California Attempts To Halt Runaway Production With New Tax Breaks

by Leroy Baker, Tax-News.com, New York

26 August 2005

Californian state Governor Arnold Schwarzenegger is backing a new set of tax breaks to help ensure that Hollywood remains the movie making capital of the world as a new study shows that California is continuing to lose out to other states and territories.

The bill, sponsored by Democratic State Assembly Speaker Fabian Nunez, would offer a tax credit of 12 percent on wages and other production costs up to $3 million per film or TV show. Additionally, an additional 3 percent credit could be applied under certain circumstances.

The move is an attempt to halt 'runaway production' to places like Louisiana, where production expenditures rose from $12 million in 2002 to $330 million in 2004 after the state adopted new tax incentives. Movie producers are also feeling the benefit of tax incentives offered by foreign governments, notably Canada.

The bill marks the third occasion that Californian legislators have attempted to pass tax incentives for the movie industry after the previous two attempts failed. Opponents of the tax cuts argue that they will merely line the pockets of already wealthy Hollywood producers and are especially inappropriate given California's budgetary constraints and the many cuts which are taking place state-funded programs.

However, a new study released by California Film Commission contends that the state's economy has benefited greatly from the presence of the motion picture industry, particularly in Los Angeles County.

According to the study, a film costing $70 million adds at least $10.6 million in tax revenues to state coffers, while a $17 million film brings at least $1.8 million in product sales tax and payroll income tax, and a one-hour TV drama budgeted at $2.2 million would generate $260,000 in tax revenue to the state.

"A growing number of states and countries have recognized the value of employment and government tax revenues generated by film and television production and are aggressively courting the business with tax credits and other enticements," the Commission's report observed.

"This is a highly mobile industry, and while California may scarcely notice the impact of losing a single production, over time the state may find itself chasing an industry that has quietly left," the report warned.

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