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§ 5535. Qualified Expenditures.

10 CA ADC § 5535Barclays Official California Code of RegulationsEffective: February 8, 2024

Barclays California Code of Regulations
Title 10. Investment
Chapter 7.75. California Film Commission
Article 4. California Soundstage Filming Tax Credit Program
Effective: February 8, 2024
10 CCR § 5535
§ 5535. Qualified Expenditures.
Currentness
(a) The qualified expenditures shall be allowed as provided in sections 17053.98(b)(16) and 23698(b)(16) of the Revenue and Taxation Code.
(1) Qualified Wages shall also include payments to a qualified entity to the extent its services are performed in California, including, but not limited to, Qualified Expenditures as defined in sections 17053.98(b)(16) and 23698(b)(16) of the Revenue and Taxation Code.
(b) The non-qualifying expenditures are as provided in sections 17053.98(b)(21)(B) and 23698(b)(21)(B) of the Revenue and Taxation Code. The following expenses shall not be allowed as qualified expenditures:
(1) State and federal income taxes.
(2) Certified public accountant and public accounting firm expenses for the CPA reports required pursuant to sections 5532, 5538, and 5540, or for the CPA report which may be required pursuant to section 5537.
(3) Expenditures for rentals or purchases outside the state regardless if used in the state, and services performed outside the state are not considered qualified expenditures including, but not limited to, digital visual effects work which is physically performed out-of-state.
(4) Expenditures for the exhibition of the qualified motion picture including, but not limited to, digital cinema distribution copies and release prints.
(5) Expenditures incurred thirty (30) days after the creation of the final elements, such as, but not limited to, composite answer print, air master, and digital cinema files. Creation of additional versions for foreign distribution and/or archival purposes are not considered final elements.
(6) Financial contribution expenditures related to the pilot career pathways training program.
(c) For the purposes of this section, a five percent (5%) uplift to the tax credit allocation for non-independent films (excluding a relocating television series in its first season in California) shall be made by the CFC when any of the following conditions have been met:
(1) The production company pays or incurs qualified expenditures relating to qualified visual effects work totaling a minimum of ten million dollars ($10,000,000) incurred in California or at least seventy-five percent (75%) of total worldwide visual effects expenditures are incurred in California.
(2) The production company pays or incurs qualified wages for services performed outside the Los Angeles zone during the applicable period relating to original photography outside the Los Angeles zone by individuals who reside within the Los Angeles zone. The foregoing amounts shall be substantiated by documentation including, but not limited to, timesheets and payroll records as requested by the CFC and/or the CPA performing the Soundstage AUP (August 28, 2023), hereby incorporated by reference, required pursuant to section 5540.
(3) The production company purchases or leases tangible personal property outside the Los Angeles zone during the applicable period and the personal property is used or consumed outside the Los Angeles zone. Tangible personal property must be purchased, rented, or leased from an outside of Los Angeles vendor through an office or other place of business outside the Los Angeles zone. Rentals or purchases from a pass-through business do not qualify for the five percent (5%) augmentation.
(A) If the tangible personal property purchased or leased outside the Los Angeles zone was not completely used or consumed solely outside the Los Angeles zone, the production company shall apportion amounts paid or incurred for tangible personal property outside the Los Angeles zone during the applicable period by multiplying these non-wage outside the Los Angeles zone expenditures by the ratio of days of principal photography outside the Los Angeles zone to the total number of days of principal photography.
(B) If the tangible personal property purchased or leased outside the Los Angeles zone was completely used or consumed solely outside the Los Angeles zone, the production company may elect to substantiate that with its records. Tangible person property purchased or leased outside the Los Angeles zone shall be deemed to be completely used or consumed provided the property was of a type or nature such that it would have no residual material value remaining after its use or consumption outside the Los Angeles zone. Examples of such property include, but are not limited to, food and catering items, rented hotel or corporate housing usage, construction supplies and materials for sets, automotive or other fuels, security services, location and stage services, government permit fees, personnel services, printing, equipment rentals for the applicable period outside the Los Angeles Zone, transportation services, dry cleaning, and shipping and travel costs from within the state to and from the out of zone location.
(d) A ten percent (10%) uplift for non-independent films excluding relocating TV series, is available if the production company pays or incurs qualified wages for services performed by local hire labor outside the Los Angeles zone during the applicable period relating to original photography outside the Los Angeles zone. The foregoing amounts shall be substantiated by documentation including but not limited to timesheets and payroll records as requested by the CFC and/or the CPA performing the Soundstage AUP required pursuant to section 5540.
(e) The maximum amount of tax credits allowed for independent films and/or relocating television series for their initial season in California is twenty-five percent (25%) and therefore the five percent (5%) uplift is not applicable to such productions except for an additional five percent (5%) uplift for local hire labor. Production may also qualify for an increase in its tax credit percentage up to four percent (4%) for meeting diversity goals stated in the diversity workplan required pursuant to section 5534 and documented in the diversity report required pursuant to section 5537.

Credits

Note: Authority cited: Sections 17053.98(k)(10) and 23698(k)(10), Revenue and Taxation Code; and Section 11152, Government Code. Reference: Sections 17053.98(k)(1)-(4), 17053.98(k)(8), 17053.98(a), 17053.98(b), 23698(k)(1)-(4), 23698(k)(8), 23698(a) and 23698(b), Revenue and Taxation Code; and Section 14998.1, Government Code.
History
1. New section filed 4-11-2022 as an emergency; operative 4-11-2022 (Register 2022, No. 15). A Certificate of Compliance must be transmitted to OAL by 10-10-2022 or emergency language will be repealed by operation of law on the following day.
2. New section refiled with amendments 10-3-2022 as an emergency; operative 10-11-2022 (Register 2022, No. 40). A Certificate of Compliance must be transmitted to OAL by 1-9-2023 or emergency language will be repealed by operation of law on the following day.
3. Refiling of 10-3-2022 emergency on 1-9-2023; operative 1-10-2023 (Register 2023, No. 2). A Certificate of Compliance must be transmitted to OAL by 4-10-2023 or emergency language will be repealed by operation of law on the following day.
4. Certificate of Compliance as to 10-3-2022 order, including amendment of Note, transmitted to OAL 1-3-2023 and filed 2-15-2023; amendments effective 2-15-2023 pursuant to Government Code section 11343.4(b)(3) (Register 2023, No. 7).
5. Amendment of subsection (c)(2) filed 8-18-2023 as an emergency; operative 8-18-2023 (Register 2023, No. 33). A Certificate of Compliance must be transmitted to OAL by 2-14-2024 or emergency language will be repealed by operation of law on the following day.
6. Certificate of Compliance as to 8-18-2023 order, including amendment of subsection (c)(2), transmitted to OAL 12-26-2024 and filed 2-8-2024; amendments effective 2-8-2024 pursuant to Government Code section 11343.4(b)(3) (Register 2024, No. 6).
This database is current through 7/12/24 Register 2024, No. 28.
Cal. Admin. Code tit. 10, § 5535, 10 CA ADC § 5535
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