Understanding Film Tax Credits in California
Film tax credits offer valuable incentives to production companies, offsetting costs and encouraging the local economy. States including California provide a variety of film production incentives, including rebates and partially or fully refundable and/or transferable credits. The various state incentive programs vary widely in terms of caps, spending limits and eligibility criteria – making it crucial for filmmakers to understand the specific state benefits.
California offers significant incentives for productions that meet specific criteria. The state imposes strict guidelines regarding spending, filming locations and eligible production types. This summary breaks down the essential components of California’s film production incentives. The state has specific requirements as listed below. You can find more information here: 3.0 Program Guidelines.
Credits
- 25% Transferable Tax Credit
- Independent films, those produced and distributed by independent entertainment companies, can receive 25% of qualified expenditures up to $10 million.
- Tax credits can be sold or transferred.
- No cap on non-qualified expenditures.
- 25% Non-Transferable Tax Credit
- Relocating TV series are eligible for 25% tax credits on up to $100 million in qualified expenditures.
- Subsequent seasons receive 20%.
- Credits cannot be transferred or sold.
- 20% Non-Transferable Tax Credit
- Non-independent productions (feature films, new TV series, recurring TV series, pilots, miniseries) are eligible for 20% tax credits, up to $100 million.
- Credits are non-transferable and must offset tax liability with the State of California.
- Independent producers can apply under this category, but credits remain non-transferable.
Uplifts/Additional Tax Credits
All applicants can receive uplifts (additional 5% or 10% tax credit) based on specific categories:
- 5% Visual Effects Uplift
- TV projects and feature films (excluding relocating TV series) can receive an additional 5% for VFX.
- VFX in-state expenditures must equal at least $10 million or 75% of worldwide VFX costs.
- 5% Out of Zone (OZ) Expenditures
- TV projects and feature films (excluding relocating TV series) can receive an additional 5% for filming outside the “Los Angeles Zone.”
- Qualified expenditures outside the LA zone are eligible for a 5% uplift during the applicable period.
- “Local Hire Labor” Uplift
- Non-independent productions can receive an additional 10% for qualified local hire labor.
- Independent films and relocating TV series can receive an additional 5% for qualified local hire labor.
- Proof of domicile outside the LA Zone is required.
| State | Incentive | Annual Cap | Minimum Spend | Project Cap |
|---|---|---|---|---|
| California | Tax Credit | $330M | $1M | N/A |
California Film Tax Credits Eligibility Requirements
The production must be a qualified motion picture and meet one of the following criteria to be eligible:
- At least 75% of the production budget must be used for goods, services and/or wages in California
OR
- At least 75% of the principal photography must be filmed only in California.
- This does not include primary backgrounds, visual effects action/crowd scenes.
Qualified motions pictures include television series, pilots, mini-series, independent and non-independent feature films.
The California Film Tax Credit has created an incentive for filmmakers to produce in California. To be prepared to maximize their benefits, it is important for a production to be properly set up to meet the eligibility requirements, track the qualified spend and be able to report the results are required.