Hollywood warns Newsom tax credit cap threatens thousands of California jobs

• Hollywood warns Newsom's budget cap threatens tens of thousands of middle-class jobs
• California's film incentive was raised to $750 million only last year
• Independent producers say the cap reduces the value of transferable film credits

California's entertainment industry is sounding the alarm over a proposed state budget measure that it says will hollow out the film tax incentive programme and put tens of thousands of production jobs at risk — even as Governor Gavin Newsom only recently expanded that very programme.

Variety reported that a broad coalition of industry and labour groups sent Newsom a letter on 8 June, warning that his budget proposal would undermine California's appeal as a filming location and cause immediate harm to the state's production ecosystem.

What the letter says

The letter did not mince words about the potential consequences. "The result will not be theoretical — it will be immediate and concrete," it states. "This impact will be felt across the entire production ecosystem," adding that the measure poses "a direct and immediate threat to tens of thousands of middle-class jobs."

The coalition — which includes the Motion Picture Association and Hollywood's major unions — is calling on the governor to exempt film credits entirely from the proposed new limitation on corporate tax credit usage.

What Newsom proposed and why

Newsom moved to stabilise the state's finances in May, announcing plans to permanently cap the amount of tax credits companies can claim to either 50% of their tax liability or $5 million, whichever is greater. The measure was framed as a way to make corporations "pay their fair share" and was designed to eliminate a structural budget deficit through July 2028, while shielding smaller businesses with lower tax liabilities.

The film credit is one of several affected state incentives. The research and development credit costs California roughly $1.5 billion to $2 billion annually, while the low-income housing credit costs approximately $388 million per year.

A reversal of momentum

The timing is particularly jarring for the entertainment industry. Responding to a sharp downturn in film and television production, Newsom had more than doubled the state's film incentive to $750 million just last year. Industry groups now argue that capping how much of that credit companies can actually use defeats the purpose of the expansion entirely.

"Producers make location decisions based on whether and when they can reliably realize the full value of available incentives," the coalition letter advises.

Where the budget proposal stands

The latest version of the budget, currently moving through the state Legislature, would impose a flat $5 million limit on credit utilisation for three years. From 2030 onwards, a permanent cap would be set at no more than 70% of a company's tax liability.

California's Department of Finance defended the proposal in a statement, describing the 70% threshold 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." The department also argued the plan would have "a limited impact on the film tax credit programme," noting that companies can still use credits to offset sales tax and can redeem refundable credits over five years at a 10% discount.

Indie producers caught in the middle

The Independent Film and Television Alliance, which co-signed the 8 June letter, warned that smaller productions would be just as exposed as major studios. Jackie Brenneman, President and CEO of the alliance, argued that the cap would directly damage the financing structures that independent productions depend on.

"Independent productions rely on the ability to monetize transferable tax credits as a critical component of their financing," Brenneman said. "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."

Older credits risk expiring

Newsom and the Legislature made the film credit refundable in 2025. However, some companies still hold non-refundable film credits issued before that change — credits that could not previously be claimed against tax liability due to earlier state limits. The coalition's letter warns those credits now face expiry under the new proposal and argues they should be made either refundable or transferable before that happens.