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California Boosts Film Tax Credit by $330 Million, Countering Other States’ Financial Lures

Chris Lindahl
·4 min read

As part of its continued push into film and TV production, Apple wants a production campus of its own. One problem? The Wall Street Journal reported that the company is having trouble finding space in Los Angeles — much of the city’s soundstages are taken up thanks to a streaming-fueled production surge.

Apple has attractive alternatives: Netflix and NBCUniversal are among those who have invested in studio space in New Mexico, made more affordable by cheaper land — and generous tax incentives from the state.

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Now, as states including Oklahoma have successfully spurred soundstage construction with similar incentives, and Georgia’s program continues to attract big-budget productions like “WandaVision,” California is giving its signature industry a boost in the face of increased competition and growing demand.

Gov. Gavin Newsom on Thursday signed into law an expansion of the state’s film and TV tax credit program. It not only boosts production tax credit by $180 million, but also makes available $150 for construction of soundstages — an entirely new component of the program.

Film finance professionals say that the state’s plan could very well move the needle on keeping productions in California. With an ever growing number of series in production, there hasn’t been enough California money to go around. That makes shooting in Georgia, which has a strong crew base and facilities, an attractive alternative, for example.

“From our vantage point with the studios we work with, they’re pretty excited about this one. It shows that California and Newsom are very interested in bringing back television series, which is where a lot of the money is these days, and put some pressure on the states that have been luring series,” said Laurence Sotsky, CEO of tax credit services provider Incentify, which counts Sony and ViacomCBS among its clients.

In 2019, Georgia handed out $870 million in tax credits for film and TV productions, compared to California’s $330 million. It’s a dynamic that has led studios to flock to the Peach State to produce such projects as “Avengers: Endgame,” “Ozark,” and “Stranger Things.” During the most recent fiscal year, Georgia hosted 366 productions. That money can make a big difference.

“Oftentimes when a producer is putting together their budget, a tax incentive could represent 20 percent of the total film budget, which would be finances by a bank or financier. That tax incentive is really critical … it might make or break the film and it getting made,” said Daisy Stall, executive vice president and entertainment finance director of California Bank & Trust.

New for California is a credit to build soundstages. While tax credits can lure production to other states, without infrastructure like soundstages productions are often limited to location shoots. Georgia’s robust studio infrastructure is one reason why it has become such a popular production hub.

That fact is also why Oklahoma’s new production incentive program, approved earlier this year, makes cash available for companies that build soundstages. The Sooner State has seen millions invested in infrastructure over the last year, including Prairie Surf Studios, which has 140,000 square feet of stage space in downtown Oklahoma City.

While the idea of “runaway production” might be outdated, the expanded program shows that California lawmakers do want to bring out-of-state projects back to the country’s entertainment hub. Newsom’s press release boasts that 27 TV series have relocated to California from other states since the incentive program’s launch in 2009.

The expanded program also has new diversity provisions. Recipients will be required to provide data on their workforces’ gender and racial background and to submit a plan to the California Film Commission identifying diversity goals.

Variety recently published a study of diversity in Hollywood using union rosters and found the industry’s workforce does not mirror the makeup of the state population. For example, 16.1 percent of union members were Latino and 4.7% were Asian American, compared to the statewide figures of 39.4 percent and 15.5 percent, respectively.

Such diversity requirements are new for California, and are likely new for film tax incentive programs in the U.S. However, Sotsky said that programs in other industries have similar requirements that can get tricky to track.

“My guidance to my studio clients is we have to be really careful with the questions we ask, the information that we keep to make sure when the audit comes they can actually prove they hired the people they say they did,” he said.

While the program has already earned support among studio heads and producers, there’s an open question about whether it will actually work as intended.

The California Legislative Analyst’s Office in 2019 predicted that a third of projects that received a tax credit would have been made in California regardless. It also found that though the number of industry jobs increased in incentive-states, those types of jobs also increased in states without tax breaks.

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