Hollywood Warns Gov. Gavin Newsom That Tax Credit Limits Threaten California Film Production

A coalition of studios, unions and independent producers sent a June 8 letter to Governor Gavin Newsom urging an exemption for film tax credits from his budget proposal that would cap corporate tax credits at 50 % of a company’s liability or $5 million, whichever is greater. The coalition argues the cap would undermine California’s $750 million film-incentive program, jeopardizing production jobs and the broader ecosystem.

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In response to a production downturn, Newsom doubled the state’s film-credit allocation to $750 million for fiscal year 2025-26 and made the credit refundable in 2025. The governor’s budget seeks to limit credit utilization to a flat $5 million per company for the next three years and to a permanent 70 % of tax liability beginning in 2030, a measure intended to address a projected structural deficit through July 2028. The proposal also targets other credits, including research-and-development ($1.5-2 billion annually) and low-income housing ($388 million).

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• Governor Gavin Newsom – proposes the credit caps to stabilize the state budget.

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• Motion Picture Association (MPA) – leads the industry coalition.

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• Hollywood unions – part of the coalition.

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• Independent Film and Television Alliance (IFTA) – represents indie producers; President Jackie Brenneman voiced concerns.

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• California Department of Finance – defended the 70 % limit as a “middle ground.”

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• Film-credit budget: $750 million (2025-26).

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• Proposed flat cap: $5 million per company for three years.

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• Permanent cap: 70 % of tax liability from 2030 onward.

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• Non-refundable credits issued before 2025 remain unusable under prior limits and risk expiration.

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• R&D credit cost: $1.5-2 billion annually; low-income housing credit cost: $388 million.

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Governor Newsom’s office framed the limits as a means to “make companies pay their fair share” while protecting smaller businesses with lower tax liabilities. The Department of Finance described the 70 % cap as “an appropriate middle ground that preserves the incentive effect of the state’s business tax credits while ensuring a reasonable minimum tax is paid.” It added that the proposal would have “a limited impact on the film tax credit program,” noting that credits can still offset sales tax and refundable credits may be redeemed over five years at a 10 % discount.

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The coalition contends that limiting credit utilization will deter producers from filming in California, shrink the pool of buyers for transferable certificates, and depress credit prices. IFTA President Jackie Brenneman emphasized that indie productions depend on monetizable credits for financing and warned that the cap could “shrink the pool of buyers able to absorb a full certificate and drives down what they will pay for it.” The letter also warned of an “immediate and concrete” threat to “tens of thousands of middle-class jobs” across the production ecosystem.

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While the Department of Finance predicts only a modest effect on the film-credit program, industry groups argue the cap will directly reduce financing options and could cause existing non-refundable credits to expire. No independent impact study is cited, leaving the magnitude of the economic effect uncertain.

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• “The result will not be theoretical — it will be immediate and concrete,” — Hollywood coalition (letter)

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• “This impact will be felt across the entire production ecosystem,” — Hollywood coalition (letter)

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• “a direct and immediate threat to tens of thousands of middle-class jobs.” — Hollywood coalition (letter)

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• “Independent productions rely on the ability to monetize transferable tax credits as a critical component of their financing,” — Jackie Brenneman, President & CEO, Independent Film and Television Alliance

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• “By limiting how much of a credit any single buyer can apply in a year, the cap shrinks the pool of buyers able to absorb a full certificate and drives down what they will pay for it.” — Jackie Brenneman

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• “an appropriate middle ground that preserves the incentive effect of the state’s business tax credits while ensuring a reasonable minimum tax is paid.” — Department of Finance spokesperson

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The budget amendment is moving through the California Legislature, where proponents of a film-credit exemption are lobbying for a carve-out. A decision before the start of the 2026-27 fiscal year will determine whether the proposed caps remain in place or are adjusted to accommodate industry concerns.

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