SACRAMENTO — Hollywood production companies that use complex accounting to escape corporate taxes could get millions of dollars in state refunds under a bill aimed at enticing filmmakers to shoot in California.
The proposal, sponsored by Assembly Speaker Fabian Nunez (D-Los Angeles) and backed by Gov. Arnold Schwarzenegger, was unveiled in the last few weeks of the 2005 legislative session. It enjoys strong backing from labor unions, Hollywood studios and influential Los Angeles-area lawmakers.
The measure would provide eligible motion pictures with a tax credit -- sometimes paid in cash -- of as much as 15% of the cost of wages and equipment on movies made in California, to a maximum of $3 million per production. Although the total cost of the bill is unclear, the movie industry is seeking $100 million a year in tax credits for 10 years to stem so-called runaway film production.
An analysis by Republican Senate staffers questioned whether Nunez's tax proposal was a giveaway for a favored industry. The bill would provide film producers what are known as refundable tax credits, which offer cash refunds even when no taxes are paid. That's in contrast to standard tax credits, which simply reduce the amount of taxes owed.
The bill, critics say, is a tacit acknowledgment that many production companies post no profit by the time they wrap up shooting and close their books.
"As a refundable tax credit, this bill is the equivalent of a direct payment from the state treasury to one of the wealthiest industries in California," said the analysis of Nunez's bill, AB 777, by the Senate Republican Office of Policy, which generally favors tax breaks.
Critics contend that under current law, the only group eligible to get cash refunds from the state is middle- and lower-income families who claim tax credits for caring for children and elderly dependents.
"The fact that Hollywood productions use famously creative accounting is no reason to compromise a basic principle of our tax system," said an opposition letter sent to Nunez last week by Lenny Goldberg, a lobbyist for the California Tax Reform Assn.
There's little hard data on the profitability of film production companies. However, a federal antitrust lawsuit in the mid-1990s shed light on the accounting practices used by Hollywood studios to report losses on such box-office successes as "Batman" and "JFK."
