Califronia Tax Incentives Sacramento Capitol
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An amendment to proposed legislation to expand California’s film and TV tax credit urges trade action as a response to countries that have lured visual effects firms away with the promise of generous subsidies.

The amendment calls call for a strategy that has been previously opposed by Hollywood studios, which have benefited from the availability of post-production subsidies in Canada, Great Britain and other countries. In late May, for instance, Sony announced that its Imageworks special effects facility would be moving to Vancouver, further eroding the once-thriving visual effects industry in Southern California.

Assemblyman Mike Gatto, (D-Los Angeles) principal co-author of the legislation, told Variety through a spokesman earlier this month that he planned to add the provision.

The amendment is essentially a resolution: It has no force of law. Nor does the legislation, AB 1839, include any funding for a legal effort being launched by visual effects artists to pursue trade action.

But the language of the amendment expresses support for the goal of the group, the Assn. of Digital Artists, Professional Artists & Technicians, or ADAPT, which is to pursue a complicated legal process in which trade officials would be compelled to pursue tariffs on such things as visual effects and music scoring, the type of work that has been lost to other countries. Such tariffs would help bring parity to the cost of such work.

The amendment reads, “It is the intent of the Legislature to urge the United States Congress and the Intl. Trade Commission to investigate aggressively and impose sanctions, including tariffs, on productions and elements of production, including visual effects, virtual photography, and music scoring, that are digitally distributed and electronically transmitted, in its definition of ‘articles’ protected by the Tariff Act, to combat unfair and illegal competition from international parties.”

In a statement, a spokeswoman for the MPAA said, “First and foremost, it’s critical that this legislation pass and be signed into law.  We support growing California’s VFX industry. A more productive step toward doing that is elsewhere in the bill — in the enhanced VFX credit. The passage of this bill is crucial — it will put California on the verge of adding billions to its economy and reclaiming good jobs, including VFX jobs, in one of its iconic and homegrown industries.”

The legislation also provides a 25% incentive for visual effects and music scoring work for the production of a movie in California. At least 75% or at least $10 million of the visual effects work must be done in California.

Daniel Lay, author of the VFXSoldier blog and one of the leaders of the ADAPT effort, said it was “fantastic” the amendment was added, but urged legislative leaders to help finance the legal costs, which he said would be only a fraction of the cost of the bill’s $400-million-per-year tax credit program. He noted that the state of Louisiana assisted the legal effort to bring trade relief to the shrimp industry. ADAPT is raising money for its effort, in which it is working with a Washington law firm that specializes in trade issues.

Moreover, Lay expressed doubts that the visual effects incentives in the California legislation could compete with those offered in other countries, particularly Canada. He has calculated that incentives can cover almost 60% of a British Columbia visual effects worker’s salary.

“Yes, they are trying to ratchet up the subsidies in California, but there is no guarantee that the work will be done here,” Lay said.

In an interview on Friday, Gatto said that he did encounter resistance from the studios for adding the trade provision.

“I don’t think they were entirely happy with that portion of the bill,” Gatto said. “Ultimately, we have to do what is right for the interests of the taxpayer.”

Nevertheless, he said that he was reluctant to add a provision that would provide funding to a private law firm, saying that it would be “problematic in California.”

The bill, AB1839, heads to the Senate floor next week, and then will have to return to the state Assembly.

If it passes — as it now expected — it will head to Gov. Jerry Brown’s desk. He has not announced whether he will sign the legislation. In interviews and discussions with other elected officials, he has previously expressed concerns about seeing one of the state’s signature industries slip away, but also that the state not engage in a “race to the bottom” in the quest to land private sector jobs.

Gatto said that talks are ongoing with Brown and his staff. Asked if the governor was supportive of quadrupling the tax credit to $400 million per year, Gatto said, “I certainly hope so, but if everything I have heard is correct, he still requires a little bit of convincing just for the program, period, much less the number.”

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