Preparing for the Changes of the California Film Tax and Television Credit Program 2.0
February 18, 2016
By Blair Robbins, CPA
The new California Film and Television Tax Credit Program 2.0 ("Program 2.0") brings many changes to the state’s incentive program. There are key changes to the application process, the selection process for how productions are chosen by the state to be awarded the incentive, the amount of the incentive available for each state fiscal year, and the percentage of qualifying expenditures a production may be granted as a tax credit. These sweeping changes create a need for alterations in how productions wishing to make the most of the incentive program must plan and account for their production expenditures. While permanent regulations are still in the process of being finalized, it is clear that productions will need to expand the level of detail in their record keeping to ensure the California Film Commission and the CPA hired by the production company will have the information necessary to verify the production's compliance with the enhanced program requirements. Examples include:
- A more complex free field coding system, as laid out by the state. The coding system has been modified and is now different, based on the type of production and uplift credits the applicant is seeking.
- Time card detail of the location of work for each crew member to allow for verification of the expenditures incurred outside of the L.A. zone.
- Shipping documentation associated with in-state purchases.
- Details in production reports regarding the hours of the day spent at various production facilities and which location the first scene of the day was shot when shooting at multiple locations.
- Records of usage of props, wardrobe, and other non-consumable items when shooting both in and out of the L.A. zone.
- Letters from designated career-based learning programs stating applicants have satisfied all requirements
- Letters from post facilities regarding the date of the creation of the final element; and visual effects, digital effects, post-production sound and/or title companies regarding the amounts charged for the work they performed within California using the states designated templates. A recalculation of the job’s ratio by the CPA. Proper tracking of the calculations inputs are necessary to allow the CPA to re-perform this calculation.
In addition to the changes to expenditures and other reporting tracking guidelines,Program 2.0 has many other important changes including a significant modification to what constitutes a qualified production expense. Program 2.0 requires that goods be purchased or rented in California, and that the items be used in California. (Under the old program, out-of-state purchases were allowable provided the items were used during in-state production.) Also new is the requirement that pilots and television shows have a pick-up order prior to being approved for the tax credit. (This requirement was added to reduce the number of projects in the application process that were ultimately never produced.)
There is also a bonus point system, developed as an integral part of the determination of which projects will receive tax credits. The matrix for awarding bonus points will change over time based on information collected by the film commission. Therefore, applicants will need to stay abreast of these changes to ensure applicants are able to develop a budget and application maximizing available bonus points.
As part of the application process, the applicant is encouraged by the California Film Commission to provide the name of the CPA firm they intend to hire for the agreed-upon procedures as required to claim the tax credit after completion of production. The CPA firm is also granted access to the state’s online portal to access the applicant’s information once authorized by the company. Hiring the CPA at an early stage of production will allow for an open dialog regarding the ever-changing landscape of the program.