The Overview

Under the new law, a company that claims motion picture credit 4.0 and whose credit exceeds its tax bill can elect a refund paid over two years instead of five, at 95 cents on the dollar instead of 90. California's Income taxes: film tax credits bill, SB 186 became law when Gov. Gavin Newsom (D) signed it Sept. 19. ​

Los Angeles on-location production fell 22.4 percent in the first quarter of 2025 compared with the same period a year earlier and dropped 16.1 percent for the full year, its lowest level since 2020, according to the Los Angeles Times. The law takes effect immediately as an appropriations measure, with the cap-exemption change applying to taxable years beginning on or after Jan. 1, 2027.

What the Law Does

Under the existing motion picture credit 4.0 program, qualified taxpayers who earn more in credits than they owe in taxes can elect a cash refund; the law raises that refundable share from 90 percent to 95 percent and cuts the payout period from five years to two. That means a production company sitting on a large credit gets more money back, faster, rather than waiting out a multi-year payout schedule. For motion picture credits 2.0 and 3.0, the carry-forward window, the time a company has to use a credit before it expires, stretches from nine years to 15 years, an increase of six years; companies must remain active participants to use the credit in years 10 through 15.

Starting with taxable years beginning on or after Jan. 1, 2027, credits that have been sold are exempt from the existing $5 million annual cap on business tax credits. That cap had limited how much of a purchased credit a buyer could apply against taxes in a single year, slowing the market for trading those credits. The industry had sought a full exemption from that cap for all film tax credits, but did not obtain one, Variety reported.

Legislative Status

The Committee on Budget and Fiscal Review sponsored the bill. The Senate passed it 28-10 on March 20, 2025. The Assembly passed it 75-2 on Aug. 31, 2026, a far wider margin than the Senate's earlier vote. The Senate then concurred in Assembly amendments 32-7 the same day. From Senate passage to the governor's signature, the bill took 548 days.

The Governor's Office said the law "strengthens the current tax credit program by making credits more valuable through enhanced refundability and supports independent productions."

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