Dozens of California lawmakers are urging Governor Gavin Newsom to reverse a recently enacted cap on business tax breaks, expressing concern that the measure could inadvertently harm the state's film and television industry and lead to job losses.
In a letter sent Friday, approximately 36 legislators requested an exemption for the state's film and TV tax credit program from the new cap. They argue that the change creates significant uncertainty for production companies regarding the monetization of earned tax credits.
This appeal comes as the film industry warns that the cap undermines the state's commitment to supporting the sector through its established tax credit program. The program, recently expanded and touted by Newsom as having a record $6.6 billion economic impact, is seen as crucial for retaining productions in California.
"We need to have people understand that these changes, which I think people believed were minor, are really significant and will result in significant job loss if we don't fix them," Assemblymember Rick Zbur, representing Los Angeles, told The Los Angeles Times. "It creates significant uncertainty for production companies, in terms of when, how and even, if, they will be able to monetize earned tax credits."
Industry groups, including the Motion Picture Association and the Entertainment Union Coalition, also conveyed their concerns in a separate letter. They stated that the uncertainty introduced by the tax credit cap "will, in effect, say to production companies that credits earned under the program may not be honored as originally promised."
Newsom's administration, however, defended the tax credit cap as a necessary fiscal tool for ensuring state stability. A statement from the governor's office indicated confidence in the film and television tax credit program and a commitment to working with industry and legislative partners to maintain its competitiveness.
The legislative maneuver to cap business tax breaks was part of Newsom's final state budget proposal. Initially, the proposal included a permanent cap on business tax breaks at $5 million or 50% of total tax liability. The enacted version extends the existing cap for three years, after which it will be set at $5 million or 70% of tax liability beginning in 2030. Lawmakers reportedly believed the cap would not apply to the film and TV tax credit program.
The film industry has faced numerous challenges in recent years, including the migration of some studios to other states, the impact of the COVID-19 pandemic, and the 2023 strikes by writers and directors, alongside broader financial cutbacks. The new tax credit cap is seen by many in the industry as the latest significant blow to its ability to thrive in California.