On September 18, 2014, California enacted an increase in its film production tax incentives to more than triple the annual credits available from $100 million to $330 million, and to extend the program through 2020.
Responding to criticism that film tax credits only create short term jobs, the new California law allocates the available annual pool of credits 5% to independent films, 35% to feature films from major players, 20% to relocating television series, and 40% to new television series, pilots, movies-of-the-week and mini-series. That is the good news.
The bad news is that in order to be useful in attracting jobs, tax credits need to be certain and predictable. For example, states that have annual review and adjustment of available credits have lost business because of the uncertainty about what the state legislature would do in a particular year.
Unfortunately, California's new law appears to create several levels of uncertainty. For example, one of the bases for allocating the California tax credits is the "jobs ratio" of films applying for credits. This ratio is the qualified wages paid to qualified individuals divided by the amount of the tax credit. While appearing simple on its face, the actual jobs ratio will not be known until the completion of production. Worse, the credits are awarded first to a project with highest jobs ratio on down to the lowest jobs ratio in each category until credits in that category are exhausted, again leading to immense uncertainty given the unknown number of competitors in a particular project category and the unknown size of each competitor's project. In addition, California will award credits at least once a year for the first year of the program, and at least twice yearly thereafter. As a result, the timing of credit awards will be uncertain, leading to unpredictable interest costs in cases where credits are used as loan collateral.
The new law also says that the credit cannot be awarded until the project has obtained a copyright registration certificate. Given that the application for copyright cannot be filed until the completion of production, and that the Copyright Office is months behind in issuing registration certificates (unless an extra fee is paid to accelerate the process, creating an additional cost associated with use of the tax credits as collateral for loans), the copyright registration requirement creates yet another level of unpredictability, with attendant additional interest costs (assuming a loan can even be obtained).
While it is possible that the program might work for the studios that do not need to bank the credits, the uncertainty about the amount of the credit and when it will be awarded, when compared to certain credits at the same rate in other states, may make the program less useful than it is intended to be.
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