A California business tax credit cap aimed at saving $4 billion threatens to drive away film and television production, according to a letter signed by a bipartisan group of lawmakers who demanded a quick fix to the budget signed by Governor Gavin Newsom.
If the problem isn't remedied, efforts to woo production to California "will be significantly kneecapped," according to the letter to Newsom and leaders in the state legislature signed by 39 lawmakers. "It creates significant uncertainty for production companies, in terms of when, how and even, if, they will be able to monetize earned tax credits."
California's $351.7 billion budget, which Newsom signed June 29, included a provision to cap business tax credits at $5 million, a feature that will save an estimated $1 billion in the fiscal year that started July 1 and $3 billion the following year. For high-budget movies and TV series, the new limit makes California uncompetitive with other states and countries that offer more generous incentives.
The budget provision undercuts tax credits for the filmmaking industry that were expanded to $750 million a year in 2025.
"The uncertainty created by this turn-around will, in effect, say to production companies that credits earned under the program may not be honored as originally promised," the Motion Picture Association and the Entertainment Union Coalition wrote in a separate letter to lawmakers this month. "Why would a company choose to do business in California under those conditions?"
The Los Angeles area is still recovering from the Covid-19 pandemic and the 2023 writers' and actors' strikes, which brought production to a standstill for months and intensified the shift of film and television projects to other states and countries. California lost more than 42,000 entertainment jobs between 2022 and 2024 as runaway production hit Hollywood, according to both letters.
Since last year's expansion, the state has awarded tax credits to 170 projects, including 41 new films, bringing $6.6 billion in economic activity and nearly 35,000 cast and crew jobs across California, the California Film Commission
Newsom didn't immediately reply to requests for comment.
"California is where filmed entertainment was born, and with this expansion, we're making sure it stays here," Newsom said during a July 2 visit to a studio lot in Burbank,
Rick Zbur, a Democratic state assemblymember who spearheaded the film and television tax credit increase, as well as the legislative fix, said the $5 million cap came as a surprise to him and other lawmakers.
"I'm not sure who knew what about what," Zbur, whose district includes Paramount, Netflix and Universal studio lots, said in an interview. "But I'm confident that my legislative leadership did not fully appreciate how this kneecapped the film and television tax credit. And I certainly didn't."
Under recent rules, a $100 million production would qualify for as much as $30 million in tax credits, Zbur said. The new cap would slash that $30 million more than 80%, although additional money might be claimed through tax refunds that could take five years to recoup, Zbur said.
The Legislature should revise its rules on the entertainment credit when it returns from recess in August to make sure studios don't cancel productions in California, he said.
Newsom pitched the $5 million cap on tax credits for all businesses along with several other policy changes to save money as the state braces for budget shortfalls in future years.
Democratic lawmakers backing the move cast it as a matter of fairness, raising concerns about a separate and far larger business tax credit. The state's research and development tax credit program accounts for the overwhelming majority of business credits and claims are highly concentrated among a small number of large companies,
"A permanent credit limitation will ensure that the largest profitable corporations in California pay a reasonable minimum level of tax rather than offsetting all their tax liability with tax credits," state Senator John Laird, a Democrat, said ahead of a June vote on the budget measure.
