Tax Cut on Film Wages Advances

SACRAMENTO —  As state legislators prepare to slash spending and increase taxes to bridge a $23.6-billion budget shortfall, a key Senate committee Wednesday approved a bill to cut taxes on motion picture industry wages.

The legislation, which supporters say is needed to prevent Canada and other foreign and domestic competitors from siphoning off movie industry jobs, would cost the state an estimated $650 million in lost revenue over five years, according to a Senate staff analysis.

But supporters of Assembly Bill 2747-- approved 4 to 0 by the Senate Revenue and Taxation Committee--say the legislation would pay for itself in the long run by keeping high-paying film industry jobs in California. The bill, written by Assembly Speaker Herb Wesson and sponsored by Gov. Gray Davis, would offer a 15% tax credit on qualified wages.

A Senate staff analysis, however, concluded that the tax credit “is likely to have a marginal impact on where productions are filmed.”

“The problem of runaway production is real,” the analysis continued. “The proposed credit, much of which would go to producers who have no intention of leaving California, seems a blunt instrument to use in this battle.”

Critics say the state can’t afford the tax credit, especially with California facing its worst budget crisis in a decade.

“We think if you’re going to attack the problem, it needs to be done in a targeted way,” said Lenny Goldberg, a lobbyist for the California Tax Reform Assn. “Otherwise we are going to be losing a whole lot of money and we’re not going to be getting much bang for the buck.”

Goldberg and other critics of the bill suggested that Washington, D.C., not California, should take the lead by pursuing a North American Free Trade Agreement complaint against Canada for poaching U.S. film jobs.

Industry advocates dismissed that suggestion as foolhardy.

“It would trigger a trade war,” said Bruce C. Doering, national executive director of the International Cinematographers Guild.

Supporting the movie industry should be a no-brainer for the state, supporters say.

“This is a jobs bill,” Doering said. “It’s a well-paying, nonpolluting industry that every other government wants. It’s time our government steps up to level the playing field.”

The industry has lost thousands of jobs in recent years as other countries--and other U.S. states--have aggressively courted California’s glamour sector with tax credits, rebates and other incentives. Because of tax breaks, lower labor costs and other factors, production companies can reduce their costs by at least 15% by filming in Canada, industry officials say.

“I understand [critics’] concerns,” said Sen. Jack Scott (D-Altadena), a key supporter of the bill, who said many of his constituents had lost their jobs to “runaway” movie productions in Canada and elsewhere. “But I think if we can stop that hemorrhaging, the money to the state will be increased.”

The state’s Franchise Tax Board estimates that passage of the bill would result in a $25-million loss in revenue in 2004-05, the year the tax credit would go into effect. The revenue loss would soar to $175 million in 2005-06, then drop to between $110 million and $115 million until the credit expires in 2009, the state estimates.

The Department of Finance projects that the economic stimulus effect of the credit would reduce overall revenue loss by 20%.

Under the proposed bill, a 15% tax credit would be granted for wages paid in film productions with total wage payments between $200,000 and $10 million. The credit would apply to the first $25,000 in wages paid.

Only pay directly related to producing the motion picture would qualify for the credit, which would exclude wages paid to lawyers, accountants, marketing specialists and other jobs indirectly related to the production.

The bill, which already has passed the Assembly, must be approved by one more committee before moving to the Senate floor.