California Fights Back: Newsom’s $3.75 Billion Tax Incentive to Keep Hollywood Productions at Home

In a bold move to preserve California’s status as a global entertainment hub, Governor Gavin Newsom is proposing a major expansion to the state’s film and television tax incentives. Shows like MasterChef, Supergirl, and The Kelly Clarkson Show have all relocated production to other states, attracted by more lucrative tax breaks. Per The Hollywood Reporter, Newsom’s proposal would increase California’s annual cap on film and TV tax credits from $330 million to a competitive $750 million, potentially providing up to $3.75 billion in tax credits over five years, starting in 2025. This increase would make California’s film tax credits among the most generous in the nation, second only to Georgia, which famously has no cap on its annual production credits.

This proposal is intended to counteract California’s recent struggles to retain productions, especially as Hollywood faces unprecedented competition from states like Georgia and New York. Georgia has become a particular powerhouse as the go-to location for major productions from Disney’s Marvel Cinematic Universe to Netflix originals. Pinewood Studios, an iconic British production company, chose Georgia for its massive U.S. studio complex, creating jobs and economic boosts once exclusive to California.

All of this has pressured the state to retain its leading position in entertainment production. “This means that film production can stay,” said Los Angeles Mayor Karen Bass, who pointed out the broader economic impact of Newsom’s plan. “It means that all of the jobs that would be lost…would stay here.”

The film and TV industries provide tens of thousands of jobs across California, employing everyone from actors to set designers, sound engineers, and caterers. This proposal comes on the heels of an especially tough period for entertainment workers, with both the writers’ and actors’ strikes halting production for several months in 2023. As a result, California’s entertainment sector, particularly in Los Angeles, saw a significant drop in job opportunities, with reports of workers selling homes, relying on food banks, and in some cases, leaving the industry entirely.

Colleen Bell, the director of the California Film Commission, which oversees production incentives in the state, shared the importance of keeping these jobs within California. Bell acknowledged that the current system could see further adjustments, including potentially setting limits on the tax relief a single production can claim, as well as refining what qualifies as eligible expenses. “We have to invest in our lead and preserve jobs for Californians so they can do the jobs they love and put paychecks in their pockets,” Bell explained. The expansion, which remains under negotiation, is also expected to enhance economic ripple effects that benefit local businesses, from caterers and costume suppliers to equipment rental services.

Mayor Bass’s task force to promote local entertainment work is one part of the state’s strategy to keep jobs within California. As part of the initiative, this team is exploring additional ways to sustain a vibrant local industry amidst nationwide cost-cutting in entertainment.

However, Newsom’s expansion plan isn’t without challenges. As some states, including New York, recently opted to increase their own credits – with additional provisions within New York City – California is under pressure to do more to maintain its allure. Yet, with more resources directed toward in-state production, the proposed program could help ensure that Hollywood remains in California rather than heading to new markets that promise enticing tax cuts.

If passed, Newsom’s proposal would represent a new chapter for California’s entertainment industry, potentially reversing years of runaway production that took lucrative jobs out of the state. It is, perhaps, the start of a renewed commitment to localize the economic benefits of entertainment in a state that has built much of its identity around Hollywood’s cultural and creative legacy – ushering in a new Golden Era, if you will.

Learning Center

California Fights Back: Newsom’s $3.75 Billion Tax Incentive to Keep Hollywood Productions at Home

Want our best tax and accounting tips and insights delivered to your inbox?