The entertainment industry is warning Gov. Gavin Newsom that California production risks being hurt if the state imposes new limits on corporate tax credits.
In a June 8 letter, a coalition of industry and labor groups argued that the governor’s budget plan would kill production jobs and hinder the state’s efforts to promote film.
“The results will be immediate and concrete, not theoretical,” the letter said. “The impact will be felt throughout the production ecosystem,” it added, adding that the measure poses a “direct and immediate threat to tens of thousands of middle-class jobs.”
In response to a dramatic downturn in film and television production, Newsom more than doubled state incentives last year to $750 million. But the governor’s budget for next year limits businesses’ ability to claim tax credits, which entertainment groups argue defeats the purpose of the expansion.
A coalition including the Motion Picture Association and Hollywood unions is pushing for a carve-out that would exempt film credits from the new restrictions.
In May, Newsom vowed to make businesses “pay their fair share” by permanently capping tax credits at the greater of 50% of corporate debt or $5 million. The proposal aims to help stabilize the national budget and eliminate the structural deficit by July 2028, as well as protect small and medium-sized enterprises that pay low taxes.
Film credits are one of several state tax incentives. That includes research and development loans that cost the state about $1.5 billion to $2 billion a year and about $388 million in low-income housing loans.
Mr. Newsom’s proposal would prevent companies from using these credits to wipe out all or most of their tax liability. But entertainment industry groups argue that by making it more difficult for companies to monetize film credits, companies will be more reluctant to shoot movies in California.
“Producers will make location decisions based on whether and when they can ensure that they realize the maximum value of available incentives,” the letter advises.
The latest version of the budget, currently going through Congress, would place a $5 million flat cap on credit use over the next three years. From 2030, a permanent deduction limit will be set at 70% of a company’s tax liability.
The state Treasury said in a statement that the 70% limit is “an appropriate middle ground that preserves the incentive effects of the state business tax credit while ensuring payment of a reasonable minimum tax.”
The department also said the proposal “would also have a limited impact on the film tax credit program,” noting that businesses would still be able to use tax credits to offset sales taxes and that refundable credits could be redeemed at a 10% discount over five years.
But industry groups still argue that film credits should be fully exempted from the new restrictions because they have already been considered and approved by Congress until 2030.
The Independent Film and Television Alliance, which participated in the June 8 letter, argued that the proposal would affect independent producers as well as major studios.
“Independent productions rely on the ability to monetize transferable tax credits as a key component of financing,” Jackie Brenneman, the group’s president and CEO, said in a statement. “By limiting the amount of credits a buyer can apply for in a year, this cap reduces the number of buyers who can obtain a full certificate and lowers the amount buyers pay.”
Newsom and Congress made movie credits refundable in 2025. However, some companies still held previously issued non-refundable movie credits and were unable to claim tax liability due to state restrictions on prior credit usage. The letter warns that these credits are now at risk of expiring and argues that they should be refundable or transferable.
