly Bill No. 1839 (AB 1839) to expand the State's film tax credit program. Mayor Garcetti has asked the mayors of other cities in the region to sign a letter of support for AB 1839 (see attached draft letter). Accordingly, Mayor Duhovic asked for this matter to be agendized for the consideration of the full City Council at tonight's meeting, in accordance with City Council Policy No. 29. DISCUSSION In recent years, the Los Angeles-based film industry has seen a great deal of "runaway" production as other regions and states offer financial incentives to attract location filming. Film LA, Inc., which coordinates film permitting within the City and unincorporated County of Los Angeles, has recently reported significant decreases over the last decade in location filming for "high-value productions" (i.e., feature films, hour-long television dramas, etc.) due to these out-of-state financial incentive programs. The California Film Commission currently offers annual tax credits to encourage location filming in the State. The credits are awarded through a 1ottery system and the level of J-1 MEMORANDUM: Support Letter for AB 1839 (Gatto) March 18, 2014 Page 2 funding available varies from year to year. Last month, Assembly Members Mike Gatto and Raul Bocanegra introduced AB 1839 to expand the State's film tax credit program in an effort to draw location filming back to California (see attached Los Angeles Times article and text of AB 1839). In Rancho Palos Verdes, Staff has observed that the number and length of location productions in the City has been on a general downward trend over the past five (5) years. However, Staff would also note that this week there are two (2) productions filming on location in the City, including a major feature film ("Entourage") that was the recipient of a State film tax credit. Staff is optimistic that the City will remain a competitive and attractive option for location filming in Los Angeles County. Although Staff encourages location film production as a source of revenue and in support of an important regional industry, Staff's first priority in reviewing film permit applications is always the protection of the quiet enjoyment of residents' homes and neighborhoods. Nevertheless, Staff believes that there would be value to the City and the greater Los Angeles region in supporting AB 1839. AB 1839 is currently scheduled for hearing in the Assembly Arts, Entertainment, Sports, Tourism, and Internet Media Committee on March 25, 2014. If the City Council authorizes the Mayor to sign the draft support letter, Staff will continue to monitor AB 1839. CONCLUSION In conclusion, Staff recommends that the City Council authorize the Mayor to sign the letter of support for AB 1839, as requested by Los Angeles Mayor Eric Garcetti. ALTERNATIVES In addition to the Staff recommendation, the following alternative actions are available for the City Council's consideration: 1. Do not authorize the Mayor to sign the support letter for AB 1839. FISCAL IMPACT There is no fiscal impact associated with authorizing the Mayor to sign the letter supporting AB 1839. Attachments: • Draft Multi-City Support Letter for AB 1839 • Los Angeles Times article regarding AB 1839 (published 2/20/14) • Text of AB 1839 (introduced 2/19/14) • City Council Policy No. 29 M:\Legislative lssues\AB 1839 (Gatto)\20140318_AB1839SupportLetter_StaffRpt.docx · J-2 March 14, 2014 The Honorable Mike Gatto California Assembly, 43rd District State Capitol, Room 2114 Sacramento, CA 94249 Dear Assemblymembers Gatto and Bocanegra, The Honorable Raul Bocanegra California Assembly, 39th District State Capitol, Room 4126 Sacramento, CA 94249 As mayors of cities within Los Angeles County, we are writing in support of enhancing California's film and television production tax credit program. It is an action we must take to stop California from losing revenues and middle class jobs to other states and nations. California has rapidly lost nearly all big budget feature film production and most television production to other states and nations that have ramped up their incentive programs. In 2012, only one big budget feature film was shot entirely in California, and in 2013, only 39 out of 137 one-hour television series were filmed here. The number of film and television productions that want to remain in California far exceeds the resources available within the state's current incentive program. According to the California Film Commission, less than one in every ten projects received California's incentive in 2013 and only 34 projects are set to receive credits. Extending California's film and television production tax credit program is a smart, prudent investment in California's future and economic competitiveness. According to the California Film Commission's "Progress Report -July 2013," every $100 million in credits result in $792 million and roughly 8,500 new middle class jobs in California. These productions also support tens of thousands of businesses in every corner of the state. In order to once again be competitive, California must put in place a meaningful, expanded credit that will bring back jobs, increase revenue, and support small businesses and vendors all across the state. Too much is at stake to let this key industry slip away. J-3 The Honorable Mike Gatto The Honorable Raul Bocanegra March 14, 2014 Page 2 Sincerely, City of City of City of City of City of City of City of City of City of City of City of City of City of City of City of City of J-4 The Honorable Mike Gatto The Honorable Raul Bocanegra March 14, 2014 Page 3 City of City of City of City of City of City of City of City of City of City of City of City of City of City of City of City of J-5 The Honorable Mike Gatto The Honorable Raul Bocanegra March 14, 2014 Page4 City of City of City of City of City of City of City of City of City of City of City of City of City of City of City of City of J-6 Bill to expand California's film tax credit is introduced in Assembly -latimes.com latimes.com/entertainment/envelope/ cotown/la-et-ct-state-lawmakers-film-tax-credit-bill- 20140219,0,4338180 .story la times.com Bill to expand California's film tax credit is introduced in Assembly By Richard Verrier 9:14 AM PST, February 19, 2014 California state lawmakers have introduced a new bill that would expand and improve California's film and TV tax credit program. Page 1 of2 advertisement The Assembly bill is intended to redress shortcomings in the state incentive program first introduced in 2009 under former Gov. Arnold Schwarzenegger and respond to the rising competition from other U.S. states and countries for Hollywood's business. The measure would extend the program for five years and increase funding, although no budget figure was included in the proposed legislation. Proponents say a figure will be subject to negotiation and added at a later date. ON LOCATION: Where the cameras roU Under the current program, California allocates $100 million annually to film and TV productions, which are eligible for a 20% to 25% tax credit toward qualified production expenses. Although the incentive has slowed the outflow of production and boosted local activity, most of it has been used on smaller, lower-budget projects. Consequently, industry officials are pressing to substantially increase annual funding, closer to the $420 million a year that rival New York provides. Other revisions include allowing large-budget films to qualify, as well as TV pilots and new one-hour television series. Currently, only movies with budgets less than $75 million are eligible, as are basic cable programs and network shows returning from out of state. The exclusions have contributed to a historic falloff in the production of one-hour dramas as well as big-budget studio movies in L.A. The bill also would provide an additional 5% credit for productions filmed outside of L.A., a provision aimed at building support among lawmakers in Northern California. PHOTOS: Celebrities by The Times "This expanded and improved program will go a long way towards making California more competitive with other states' programs. Right now we're getting our lunch handed to us by these other states," said Assemblymember Raul Bocanegra. "We simply can't sit by and watch this $17 billion a year sector of our economy continue to leave California." Entertainment industry executives and union officials recommended several of the proposed changes at a state committee hearing held at SAG-AFTRA's Los Angeles headquarters in October. http://www.latimes.com/ entertainment/ envelope/cotown/la-et-ct-state-lawmakers-film-tax-... 2/20/2014 J-7 Bill to expand California's film tax credit is introduced in Assembly -latimes.com Page 2 of2 "When production goes elsewhere, so do the jobs, tax revenue, and spending that are critical to the strength of our state's economy," said a statement from a group representing entertainment unions and studios. "In order to once again be competitive, California must put in place a meaningful, expanded credit that will bring backjobs, increase revenue, and support small businesses and vendors all across the state." VIRTUAL TOUR: Hollywood's Walk of Fame The bill was introduced by Assemblymen Raul Bocanegra (D-Pacoima) and Mike Gatto (D-Los Angeles) and already has the support of 50 of their colleagues in the Assembly. It is likely to face a tougher challenge in the Senate, however, where Northern California lawmakers have been skeptical of past efforts to increase support for an industry concentrated in Southern California. Another question is to what extent Gov. Jerry Brown will support the bill, which will come up for a final vote this summer. He granted a two-year extension of the program in September 2012. ALSO: Tax credits change the landscape of filming Hollywood seeks to bolster film and TV tax credit Hollywood's new financiers make deals with state tax credits MORE ON LOCATION: People and PHOTOS: Biggest box office PHOTOS: Celebrity production places behind what's onscreen flops of 2013 companies Copyright © 2014, Los Angeles Times http://www.latimes.com/ entertainment/ envelope/ cotown/la-et-ct-state-lawmakers-film-tax-... 2/20/2014 J-8 CALIFORNIA LEGISLATURE-2013-14 REGULAR SESSION ASSEMBLY BILL No.1839 Introduced by Assembly Members Gatto and Bocanegra (Principal coauthors: Assembly Members Allen, Bloom, Bonta, Brown, Campos, Dababneh, Garcia, Gorell, Hall, Muratsuchi, V. Manuel Perez, Rendon, and Wilk) (Principal coauthors: Senators Lieu and Padilla) (Coauthors: Assembly Members Achadjian, Alejo, Ammiano, Bigelow, Bradford, Chavez, Cooley, Dahle, Daly, Dickinson, Fox, Beth Gaines, Gonzalez, Hagman, Harkey, Roger Hernandez, Holden, Jones, Jones-Sawyer, Levine, Logue, Lowenthal, Maienschein, Medina, Melendez, Mullin, Nestande, Pan, Patterson,· Perea, Quirk, Quirk-Silva, Waldron, Weber, Wieckowski, and Williams) (Coauthors: Senators Berryhill, Gaines, Knight, Liu, Pavley, Torres, and Walters) February 18, 2014 An act to add Sections 17053.95 and 23695 to the Revenue and Taxation Code, relating to taxation, to take effect immediately, tax levy. LEGISLATIVE COUNSEL'S DIGEST AB 1839, as introduced, Gatto. Taxation: credits: qualified motion pictures. The Personal Income Tax Law and the Corporation Tax Law allow various credits against the taxes imposed by those laws, including a credit against those taxes for taxable years beginning on or after January 1, 2011, in an amount equal to an applicable percentage of either 20% or 25%, respectively, of the qualified expenditures, as defined, attributable to the production of a qualified motion picture in California, 99 J-9 AB 1839 -2- or, where the qualified motion picture is a television series that relocated to California or is an independent film, as provided. Existing law imposes specified duties on the California Film Commission related to the administration of the credits, including a requirement to allocate the tax credits until July 1, 2017, and limits the aggregate amount of credits that may be allocated to qualified motion pictures in any fiscal year to $100,000,000 through the 2016-17 fiscal year. This bill would establish similar credits under the Personal Income Tax Law and the Corporation Tax Law for taxable years beginning on or after January 1, 2016, to be allocated by the California Film Commission on and after July 1, 2016 and before July 1, 2021. This bill would, as compared to the existing tax credits, extend the scope of the credits for a feature film to the applicable percentage of qualified expenditures up to $100,000,000, extend the credit to qualified expenditures for television pilot episodes, and determine an applicable percentage of 25% or 20% for qualified expenditures for television series relocating to California based on the number of years the series has received the credit since relocation to California and where in California photography occurs. This bill would limit the aggregate amount of these new credits to be allocated in each fiscal year to an unspecified amount, and would also set aside specific credit allocation amounts for each fiscal year for independent films and for television series that relocate to California. The bill would state that its provisions are severable. This bill would take effect immediately as a tax levy. Vote: majority. Appropriation: no. Fiscal committee: yes. State-mandated local program: no. The people of the State of California do enact as follows: 1 SECTION 1. Section 17053.95 is added to the Revenue and 2 Taxation Code, to read: 3 17053.95. (a) (1) For taxable years beginning on or after 4 January 1, 2016, there shall be allowed to a qualified taxpayer a 5 credit against the "net tax," as defined in Section 17039, in an 6 amount equal to the applicable percentage, as specified in 7 paragraph (4), of the qualified expenditures for the production of 8 a qualified motion picture in California. A credit shall not be 9 allowed under this section for any qualified expenditures for the 99 J-10 -3-AB 1839 1 production of a motion picture in California if a credit has been 2 claimed for those same expenditures under Section 17053.85. 3 (2) The credit shall be allowed for the taxable year in which the 4 California Film Commission issues the credit certificate pursuant 5 to subdivision (g) for the qualified motion picture, and shall be for 6 the applicable percentage of all qualified expenditures paid or 7 incurred by the qualified taxpayer in all taxable years for that 8 qualified motion picture. 9 (3) The amount of the credit allowed to a qualified taxpayer 10 shall be limited to the amount specified in the credit certificate 11 issued to the qualified taxpayer by the California Film Commission 12 pursuant to subdivision (g). 13 (4) For purposes of paragraphs (1) and (2), the applicable 14 percentage shall be: 15 (A) Twenty percent of the qualified expenditures attributable 16 to the production of a feature in California, up to one hundred 17 million dollars ($100,000,000), or attributable to a television series 18 in its second or subsequent year of receiving a tax credit allocation 19 pursuant to this section since relocation to California. 20 (B) Twenty-five percent of the qualified expenditures 21 attributable to the production of a qualified motion picture in 22 California where the qualified motion picture is a television series 23 that relocated to California in its first year of receiving a tax credit 24 allocation pursuant to this section or is an independent film. 25 (C) (i) The California Film Commission shall increase the 26 applicable percentage by 5 percent if the qualified motion picture 27 incurred or paid the qualified expenditures relating to original 28 photography outside the Los Angeles zone. 29 (ii) For purposes of this subparagraph: 30 (I) "Applicable period" means the period that commences with 31 pre production and ends when original photography concludes. 32 The applicable period includes the time necessary to strike a remote 33 location and return to the Los Angeles zone. 34 (II) "Los Angeles zone" means the area within a circle 30 miles 35 in radius from Beverly Boulevard and La Cienaga Boulevard, Los 36 Angeles, California, and includes Agua Dulce, Castaic, including 3 7 Lake Castaic, Leo Carillo State Beach, Ontario International 38 Airport, Piru, and Pomona, including the Los Angeles County Fair 39 grounds. The Metro Goldwyn Mayer, Inc. Conejo Ranch property 40 is within the Los Angeles zone. 99 J-11 AB 1839 -4- 1 (III) "Original photography" includes principal photography, 2 additional unit photography, and reshooting original footage. 3 (IV) "Qualified expenditures relating to original photography 4 outside the Los Angeles zone" means amounts paid or incurred 5 during the applicable period for tangible personal property used 6 or consumed outside the Los Angeles zone and relating to original 7 photography outside the Los Angeles zone and qualified wages 8 paid for services performed outside the Los Angeles zone and 9 relating to original photography outside the Los Angeles zone. 10 (b) For purposes of this section: 11 (1) "Ancillary product" means any article for sale to the public 12 that contains a portion of, or any element of, the qualified motion 13 picture. 14 (2) "Budget" means an estimate of all expenses paid or incurred 15 during the production period of a qualified motion picture. It shall 16 be the same budget used by the qualified taxpayer and production 17 company for all qualified motion picture purposes. 18 (3) "Clip use" means a use of any portion of a motion picture, 19 other than the qualified motion picture, used in the qualified motion 20 picture. 21 (4) "Credit certificate" means the certificate issued by the 22 California Film Commission pursuant to subparagraph (C) of 23 paragraph (2) of subdivision (g). 24 (5) (A) "Employee fringe benefits" means the amount allowable 25 as a deduction under this part to the qualified taxpayer involved 26 in the production of the qualified motion picture, exclusive of any 27 amounts contributed by employees, for any year during the 28 production period with respect to any of the following: 29 (i) Employer contributions under any pension, profit-sharing, 30 annuity, or similar plan. 31 (ii) Employer-provided coverage under any accident or health 32 plan for employees. 33 (iii) The employer's cost oflife or disability insurance provided 34 to employees. 35 (B) Any amount treated as wages under clause (i) of 3 6 subparagraph (A) of paragraph ( 18) shall not be taken into account 3 7 under this paragraph. 3 8 ( 6) "Independent film" means a motion picture with a minimum 39 budget of one million dollars ($1,000,000) and a maximum budget 40 of ten million dollars ($10,000,000) that is produced by a company 99 J-12 -5-AB 1839 1 that is not publicly traded and publicly traded companies do not 2 own, directly or indirectly, more than 25 percent of the producing 3 company. 4 (7) "Licensing" means any grant of rights to distribute the 5 qualified motion picture, in whole or in part. 6 (8) "New use" means any use of a motion picture in a medium 7 other than the medium for which it was initially created. 8 (9) (A) "Post production" means the final activities in a 9 qualified motion picture's production, including editing, foley 10 recording, automatic dialogue replacement, sound editing, scoring, 11 music track recording by musicians and music editing, beginning 12 and end credits, negative cutting, negative processing and 13 duplication, the addition of sound and visual effects, sound mixing, 14 film-to-tape transfers, encoding, and color correction. 15 (B) "Post production" does not include the manufacture or 16 shipping of release prints. 17 (10) "Preproduction" means the process of preparation for actual 18 physical production which begins after a qualified motion picture 19 has received a firm agreement of financial commitment, or is 20 greenlit, with, for example, the establishment of a dedicated 21 production office, the hiring of key crew members, and includes, 22 but is not limited to, activities that include location scouting and 23 execution of contracts with vendors of equipment and stage space. 24 (11) "Principal photography" means the phase of production 25 during which the motion picture is actually shot, as distinguished 26 from preproduction and post production. 27 (12) "Production period" means the period beginning with 28 preproduction and ending upon completion of post production. 29 (13) "Qualified entity" means a personal service corporation as 30 defined in Section 269A(b)(l) of the Internal Revenue Code, a 31 payroll services corporation, or any entity receiving qualified wages 32 with respect to services performed by a qualified individual. 33 (14) (A) "Qualified individual" means any individual who 34 performs services during the production period in an activity related 35 to the production of a qualified motion picture. 36 (B) "Qualified individual" shall not include either of the 37 following: 38 (i) Any individual related to the qualified taxpayer as described 39 in subparagraph (A), (B), or (C) of Section 51(i)(l) of the Internal 40 Revenue Code. 99 J-13 AB 1839 -6- 1 (ii) Any 5-percent owner, as defined in Section 416(i)(l)(B) of 2 the Internal Revenue Code, of the qualified taxpayer. 3 (15) (A) "Qualified motion picture" means a motion picture 4 that is produced for distribution to the general public, regardless 5 of medium, that is one of the following: 6 (i) A feature with a minimum production budget of one million 7 dollars ($1,000,000). 8 (ii) A movie of the week or miniseries with a minimum 9 production budget of five hundred thousand dollars ($500,000). 10 (iii) A new one-hour television series of episodes longer than 11 40 minutes each of running time, exclusive of commercials, that 12 is produced in California, with a minimum production budget of 13 one million dollars ($1,000,000) per episode. 14 (iv) An independent film. 15 (v) A television series that relocated to California. 16 (vi) A pilot for a new television series that is longer than 40 1 7 minutes 0f running time, exclusive of commercials, that is produced 18 in California, and with a minimum production budget of one 19 million dollars ($1,000,000). 20 (B) To qualify as a "qualified motion picture," all of the 21 following conditions shall be satisfied: 22 (i) At least 75 percent of the principal photography days occur 23 wholly in California or 75 percent of the production budget is 24 incurred for payment for services performed within the state and 25 the purchase or rental of property used within the state. 26 (ii) Production of the qualified motion picture is completed 27 within 30 months from the date on which the qualified taxpayer's 28 application is approved by the California Film Commission. For 29 purposes of this section, a qualified motion picture is "completed" 30 when the process of post production has been finished. 31 (iii) The copyright for the motion picture is registered with the 32 United States Copyright Office pursuant to Title 17 of the United 33 States Code. 34 (iv) Principal photography of the qualified motion picture 35 commences after the date on which the application is approved by 36 the California Film Commission, but no later than 180 days after 37 the date of that approval unless death, disability, or disfigurement 3 8 of the director or of a principal cast member, an act of God, 39 including, but not limited to, fire, flood, earthquake, storm, 40 hurricane, or other natural disaster, terrorist activities, or 99 J-14 -7-AB 1839 1 government sanction has directly prevented a production's ability 2 to begin principal photography within the prescribed 180-day 3 commencement period. 4 (C) For the purposes of subparagraph (A), in computing the 5 total wages paid or incurred for the production of a qualified 6 motion picture, all amounts paid or incurred by all persons or 7 entities that share in the costs of the qualified motion picture shall 8 be aggregated. 9 (D) "Qualified motion picture" shall not include commercial 10 advertising, music videos, a motion picture produced for private 11 noncommercial use, such as weddings, graduations, or as part of 12 an educational course and made by students, a news program, 13 current events or public events program, talk show, game show, 14 sporting event or activity, awards show, telethon or other 15 production that solicits funds, reality television program, clip-based 16 programming if more than 50 percent of the content is comprised 17 of licensed footage, documentaries, variety programs, daytime 18 dramas, strip shows, one-half hour (air time) episodic television 19 shows, or any production that falls within the record keeping 20 requirements ofSection2257 ofTitle 18 of the United States Code. 21 (16) "Qualified expenditures" means amounts paid or incurred 22 for tangible personal property purchased or leased, and used, within 23 this state in the production of a qualified motion picture and 24 payments, including qualified wages, for services performed within 25 this state in the production of a qualified motion picture. 26 (17) (A) "Qualified taxpayer" means a taxpayer who has paid 27 or incurred qualified expenditures and has been issued a credit 28 certificate by the California Film Commission pursuant to 29 subdivision (g). 30 (B) In the case of any pass-thru entity, the determination of 31 whether a taxpayer is a qualified taxpayer under this section shall 32 be made at the entity level and any credit under this section is not 33 allowed to the pass-thru entity, but shall be passed through to the 34 partners or shareholders in accordance with applicable provisions 35 of Part 10 (commencing with Section 17001) or Part 11 36 (commencing with Section 23001 ). For purposes of this paragraph, 37 "pass-thru entity" means any entity taxed as a partnership or "S" 38 corporation. 39 (18) (A) "Qualified wages" means all of the following: 99 J-15 AB 1839 -8- 1 (i) Any wages subject to withholding under Division 6 2 (commencing with Section 13000) of the Unemployment Insurance 3 Code that were paid or incurred by any taxpayer involved in the 4 production of a qualified motion picture with respect to a qualified 5 individual for services performed on the qualified motion picture 6 production within this state. 7 (ii) The portion of any employee fringe benefits paid or incurred 8 by any taxpayer involved in the production of the qualified motion 9 picture that are properly allocable to qualified wage amounts 10 described in clauses (i), (iii), and (iv). 11 (iii) Any payments made to a qualified entity for services 12 performed in this state by qualified individuals within the meaning 13 of paragraph (14). 14 (iv) Remuneration paid to an independent contractor who is a 15 qualified individual for services performed within this state by that 16 qualified individual. 17 (B) "Qualified wages" shall not include any of the following: 18 (i) Expenses, including wages, related to new use, reuse, clip 19 use, licensing, secondary markets, or residual compensation, or 20 the creation of any ancillary product, including, but not limited to, 21 a soundtrack album, toy, game, trailer, or teaser. 22 (ii) Expenses, including wages, paid or incurred with respect to 23 acquisition, development, turnaround, or any rights thereto. 24 (iii) Expenses, including wages, related to financing, overhead, 25 marketing, promotion,· or distribution of a qualified motion picture. 26 (iv) Expenses, including wages, paid per person per qualified 27 motion picture for writers, directors, music directors, music 28 composers, music supervisors, producers, and performers, other 29 than background actors with no scripted lines. 30 (19) "Residual compensation" means supplemental 31 compensation paid at the time that a motion picture is exhibited 32 through new use, reuse, clip use, or in secondary markets, as 33 distinguished from payments made during production. 34 (20) "Reuse" means any use of a qualified motion picture in the 35 same medium for which it was created, following the initial use 36 in that medium. 3 7 (21) "Secondary markets" means media in which a qualified 38 motion picture is exhibited following the initial media in which it 39 is exhibited. 99 J-16 -9-AB 1839 1 (22) "Television series that relocated to California" means a 2 television series, without regard to episode length or initial media 3 exhibition, that filmed all of its prior season or seasons outside of 4 California and for which the taxpayer certifies that the credit 5 provided pursuant to this section is the primary reason for 6 relocating to California. 7 (23) "Pilot for a new television series" means the initial episode 8 produced for a proposed television series. 9 (c) (1) Notwithstanding any other law, a qualified taxpayer 10 may sell any credit allowed under this section that is attributable 11 to an independent film, as defined in paragraph ( 6) of subdivision 12 (b), to an unrelated party. 13 (2) The qualified taxpayer shall report to the Franchise Tax 14 Board prior to the sale of the credit, in the form and manner 15 specified by the Franchise Tax Board, all required information 16 regarding the purchase and sale of the credit, including the social 1 7 security or other taxpayer identification number of the unrelated 18 party to whom the credit has been sold, the face amount of the 19 credit sold, and the amount of consideration received by the 20 qualified taxpayer for the sale of the credit. 21 (3) In the case where the credit allowed under this section 22 exceeds the "net tax," the excess credit may be carried over to 23 reduce the "net tax" in the following taxable year, and succeeding 24 five taxable years, if necessary, until the credit has been exhausted. 25 (4) A credit shall not be sold pursuant to this subdivision to 26 more than one taxpayer, nor may the credit be resold by the 27 unrelated party to another taxpayer or other party. 28 ( 5) A party that has acquired tax credits under this section shall 29 be subject to the requirements of this section. 30 (6) In no event may a qualified taxpayer assign or sell any tax 31 credit to the extent the tax credit allowed by this section is claimed 32 on any tax return of the qualified taxpayer. 33 (7) In the event that both the taxpayer originally allocated a 34 credit under this section by the California Film Commission and 35 a taxpayer to whom the credit has been sold both claim the same 36 amount of credit on their tax returns, the Franchise Tax Board may 3 7 disallow the credit of either taxpayer, so long as the statute of 38 limitations upon assessment remains open. 39 (8) Chapter 3.5 (commencing with Section 11340) of Part 1 of 40 Division 3 of Title 2 of the Government Code does not apply to 99 J-17 AB 1839 -10- 1 any standard, criterion, procedure, determination, rule, notice, or 2 guideline established or issued by the Franchise Tax Board 3 pursuant to this subdivision. 4 (9) Subdivision (g) of Section 17039 shall not apply to any 5 credit sold pursuant to this subdivision. · 6 (10) For purposes of this subdivision, the unrelated party or 7 parties that purchase a credit pursuant to this subdivision shall be 8 treated as a qualified taxpayer pursuant to paragraph (1) of 9 subdivision (a). 10 (d) No credit shall be allowed pursuant to this section unless 11 the qualified taxpayer provides the following to the California 12 Film Commission: 13 (1) Identification of each qualified individual. 14 (2) The specific start and end dates of production. 15 (3) The total wages paid. 16 (4) The amount of qualified wages paid to each qualified 17 individual. 18 ( 5) The copyright registration number, as reflected on the 19 certificate of registration issued under the authority of Section 410 20 of Title 17 of the United States Code, relating to registration of 21 claim and issuance of certificate. The registration number shall be 22 provided on the return claiming the credit. 23 ( 6) The total amounts paid or incurred to purchase or lease 24 tangible personal property used in the production of a qualified 25 motion picture. 26 (7) Information to substantiate its qualified expenditures. 27 (8) Information required by the California Film Commission 28 under regulations promulgated pursuant to subdivision (g) 29 necessary to verify the amount of credit claimed. 30 ( e) The California Film Commission may prescribe rules and 31 regulations to carry out the purposes of this section including any 32 rules and regulations necessary to establish procedures, processes, 33 requirements, application fee structure, and rules identified in or 34 required to implement this section, including credit and logo 35 requirements. The regulations shall include provisions to set aside 36 a percentage of annual credit allocations for independent films and 3 7 television series relocating to California, pursuant to subdivision 38 (i). 39 (f) If the qualified taxpayer fails to provide the copyright 40 registration number as required in paragraph ( 5) of subdivision 99 J-18 -11-AB 1839 1 ( d), the credit shall be disallowed and assessed and collected under 2 Section 19051 until the procedures are satisfied. 3 (g) For purposes of this section, the California Film Commission 4 shall do the following: 5 (1) On or and after July 1, 2016, and before July 1, 2021, 6 allocate tax credits to applicants. 7 (A) Establish a procedure for applicants to file with the 8 California Film Commission a written application, on a form jointly 9 prescribed by the California Film Commission and the Franchise 10 Tax Board for the allocation of the tax credit. The application shall 11 include, but not be limited to, the following information: 12 (i) The budget for the motion picture production. 13 (ii) The number of production days. 14 (iii) A financing plan for the production. 15 (iv) The diversity of the workforce employed by the applicant, 16 including, but not limited to, the ethnic and racial makeup of the 17 individuals employed by the applicant during the production of 18 the qualified motion picture, to the extent possible. 19 (v) All members of a combined reporting group, if known at 20 the time of the application. 21 (vi) Financial information, if available, including, but not limited 22 to, the most recently produced balance sheets, annual statements 23 of profits and losses, audited or unaudited financial statements, 24 summary budget projections or results, or the functional equivalent 25 of these documents of a partnership or owner of a single member 26 limited liability company that is disregarded pursuant to Section 27 23038. The information provided pursuant to this clause shall be 28 confidential and shall not be subject to public disclosure. 29 (vii) The names of all partners in a partnership not publicly 30 traded or the names of all members of a limited liability company 31 classified as a partnership not publicly traded for California income 32 tax purposes that have a financial interest in the applicant's 33 qualified motion picture. The information provided pursuant to 34 this clause shall be confidential and shall not be subject to public 35 disclosure. 36 (viii) Detailed narratives, for use only by the Legislative 37 Analyst's Office in conducting a study of the effectiveness of this 38 credit, that describe the extent to which the credit is expected to 39 influence or affect filming and other business location decisions, 99 J-19 AB 1839 -12- 1 hiring decisions, salary decisions, and any other financial matters 2 of the applicant. 3 (ix) Any other information deemed relevant by the California 4 Film Commission or the Franchise Tax Board. 5 (B) Establish criteria, consistent with the requirements of this 6 section, for allocating tax credits. 7 (C) Determine and designate applicants who meet the 8 requirements of this section. 9 (D) Process and approve, or reject, all applications on a 10 first-come-first-served basis. 11 (E) Subject to the annual cap established as provided in 12 subdivision (i), allocate an aggregate amount of credits under this 13 section and Section 23695, and allocate any carryover of 14 unallocated credits from prior years. 15 (2) Certify tax credits allocated to qualified taxpayers. 16 (A) Establish a verification procedure for the amount of qualified 1 7 expenditures paid or incurred by the applicant, including, but not 18 limited to, updates to the information in subparagraph (A) of 19 paragraph (1) of subdivision (g). 20 (B) Establish audit requirements that must be satisfied before 21 a credit certificate may be issued by the California Film 22 Commission. 23 (C) (i) Establish a procedure for a qualified taxpayer to report 24 to the California Film Commission, prior to the issuance of a credit 25 certificate, the following information: 26 (I) If readily available, a list of the states, provinces, or other 27 jurisdictions in which any member of the applicant's combined 28 reporting group in the same business unit as the qualified taxpayer 29 that, in the preceding calendar year, has produced a qualified 30 motion picture intended for release in the United States market. 31 For purposes of this clause, "qualified motion picture" shall not 32 include any episodes of a television series that were complete or 33 in production prior to July 1, 2016. 34 (II) Whether a qualified motion picture described in subclause 35 (I) was awarded any financial incentive by the state, province, or 36 other jurisdiction that was predicated on the performance of 3 7 primary principal photography or post production in that location. 38 (ii) The California Film Commission may provide that the report 39 required by this subparagraph be filed in a single report provided 99 J-20 -13-AB 1839 1 on a calendar year basis for those qualified taxpayers that receive 2 multiple credit certificates in a calendar year. 3 (D) Issue a credit certificate to a qualified taxpayer upon 4 completion of the qualified motion picture reflecting the credit 5 amount allocated after qualified expenditures have been verified 6 under this section. The amount of credit shown in the credit 7 certificate shall not exceed the amount of credit allocated to that 8 qualified taxpayer pursuant to this section. 9 (3) Obtain, when possible, the following information from 10 applicants that do not receive an allocation of credit: 11 (A) Whether the qualified motion picture that was the subject 12 of the application was completed. 13 (B) If completed, in which state or foreign jurisdiction was the 14 primary principal photography completed. 15 (C) Whether the applicant received any financial incentives 16 from the state or foreign jurisdiction to make the qualified motion 1 7 picture in that location. 18 (4) Provide the Legislative Analyst's Office, upon request, any 19 or all application materials or any other materials received from, 20 or submitted by, the appli~ants, in electronic format when available, 21 including, but not limited to, information provided pursuant to 22 clauses (i) to (ix), inclusive, of subparagraph (A) of paragraph (1). 23 (5) The information provided to the California Film Commission 24 pursuant to this section shall constitute confidential tax information 25 for purposes of Article 2 (commencing with Section 19542) of 26 Chapter 7 of Part 10.2. 27 (h) (1) The California Film Commission shall annually provide 28 the Legislative Analyst's Office, the Franchise Tax Board, and the 29 board with a list of qualified taxpayers and the tax credit amounts 30 allocated to each qualified taxpayer by the California Film 31 Commission. The list shall include the names and taxpayer 32 identification numbers, including taxpayer identification numbers 33 of each partner or shareholder, as applicable, of the qualified 34 taxpayer. 35 (2) (A) Notwithstanding paragraph (5) of subdivision (g), the 36 California Film Commission shall annually post on its Internet 37 Web site and make available for public release the following: 38 (i) A table which includes all of the following information: a 39 list of qualified taxpayers and the tax credit amounts allocated to 40 each qualified taxpayer by the California Film Commission, the 99 J-21 AB 1839 -14- 1 number of production days in California the qualified taxpayer 2 represented in its application would occur, the number of California 3 jobs that the qualified taxpayer represented in its application would 4 be directly created by the production, and the total amount of 5 qualified expenditures expected to be spent by the production. 6 (ii) A narrative staff summary describing the production of the 7 qualified taxpayer as well as background information regarding 8 the qualified taxpayer contained in the qualified taxpayer's 9 application for the credit. 10 (B) Nothing in this subdivision shall be construed to make the 11 information submitted by an applicant for a tax credit under this 12 section a public record. 13 (i) (1) The aggregate amount of credits that may be allocated 14 in any fiscal year pursuant to this section and Section 23695 shall 15 be an amount equal to the sum of all of the following: 16 (A) __ dollars($_) in credits for the 2016-17 fiscal year 17 and each·fiscal year thereafter, through and including the 2020-21 18 fiscal year. 19 (B) The unused allocation credit amount, if any, for the 20 preceding fiscal year. 21 (C) The amount of previously allocated credits not certified. 22 (2) If the amount of credits applied for in any particular fiscal 23 year exceeds the aggregate amount of tax credits authorized to be 24 allocated under this section, that excess shall be treated as having 25 been applied for on the first day of the subsequent fiscal year. 26 However, credits may not be allocated from a fiscal year other 27 than the fiscal year in which the credit was originally applied for 28 or the immediately succeeding fiscal year. 29 (3) (A) Notwithstanding the foregoing, the California Film 30 Commission shall set aside the lesser of 10 percent of the amount 31 specified in subparagraph (A) of paragraph (1) or twenty million 32 dollars ($20,000,000) of tax credits each fiscal year for independent 33 films allocated in accordance with rules and regulations developed 34 pursuant to subdivision ( e ). 35 (B) Notwithstanding the foregoing, the California Film 36 Commission shall set aside up to thirty million dollars 37 ($30,000,000) of tax credit each fiscal year for television series 3 8 that relocated to California in its first year of receiving a tax credit 39 allocation pursuant to this section allocated in accordance with 40 rules and regulations developed pursuant to subdivision ( e ). 99 J-22 -15-AB 1839 1 ( 4) Any act that reduces the amount that may be allocated 2 pursuant to paragraph ( 1) constitutes a change in state taxes for 3 the purpose of increasing revenues within the meaning of Section 4 3 of Article XIII A of the California Constitution and may be 5 passed by not less than two-thirds of all Members elected to each 6 of the two houses of the Legislature. 7 G) The California Film Commission shall have the authority to 8 allocate tax credits in accordance with this section and in 9 accordance with any regulations prescribed pursuant to subdivision 10 ( e) upon adoption. 11 SEC. 2. Section 23695 is added to the Revenue and Taxation 12 Code, to read: 13 23695. (a) (1) FortaxableyearsbeginningonorafterJanuary 14 1, 2016, there shall be allowed to a qualified taxpayer a credit 15 against the "tax," as defined in Section 23036, in an amount equal 16 to the applicable percentage, as specified in paragraph (4), of the 1 7 qualified· expenditures for the production of a qualified motion 18 picture in California. A credit shall not be allowed under this 19 section for any qualified expenditures for the production of a 20 motion picture in California if a credit has been claimed for those 21 same expenditures under Section 23695. 22 (2) The credit shall be allowed for the taxable year in which the 23 California Film Commission issues the credit certificate pursuant 24 to subdivision (g) for the qualified motion picture, and shall be for 25 the applicable percentage of all qualified expenditures paid or 26 incurred by the qualified taxpayer in all taxable years for that 27 qualified motion picture. 28 (3) The amount of the credit allowed to a qualified taxpayer 29 shall be limited to the amount specified in the credit certificate 30 issued to the qualified taxpayer by the California Film Commission 31 pursuant to subdivision (g). 32 (4) For purposes of paragraphs (1) and (2), the applicable 33 percentage shall be: 34 (A) Twenty percent of the qualified expenditures attributable 35 to the production of a feature in California, up to one hundred 36 million dollars ($100,000,000), or attributable to a television series 3 7 in its second or subsequent year of receiving a tax credit allocation 38 pursuant to this section since relocation to California. 39 (B) Twenty-five percent of the qualified expenditures 40 attributable to the production of a qualified motion picture in 99 J-23 AB 1839 -16- 1 California where the qualified motion picture is a television series 2 that relocated to California in its first year of receiving a tax credit 3 allocation pursuant to this section or is an independent film. 4 (C) (i) The California Film Commission shall increase the 5 applicable percentage by 5 percent if the qualified motion picture 6 incurred or paid the qualified expenditures relating to original 7 photography outside the Los Angeles zone. 8 (ii) For purposes of this subparagraph: 9 (I) "Applicable period" means the period that commences with 10 preproduction and ends when original photography concludes. The 11 applicable period includes the time necessary to strike a remote 12 location and return to the Los Angeles zone. 13 (II) "Los Angeles zone" means the area within a circle 30 miles 14 in radius from Beverly Boulevard and La Cienaga Boulevard, Los 15 Angeles, California, and includes Agua Dulce, Castaic, including 16 Lake Castaic, Leo Carillo State Beach, Ontario International 17 Airport, Piru, and Pomona, including the Los Angeles County Fair 18 grounds. The Metro Goldwyn Mayer, Inc. Conejo Ranch property 19 is within the Los Angeles zone. 20 (Ill) "Original photography" includes principal photography, 21 additional unit photography, and reshooting original footage. 22 (IV) "Qualified expenditures relating to original photography 23 outside the Los Angeles zone" means amounts paid or incurred 24 during the applicable period for tangible personal property used 25 or consumed outside the Los Angeles zone and relating to original 26 photography outside the Los Angeles zone and qualified wages 27 paid for services performed outside the Los Angeles zone and 28 relating to original photography outside the Los Angeles zone. 29 (b) For purposes of this section: 30 (1) "Ancillary product" means any article for sale to the public 31 that contains a portion of, or any element of, the qualified motion 32 picture. 33 (2) "Budget" means an estimate of all expenses paid or incurred 34 during the production period of a qualified motion picture. It shall 35 be the same budget used by the qualified taxpayer and production 36 company for all qualified motion picture purposes. 37 (3) "Clip use" means a use of any portion of a motion picture, 38 other than the qualified motion picture, used in the qualified motion 39 picture. 99 J-24 -17-AB 1839 1 (4) "Credit certificate" means the certificate issued by the 2 California Film Commission pursuant to subparagraph (C) of 3 paragraph (2) of subdivision (g). 4 (5) (A) "Employee fringe benefits" means the amount allowable 5 as a deduction under this part to the qualified taxpayer involved 6 in the production of the qualified motion picture, exclusive of any 7 amounts contributed by employees, for any year during the 8 production period with respect to any ofthe following: 9 (i) Employer contributions under any pension, profit-sharing, 10 annuity, or similar plan. 11 (ii) Employer-provided coverage under any accident or health 12 plan for employees. 13 (iii) The employer's cost oflife or disability insurance provided 14 to employees. 15 (B) Any amount treated as wages under clause (i) of 16 subparagraph (A) of paragraph ( 18) shall not be taken into account 17 under this paragraph. 18 ( 6) "Independent film" means a motion picture with a minimum 19 budget of one million dollars ($1,000,000) and a maximum budget 20 of ten million dollars ($10,000,000) that is produced by a company 21 that is not publicly traded and publicly traded companies do not 22 own, directly or indirectly, more than 25 percent of the producing 23 company. 24 (7) "Licensing" means any grant of rights to distribute the 25 qualified motion picture, in whole or in part. 26 (8) "New use" means any use of a motion picture in a medium 27 other than the medium for which it was initially created. 28 (9) (A) "Post production" means the final activities in a 29 qualified motion picture's production, including editing, foley 30 recording, automatic dialogue replacement, sound editing, scoring, 31 music track recording by musicians and music editing, beginning 32 and end credits, negative cutting, negative processing and 33 duplication, the addition of sound and visual effects, soundmixing, 34 film-to-tape transfers, encoding, and color correction. 35 (B) "Post production" does not include the manufacture or 36 shipping of release prints. 37 (10) "Preproduction" means the process of preparation for actual 38 physical production which begins after a qualified motion picture 39 has received a firm agreement of financial commitment, or is 40 greenlit, with, for example, the establishment of a dedicated 99 J-25 AB 1839 -18- 1 production office, the hiring of key crew members, and includes, 2 but is not limited to, activities that include location scouting and 3 execution of contracts with vendors of equipment and stage space. 4 (11) "Principal photography" means the phase of production 5 during which the motion picture is actually shot, as distinguished 6 from preproduction and post production. 7 (12) "Production period" means the period beginning with 8 preproduction and ending upon completion of post production. 9 (13) "Qualified entity" means a personal service corporation as 10 defined in Section 269A(b)(l) of the Internal Revenue Code, a 11 payroll services corporation, or any entity receiving qualified wages 12 with respect to services performed by a qualified individual. 13 (14) (A) "Qualified individual" means any individual who 14 performs services during the production period in an activity related 15 to the production of a qualified motion picture. 16 (B) "Qualified individual" shall not include either of the 17 following: 18 (i) Any individual related to the qualified taxpayer as described 19 in subparagraph (A), (B), or (C) of Section 51(i)(l) of the Internal 20 Revenue Code. 21 (ii) Any 5-percent owner, as defined in Section 416(i)(l)(B) of 22 the Internal Revenue Code, of the qualified taxpayer. 23 (15) (A) "Qualified motion picture" means a motion picture 24 that is produced for distribution to the general public, regardless 25 of medium, that is one of the following: 26 (i) A feature with a minimum production budget of one million 27 dollars ($1,000,000). 28 (ii) A movie of the week or miniseries with a minimum 29 production budget of five hundred thousand dollars ($500,000). 30 (iii) A new one-hour television series of episodes longer than 31 40 minutes each of running time, exclusive of commercials, that 32 is produced in California, with a minimum production budget of 33 one million dollars ($1,000,000) per episode. 34 (iv) An independent film. 35 (v) A television series that relocated to California. 36 (vi) A pilot for a new television series that is longer than 40 3 7 minutes of running time, exclusive of commercials, that is produced 38 in California, and with a minimum production budget of one 39 million dollars ($1,000,000). 99 J-26 -19-AB 1839 1 (B) To qualify as a "qualified motion picture," all of the 2 following conditions shall be satisfied: 3 (i) At least 75 percent of the principal photography days occur 4 wholly in California or 75 percent of the production budget is 5 incurred for payment for services performed within the state and 6 the purchase or rental of property used within the state. 7 (ii) Production of the qualified motion picture is completed 8 within 30 months from the date on which the qualified taxpayer's 9 application is approved by the California Film Commission. For 10 purposes of this section, a qualified motion picture is "completed" 11 when the process of post production has been finished. 12 (iii) The copyright for the motion picture is registered with the 13 United States Copyright Office pursuant to Title 17 of the United 14 States Code. 15 (iv) Principal photography of the qualified motion picture 16 commences after the date on which the application is approved by 17 the California Film Commission, but no later than 180 days after 18 the date of that approval unless death, disability, or disfigurement 19 of the director or of a principal cast member, an act of God, 20 including, but not limited to, fire, flood, earthquake, storm, 21 hurricane, or other natural disaster, terrorist activities, or 22 government sanction has directly prevented a production's ability 23 to begin principal photography within the prescribed 180-day 24 commencement period. 25 (C) For the purposes of subparagraph (A), in computing the 26 total wages paid or incurred for the production of a qualified 27 motion picture, all amounts paid or incurred by all persons or 28 entities that share in the costs of the qualified motion picture shall 29 be aggregated. 30 (D) "Qualified motion picture" shall not include commercial 31 advertising, music videos, a motion picture produced for private 32 noncommercial use, such as weddings, graduations, or as part of 33 an educational course and made by students, a news program, 34 current events or public events program, talk show, game show, 35 sporting event or activity, awards show, telethon or other 36 production that solicits funds, reality television program, clip-based 37 programming if more than 50 percent of the content is comprised 38 of licensed footage, documentaries, variety programs, daytime 39 dramas, strip shows, one-half hour (air time) episodic television 99 J-27 AB 1839 -20- 1 shows, or any production that falls within the recordk:eeping 2 requirements ofSection2257 ofTitle 18 of the United States Code. 3 (16) "Qualified expenditures" means amounts paid or incurred 4 for tangible personal property purchased or leased, and used, within 5 this state in the production of a qualified motion picture and 6 payments, including qualified wages, for services performed within 7 this state in the production of a qualified motion picture. 8 (17) (A) "Qualified taxpayer" means a taxpayer who has paid 9 or incurred qualified expenditures and has been issued a credit 10 certificate by the California Film Commission pursuant to 11 subdivision (g). 12 (B) (i) In the case of any pass-thru entity, the determination of 13 whether a taxpayer is a qualified taxpayer under this section shall 14 be made at the entity level and any credit under this section is not 15 allowed to the pass-thru entity, but shall be passed through to the 16 partners or shareholders in accordance with applicable provisions 17 of Part· 10 (commencing with Section 17001) or Part 11 18 (commencing with Section 23001 ). For purposes of this paragraph, 19 "pass-thru entity" means any entity taxed as a partnership or "S" 20 corporation. 21 (ii) In the case of an "S" corporation, the credit allowed under 22 this section shall not be used by an "S" corporation as a credit 23 against a tax imposed under Chapter 4.5 (commencing with Section 24 23800) of Part 11 of Division 2. 25 (18) (A) "Qualified wages" means all of the following: 26 (i) Any wages subject to withholding under Division 6 27 (commencing with Section 13000) of the Unemployment Insurance 28 Code that were paid or incurred by any taxpayer involved in the 29 production of a qualified motion picture with respect to a qualified 30 individual for services performed on the qualified motion picture 31 production within this state. 32 (ii) The portion of any employee fringe benefits paid or incurred 33 by any taxpayer involved in the production of the qualified motion 34 picture that are properly allocable to qualified wage amounts 35 described in clauses (i), (iii), and (iv). 36 (iii) Any payments made to a qualified entity for services 3 7 performed in this state by qualified individuals within the meaning 38 of paragraph (14). 99 J-28 -21-AB 1839 1 (iv) Remuneration paid to an independent contractor who is a 2 qualified individual for services performed within this state by that 3 qualified individual. 4 (B) "Qualified wages" shall not include any of the following: 5 (i) Expenses, including wages, related to new use, reuse, clip 6 use, licensing, secondary markets, or residual compensation, or 7 the creation of any ancillary product, including, but not limited to, 8 a soundtrack album, toy, game, trailer, or teaser. 9 (ii) Expenses, including wages, paid or incurred with respect to 10 acquisition, development, turnaround, or any rights thereto. 11 (iii) Expenses, including wages, related to financing, overhead, 12 marketing, promotion, or distribution of a qualified motion picture. 13 (iv) Expenses, including wages, paid per person per qualified 14 motion picture for writers, directors, music directors, music 15 composers, music supervisors, producers, and performers, other 16 than background actors with no scripted lines. 17 (19) "Residual compensation" means supplemental 18 compensation paid at the time that a motion picture is exhibited 19 through new use, reuse, clip use, or in secondary markets, as 20 distinguished from payments made during production. 21 (20) "Reuse" means any use of a qualified motion picture in the 22 same medium for which it was created, following the initial use 23 in that medium. 24 (21) "Secondary markets" means media in which a qualified 25 motion picture is exhibited following the initial media in which it 26 is exhibited. 27 (22) "Television series that relocated to California" means a 28 television series, without regard to episode length or initial media 29 exhibition, that filmed all of its prior season or seasons outside of 30 California and for which the taxpayer certifies that the credit 31 provided pursuant to this section is the primary reason for 32 relocating to California. 33 (23) "Pilot for a new television series" means the initial episode 34 produced for a proposed television series. 35 (c) (1) Notwithstanding subdivision (i) of Section 23036, in 36 the case where the credit allowed by this section exceeds the 37 taxpayer's tax liability computed under this part, a qualified 38 taxpayer may elect to assign any portion of the credit allowed 39 under this section to one or more affiliated corporations for each 40 taxable year in which the credit is allowed. For purposes of this 99 J-29 AB 1839 -22- 1 subdivision, "affiliated corporation" has the meaning provided in 2 subdivision (b) of Section 25110, as that section was amended by 3 Chapter 881 of the Statutes of 1993, as of the last day of the taxable 4 year in which the credit is allowed, except that "100 percent" is 5 substituted for "more than 50 percent" wherever it appears in the 6 section, and "voting common stock" is substituted for "voting 7 stock" wherever it appears in the section. 8 (2) The election provided in paragraph (1): 9 (A) May be based on any method selected by the qualified 10 taxpayer that originally receives the credit. 11 (B) Shall be irrevocable for the taxable year the credit is allowed, 12 once made. 13 (C) May be changed for any subsequent taxable year if the 14 election to make the assignment is expressly shown on each of the 15 returns of the qualified taxpayer and the qualified taxpayer's 16 affiliated corporations that assign and receive the credits. 17 (D) Shall be reported to the Franchise Tax Board, in the form 18 and manner specified by the Franchise Tax Board, along with all 19 required information regarding the assignment of the credit, 20 including the corporation number, the federal employer 21 identification number, or other taxpayer identification number of 22 the assignee, and the amount of the credit assigned. 23 (3) (A) Notwithstanding any other law, a qualified taxpayer 24 may sell any credit allowed under this section that is attributable 25 to an independent film, as defined in paragraph ( 6) of subdivision 26 (b ), to an unrelated party. 27 (B) The qualified taxpayer shall report to the Franchise Tax 28 Board prior to the sale of the credit, in the form and manner 29 specified by the Franchise Tax Board, all required information 30 regarding the purchase and sale of the credit, including the social 31 security or other taxpayer identification number of the unrelated 32 party to whom the credit has been sold, the face amount of the 33 credit sold, and the amount of consideration received by the 34 qualified taxpayer for the sale of the credit. 35 (4) In the case where the credit allowed under this section 36 exceeds the "tax," the excess credit may be carried over to reduce 37 the "tax" in the following taxable year, and succeeding five taxable 3 8 years, if necessary, until the credit has been exhausted. 99 J-30 -23-AB 1839 1 (5) A credit shall not be sold pursuant to this subdivision to 2 more than one taxpayer, nor may the credit be resold by the 3 unrelated party to another taxpayer or other party. 4 ( 6) A party that has been assigned or acquired tax credits under 5 this paragraph shall be subject to the requirements of this section. 6 (7) In no event may a qualified taxpayer assign or sell any tax 7 credit to the extent the tax credit allowed by this section is claimed 8 on any tax return of the qualified taxpayer. 9 (8) In the event that both the taxpayer originally allocated a 10 credit under this section by the California Film Commission and 11 a taxpayer to whom the credit has been sold both claim the same 12 amount of credit on their tax returns, the Franchise Tax Board may 13 disallow the credit of either taxpayer, so long as the statute of 14 limitations upon assessment remains open. 15 (9) Chapter 3 .5 (commencing with Section 11340) of Part 1 of 16 Division 3 of Title 2 of the Government Code does not apply to 1 7 any standard, criterion, procedure, determination, rule, notice, or 18 guideline established or issued by the Franchise Tax Board 19 pursuant to this subdivision. 20 (10) Subdivision (i) of Section 23036 shall not apply to any 21 credit sold pursuant to this subdivision. 22 (11) For purposes of this subdivision: 23 (A) An affiliated corporation or corporations that are assigned 24 a credit pursuant to paragraph (1) shall be treated as a qualified 25 taxpayer pursuant to paragraph (1) of subdivision (a). 26 (B) The unrelated party or parties that purchase a credit pursuant 27 to paragraph (3) shall be treated as a qualified taxpayer pursuant 28 to paragraph (1) of subdivision (a). 29 (d) No credit shall be allowed pursuant to this section unless 30 the qualified taxpayer provides the following to the California 31 Film Commission: 32 (1) Identification of each qualified individual. 33 (2) The specific start and end dates of production. 34 (3) The total wages paid. 35 (4) The amount of qualified wages paid to each qualified 36 individual. 3 7 ( 5) The copyright registration number, as reflected on the 3 8 certificate of registration issued under the authority of Section 410 39 of Title 17 of the United States Code, relating to registration of 99 J-31 AB 1839 -24- 1 claim and issuance of certificate. The registration number shall be 2 provided on the return claiming the credit. 3 ( 6) The total amounts paid or incurred to purchase or lease 4 tangible personal property used in the production of a qualified 5 motion picture. · 6 (7) Information to substantiate its qualified expenditures. 7 (8) Information required by the California Film Commission 8 under regulations promulgated pursuant to subdivision (g) 9 necessary to verify the amount of credit claimed. 10 ( e) The California Film Commission may prescribe rules and 11 regulations to carry out the purposes of this section including any 12 rules and regulations necessary to establish procedures, processes, 13 requirements, application fee structure, and rules identified in or 14 required to implement this section, including credit and logo 15 requirements. The regulations shall include provisions to set aside 16 a percentage of annual credit allocations for independent films and 1 7 television series relocating to California, pursuant to subdivision 18 (i). 19 (f) If the qualified taxpayer fails to provide the copyright 20 registration number as required in paragraph ( 5) of subdivision 21 ( d), the credit shall be disallowed and assessed and collected under 22 Section 19051 until the procedures are satisfied. 23 (g) For purposes of this section, the California Film Commission. 24 shall do the following: 25 (1) On or after July 1, 2016, and before July 1, 2021, allocate 26 tax credits to applicants. 27 (A) Establish a procedure for applicants to file with the 28 California Film Commission a written application, on a form jointly 29 prescribed by the California Film Commission and the Franchise 30 Tax Board for the allocation of the tax credit. The application shall 31 include, but not be limited to, the following information: 32 (i) The budget for the motion picture production. 33 (ii) The number of production days. 34 (iii) A financing plan for the production. 35 (iv) The diversity of the workforce employed by the applicant, 36 including, but not limited to, the ethnic and racial makeup of the 3 7 individuals employed by the applicant during the production of 38 the qualified motion picture, to the extent possible. 39 (v) All members of a combined reporting group, if known at 40 the time of the application. 99 J-32 -25-AB 1839 1 (vi) Financial information, if available, including, but not limited 2 to, the most recently produced balance sheets, annual statements 3 of profits and losses, audited or unaudited financial statements, 4 summary budget projections or results, or the functional equivalent 5 of these documents of a partnership or owner of a single member 6 limited liability company that is disregarded pursuant to Section 7 23038. The information provided pursuant to this clause shall be 8 confidential and shall not be subject to public disclosure. 9 (vii) The names of all partners in a partnership not publicly 10 traded or the names of all members of a limited liability company 11 classified as a partnership not publicly traded for California income 12 tax purposes that have a financial interest in the applicant's 13 qualified motion picture. The information provided pursuant to 14 this clause shall be confidential and shall not be subject to public 15 disclosure. 16 (viii) Detailed narratives, for use only by the Legislative 17 Analyst's Office in conducting a study of the effectiveness of this 18 credit, that describe the extent to which the credit is expected to 19 influence or affect filming and other business location decisions, 20 hiring decisions, salary decisions, and any other financial matters 21 of the applicant. 22 (ix) Any other information deemed relevant by the California 23 Film Commission or the Franchise Tax Board. 24 (B) Establish criteria, consistent with the requirements of this 25 section, for allocating tax credits. 26 (C) Determine and designate applicants who meet the 27 requirements of this section. 28 (D) Process and approve, or reject, all applications on a 29 first-come-first-served basis. 30 (E) Subject to the annual cap established as provided in 31 subdivision (i), allocate an aggregate amount of credits under this 32 section and Section 17053.95, and allocate any carryover of 33 unallocated credits from prior years. 34 (2) Certify tax credits allocated to qualified taxpayers. 35 (A) Establish a verification procedure for the amount of qualified 36 expenditures paid or incurred by the applicant, including, but not 37 limited to, updates to the information in subparagraph (A) of 38 paragraph (1) of subdivision (g). 99 J-33 AB 1839 -26- 1 (B) Establish audit requirements that must be satisfied before 2 a credit certificate may be issued by the California Film 3 Commission. 4 (C) (i) Establish a procedure for a qualified taxpayer to report 5 to the California Film. Commission, prior to the issuance of a credit 6 certificate, the following information: 7 (I) If readily available, a list of the states, provinces, or other 8 jurisdictions in which any member of the applicant's combined 9 reporting group in the same business unit as the qualified taxpayer 10 that, in the preceding calendar year, has produced a qualified 11 motion picture intended for release in the United States market. 12 For purposes of this clause, "qualified motion picture" shall not 13 include any episodes of a television series that were complete or 14 in production prior to July 1, 2016. 15 (II) Whether a qualified motion picture described in subclause 16 (I) was awarded any financial incentive by the state, province, or 1 7 other jurisdiction that was predicated on the performance of 18 primary principal photography or post production in that location. 19 (ii) The California Film Commission may provide that the report 20 required by this subparagraph be filed in a single report provided 21 on a calendar year basis for those qualified taxpayers that receive 22 multiple credit certificates in a calendar year. 23 (D) Issue a credit certificate to a qualified taxpayer upon 24 completion of the qualified motion picture reflecting the credit 25 amount allocated after qualified expenditures have been verified 26 under this section. The amount of credit shown in the credit 27 certificate shall not exceed the amount of credit allocated to that 28 qualified taxpayer pursuant to this section. 29 (3) Obtain, when possible, the following information from 30 applicants that do not receive an allocation of credit: 31 (A) Whether the qualified motion picture that was the subject 32 of the application was completed. 33 (B) If completed, in which state or foreign jurisdiction was the 34 primary principal photography completed. 35 (C) Whether the applicant received any financial incentives 36 from the state or foreign jurisdiction to make the qualified motion 3 7 picture in that location. 38 (4) Provide the Legislative Analyst's Office, upon request, any 39 or all application materials or any other materials received from, 40 or submitted by, the applicants, in electronic format when available, 99 J-34 -27-AB 1839 1 including, but not limited to, information provided pursuant to 2 clauses (i) to (ix), inclusive, of subparagraph (A) of paragraph (1). 3 (5) The information provided to the California Film Commission 4 pursuant to this section shall constitute confidential tax information 5 for purposes of Article 2 (commencing with Section 19542) of 6 Chapter 7 of Part 10.2. 7 (h) (1) The California Film Commission shall annually provide 8 the Legislative Analyst's Office, the Franchise Tax Board, and the 9 board with a list of qualified taxpayers and the tax credit amounts 10 allocated to each qualified taxpayer by the California Film 11 Commission. The list shall include the names and taxpayer 12 identification numbers, including taxpayer identification numbers 13 of each partner or shareholder, as applicable, of the qualified 14 taxpayer. 15 (2) (A) Notwithstanding paragraph (5) of subdivision (g), the 16 California Film Commission shall annually post on its Internet 17 Web site·and make available for public release the following: 18 (i) A table which includes all of the following information: a 19 list of qualified taxpayers and the tax credit amounts allocated to 20 each qualified taxpayer by the California Film Commission, the 21 number of production days in California the qualified taxpayer 22 represented in its application would occur, the number of California 23 jobs that the qualified taxpayer represented in its application would 24 be directly created by the production, and the total amount of 25 qualified expenditures expected to be spent by the production. 26 (ii) A narrative staff summary describing the production of the 27 qualified taxpayer as well as background information regarding 28 the qualified taxpayer contained in the qualified taxpayer's 29 application for the credit. 30 (B) Nothing in this subdivision shall be construed to make the 31 information submitted by an applicant for a tax credit under this 32 section a public record. 33 (i) (1) The aggregate amount of credits that may be allocated 34 in any fiscal year pursuant to this section and Section 17053.95 35 shall be an amount equal to the sum of all of the following: 36 (A) __ dollars($__) in credits for the 2016-17 fiscal year 3 7 and each fiscal year thereafter, through and including the 2020-21 3 8 fiscal year. 39 (B) The unused allocation credit amount, if any, for the 40 preceding fiscal year. 99 J-35 AB 1839 -28- 1 (C) The amount of previously allocated credits not certified. 2 (2) If the amount of credits applied for in any particular fiscal 3 year exceeds the aggregate amount of tax credits authorized to be 4 allocated under this section, the excess shall be treated as having 5 been applied for on the first day of the ·subsequent fiscal year. 6 However, credits may not be allocated from a fiscal year other 7 than the fiscal year in which the credit was originally applied for 8 or the immediately succeeding fiscal year. 9 (3) (A) Notwithstanding the foregoing, the California Film 10 Commission shall set aside the lesser of 10 percent of the amount 11 specified in subparagraph (A) of paragraph (1) or twenty million 12 dollars ($20,000,000) of tax credits each fiscal year for independent 13 films allocated in accordance with rules and regulations developed 14 pursuant to subdivision ( e ). 15 (B) Notwithstanding the foregoing, the California Film 16 Commission shall set aside up to thirty million dollars 17 ($30,000,000) of tax credit each fiscal year for television series 18 that relocated to California in its first year of receiving a tax credit 19 allocation pursuant to this section allocated in accordance with 20 rules and regulations developed pursuant to subdivision ( e ). 21 (4) Any act that reduces the amount that may be allocated 22 pursuant to paragraph ( 1) constitutes a change in state taxes for 23 the purpose of increasing revenues within the meaning of Section 24 3 of Article XIII A of the California Constitution and may be 25 passed by not less than two-thirds of all Members elected to each 26 of the two houses of the Legislature. 27 (j) The California Film Commission shall have the authority to 28 allocate tax credits in accordance with this section and in 29 accordance with any regulations prescribed pursuant to subdivision 30 ( e) upon adoption. 31 SEC. 3. The provisions of this act are severable. If any 32 provision of this act or its application is held invalid, that invalidity 33 shall not affect other provisions or applications that can be given 34 effect without the invalid provision or application. 35 SEC. 4. This act provides for a tax levy within the meaning of 36 Article IV of the Constitution and shall go into immediate effect. 0 99 J-36 CITY COUNCIL POLICY NUMBER: 29 DATE ADOPTED/AMENDED: 08/01/95 (amended 02/19/02 & 03/04/14) SUBJECT: Legislative Activities of the City Council POLICY: It shall be the policy of the City Council that the staff shall prepare and present periodic legislative updates for the Council's review and consideration. The legislation monitored Legislative Guidelines shall address issues at the regional, County, State and Federal level and shall focus upon anticipated or proposed laws, regulations, rules, or policies that may impact the City or the region. The legislation monitored will include both those issues that the City Council decides either to support or oppose and those that they choose to identify as issues of concern, but not take a position on. The determination of what position to take on pending legislation shall be solely that of the City Council. Staff will periodically, at the request of a Council member, place matters of pending legislation on the City Council agenda for consideration. Staff will provide regular updates on the status of any legislative action affecting any issues of concern to the City Council through the Weekly Administrative Report. If the majority of the Council votes to support or oppose legislation, staff shall prepare the appropriate correspondence to the appropriate Federal, State, County and/or regional legislative representative(s) expressing the position of the City. Individual Council members may wish to support or oppose a specific piece of legislation whether the Council has taken a position on such legislation or not. Any legislative activity by an individual Council member, including preparing legislative correspondence, may be conducted by any Council member, who shall state that he or she is not acting on behalf of the City and is representing his or her own personal views. However, staff shall not assist in any legislative activity of an individual Council member, including the preparation of legislative correspondence, unless the legislative item has appeared on a Council agenda and has received a majority vote of the Council. The League of California Cities' "Legislative Bulletin" and any appropriate publication that summarizes legislation shall be provided as part of the Weekly Administrative Report to each member of the Council for review. J-37 BACKGROUND: The City Council initially adopted a policy for Council involvement in Federal and State legislative advocacy in 1995·. Although the policy seems to have worked adequately over the first seven years, by 2002 it was thought that it did not allow the City to respond rapidly to requests to support or oppose legislation that may be before a committee or on the floor or the Assembly or before Congress and needs immediate action on the part of supporters or opponents. Therefore, the policy was amended in 2002 to address these perceived deficiencies. In 2014, the policy was amended again to revise the procedure for monitoring legislation, and to explicitly include legislative issues at the County and regional level. The City Council's revised legislative policy establishes an internal process for identifying, tracking and advocating its position on pending legislation synchronized to the fast-paced "legislation time clock." Through this proactive policy, the City Council hopes to have a stronger "voice" in the Peninsula/South Bay region, Los Angeles County, Sacramento and Washington, DC. J-38