California grants $330 million in tax credits annually with the aim of retaining production jobs within the state. These credits serve as offsets for corporate income tax and sales tax. However, certain companies either lack any tax liability in California or have insufficient liability to fully utilize the credits.
This year, Governor Gavin Newsom agreed to assist those companies by making the film and TV tax credit “refundable.” This means that these companies will be able to receive cash back from the credits. On Monday, the Legislature unveiled the specifics of a budget agreement, confirming that they have approved Newsom’s proposal to make the tax credit refundable.
Netflix previously informed shareholders that it had more California tax credits than it could use. It has also advocated for changes in California legislation to make CalCompetes, another corporate incentive, refundable.
Film credits in California can be claimed up to nine years after they are certified.
Other states that provide film incentives often make them refundable (like New York does) or transferrable (as Georgia does). In locations like Georgia or Louisiana, entertainment enterprises often have little or no state tax burden, which means they must be able to sell them to other taxpayers or receive a refund for the incentive to work.
Companies like Disney and NBCUniversal generate a substantial amount of sales tax in California through their theme park operations. As a result, they are able to utilize the non-refundable tax credits.