The $5 million cap was supposed to expire.
California has limited how much in business tax credits any single taxpayer can use against its state tax in a given year since 2024. That limit came in under SB 167, it was written as a temporary measure, and it was set to run out after tax year 2026. There was an earlier version of the same thing under AB 85 covering 2020 through 2022. Both were budget-year cash management, and both had end dates.
Tax year 2026 is also, roughly, when productions that entered the expanded Film & Television Tax Credit Program in its first year would start filing to actually use what they earned. The two timelines lined up almost perfectly. Then on June 29, 2026, Governor Newsom signed SB 122, a budget trailer bill, and the limit that was about to expire now runs through 2029. Starting January 1, 2030, it stops being temporary at all and becomes the greater of $5 million or 70% of the taxpayer's total tax.
That is the whole story. The relief arrived on schedule and then got pushed three years down the road, in the exact window the state had just spent a year telling producers was safe.
Read the statute and it is narrower than the coverage suggests. Sections 17039.4 and 23036.4 say the total of all business credits “shall not reduce the ‘net tax’ ... by more than five million dollars ($5,000,000).” Per taxpayer. Per year. On usage.
It does not cap what a production earns. A film with $100 million in qualified California spend still earns its 35% certificate. It does not work per project either, which is worth saying plainly because that framing has shown up in a fair amount of the reporting. It is a ceiling on how much credit one taxpayer can apply against its own California liability in a single filing year, and a studio with several projects running shares one ceiling across all of them.
The credit does not evaporate. Revenue and Taxation Code section 23698 lets excess credit carry over “to reduce the ‘tax’ in the following taxable year, and succeeding eight taxable years, if necessary, until the credit has been exhausted.” So a company sitting on $35 million in certificates uses $5 million now and waits on the rest.
The damage is deferral, and deferral is devaluation. Money you get across a decade is worth less than money you get at wrap, and every finance plan built on these credits was built on the second number. Assemblymember Rick Chavez Zbur, who represents Hollywood, has put the effective rate after the cap at somewhere between 15% and 20% against a headline 35%. That is the figure legislators are working from.
SB 122 does carve credits out. The exclusion list covers the earned income credit, child and dependent care credits, the adoption cost credit, the renter's credit, personal exemption credits, and the low-income housing credit.
The film program appears in that section too, which is probably why people assumed it was handled. But it appears in a cross-reference to amounts elected under section 6902.5, the irrevocable election that lets a holder apply credit against qualified sales and use tax. That is the monetization plumbing. It is not an exemption for the credit itself, and nothing in the cap sections exempts the underlying motion picture credit from the $5 million limit.
Zbur co-wrote AB 1138, the bill that built the expanded program. He has said publicly that he does not think anyone understood what the cap did here. I believe him, and I think that is the least comfortable version of this story. Nobody targeted the film program. It just was not on the list.
The expanded program was signed July 3, 2025. AB 1138 raised the annual allocation to $750 million, kept the base credit at 35%, and set 40% for a relocating series in its first California season.
The Governor's office released year one results on July 7, 2026, covering July 1, 2025 through June 30, 2026. One hundred seventy projects awarded. $6.6 billion in projected direct production spending in California. 34,921 cast and crew jobs. $4.3 billion in qualified expenditures including $2.58 billion in qualified wages, across 6,630 California filming days, 1,351 of them out of zone.
Those numbers already happened. The cap does not reach back and undo a shoot day. What it reaches is the next round of decisions, the projects being scheduled right now for 2027 and beyond, and the finance plans behind them.
I want to be straight about where I sit. FS MEDIA shoots commercials, and commercials are not eligible for this program. Neither are music videos, documentaries, or the rest of the excluded categories. My company has never claimed one of these credits and will not claim one under any version of the fix. What I care about is whether the crews I hire have work in the months I am not hiring them, whether the vendors I rent from have volume, and whether the stages in this city stay busy enough to still be stages. That is the part of the incentive that reaches everyone in LA production, including the people it does not pay directly.
There is also a budgeting reality here. I have spent the last two years building AIbudget, a tool that does nothing but production budgets, and incentives are not a footnote in those documents. They are a line the whole plan is constructed around. Cut the effective rate roughly in half and the comparison against Georgia, which runs an uncapped program, stops being close. Zbur has named Georgia and New Jersey as the places productions go instead. A show that penciled in Los Angeles at 35% does not pencil at 17%, and that decision gets made in a spreadsheet months before anyone books a stage.
On July 10, 2026, thirty-nine legislators sent a letter to the Governor and legislative leadership asking for a targeted repair. The letter argues that “tax credits earned for creating jobs in motion picture and television production are not the same as tax credits provided for research and development,” and that the cap “creates short-term budget savings by reneging on commitments made to the entertainment industry and the working families who depend upon it for their livelihoods.”
What they want is short. Exempt the Film & Television Tax Credit Program from the SB 122 cap. One sentence, no reopening of the budget deal.
The calendar is tighter than it looks. The Legislature came back from summer recess August 3. August 14 is the last day for fiscal committees to meet and report bills. From August 17 through August 31 it is floor session only, and August 31 is the last day for either house to pass bills. So a standalone bill has to clear appropriations by the 14th or it is finished.
A budget trailer bill is a different animal and is not bound by the committee deadline, which is exactly how SB 122 itself moved. That means August 14 is a pressure point rather than the last exit. It does not mean there is slack. As of today, no exemption has been enacted and no carve-out bill has surfaced with a number attached to it.
If you work in this industry in California, the useful thing you can do in the next nine days is call your Assemblymember and your state Senator and ask them to exempt the film and television credit from the SB 122 cap. Say the program name. Say the section numbers if you have them handy. Thirty-nine legislators are already asking. The fix is one sentence long, and it has a date on it.
Mike Irving is the founder of FS MEDIA, a Los Angeles-based production company, and the creator of AIbudget, production budgeting software built for working producers.
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