2018 Instructions for Form FTB 3541California Motion Picture and Television Production Credit

Important Information

Original California Motion Picture and Television Production Credit – For taxable years beginning on or after January 1, 2011, and before December 31, 2017, California Revenue and Taxation Code (R&TC) Section 17053.85 and Section 23685 allowed a qualified taxpayer a California motion picture and television production credit against the net tax (individuals) or tax (corporations) and/or qualified sales and use tax. The credit, as allocated and certified by the California Film Commission (CFC), was 20% of expenditures attributable to a qualified motion picture or 25% of production expenditures attributable to an independent film or a television series that relocates to California.

New California Motion Picture and Television Production Credit – For taxable years beginning on or after January 1, 2016, a new film credit against tax is allowed. The new tax credit is allocated and certified by the CFC. The credit is:

  • 25% of the qualified expenditures attributable to the production of either a television series that relocated to California in its first year of receiving a tax credit allocation or an independent film.
  • 20% of the qualified expenditures attributable to the production of a qualified motion picture in California or a television series that relocated to California that is in its second or subsequent years of receiving a tax credit allocation.

Additional credits, not to exceed a total of 5% of qualified expenditures, may be allowed:

  • 5% of qualified expenditures relating to music scoring or music track recording attributable to the production of a qualified motion picture in California.
  • 5% of qualified expenditures relating to qualified visual effects attributable to the production of a qualified motion picture in California.
  • 5% of qualified expenditures relating to original photography outside the “Los Angeles Zone”.

For more information, go to the CFC website at film.ca.gov and search for incentives.

The credit can reduce tax below the tentative minimum tax (TMT) for corporations. For more information, see R&TC Section 23036 or get Schedule P (100), Alternative Minimum Tax and Credit Limitations – Corporations.

Write “CFC Credit”– If you claim the original credit and the new credit in the same year, you must complete a separate form FTB 3541 for each credit. Taxpayers attaching form FTB 3541, California Motion Picture and Television Production Credit, to the tax return should write “CFC Credit” in red ink at the top margin of their tax return.

Use of Credit – The credit can be used by the qualified taxpayer to:

  • Offset franchise or income tax liability. When you claim the credit, use:
    • Original, credit code 223
    • New, credit code 237
  • Sell to an unrelated party (independent films only).
  • Assign to an affiliated corporation.
  • Apply against qualified sales and use taxes.

This credit is not refundable.

Sale of Credit Attributable to an Independent Film – A qualified taxpayer may sell a credit, attributable to an independent film, to an unrelated party once the taxpayer receives the California Film and Television Tax Credit Program Tax Credit Certificate (hereafter, CFC Tax Credit Certificate or credit certificate). The credit can only be sold by the qualified taxpayer that generated the credit (that is a corporation, a limited liability company (LLC) classified as a corporation, or an individual) or by a shareholder, beneficiary, partner, or member who received the credit as their distributive or pro-rata share. For more information, get form FTB 3551, Sale of Credit Attributable to an Independent Film, or go to ftb.ca.gov and search for motion picture.

Seller – A qualified taxpayer that sells an independent film credit is required to report the gain on the sale of the credit in the amount of the sale price.

Buyer – If the credit was purchased for less than the credit amount stated on the CFC Tax Credit Certificate, the buyer is required to report income in the amount of the difference between the credit amount claimed on its return and the purchase price.

Credit Assignment – A qualified taxpayer that is a corporation or is taxed as a corporation and whose credit exceeds the tax may elect to assign the credit to an affiliated corporation(s). The election to assign the credit is irrevocable. For more information, see General Information C, Credit Assignment.

Sales and Use Taxes – A qualified taxpayer who has been issued a certified CFC Tax Credit Certificate may make an irrevocable election with the California Department of Tax and Fee Administration (CDTFA) to apply the credit against qualified sales and use taxes. For more information, go to cdtfa.ca.govcdtfa.ca.gov and search for ca film.

General Information

A. Purpose

Use form FTB 3541 to report the credit for the production of a qualified motion picture in California that was:

  • Allocated on the CFC Tax Credit Certificate
  • Passed through from S corporations, estates, trusts, partnerships, or LLCs taxed as partnerships.
  • Purchased from a qualified taxpayer.
  • Assigned to or from an affiliated corporation under R&TC Section 23685(c)(1) or Section 23695(c)(1). For more information, see General Information C, Credit Assignment.
  • Applied or will be applied against CDTFA qualified sales and use taxes. For more information, go to cdtfa.ca.gov and search for ca film.

Note: Each entity that received or assigned a motion picture and television production credit from or to another entity within a combined reporting group must complete a separate form FTB 3541.

S corporations, estates, trusts, partnerships, or LLCs taxed as partnerships should complete form FTB 3541 to figure the amount of credit to pass through to shareholders, beneficiaries, partners, or members. The credit is not allowed at the pass-through entity level. Attach this form to Form 100S, California S Corporation Franchise or Income Tax Return; Form 541, California Fiduciary Income Tax Return; Form 565, Partnership Return of Income; or Form 568, Limited Liability Company Return of Income. Show the pass-through credit for each shareholder, beneficiary, partner, or member on Schedules K-1 (100S, 541, 565, or 568), Share of Income, Deductions, Credits, etc.

Corporate taxpayers attach this form to Form 100, California Corporation Franchise or Income Tax Return, or Form 100W, California Corporation Franchise or Income Tax Return – Water’s Edge Filers.

Individual taxpayers attach this form to Form 540, California Resident Income Tax Return, or Form 540NR, California Nonresident or Part-Year Resident Income Tax Return.

B. Definitions

Credit certificate. Credit certificate means the tax credit certificate issued by the CFC for the allocation of the credit to a qualified taxpayer.

Qualified taxpayer. Qualified taxpayer means a taxpayer who has paid or incurred qualified expenditures and has been issued a tax credit certificate by the CFC. In the case of any pass-through entity, the determination of whether a taxpayer is a qualified taxpayer is made at the entity level. The credit is not allowed at the pass-through entity level. Pass-through entity means any entity taxed as a partnership or S corporation. The credit is passed through to the shareholders, beneficiaries, partners, or members. For the new credit, a qualified taxpayer must also have participated in the Career Readiness requirement. For more information refer to R&TC Section 23685 and Section 23695.

Qualified motion picture. Qualified motion picture means a motion picture that is produced for distribution to the general public, regardless of medium. For more information, refer to the R&TC Section 17053.85,Section 17053.95, Section 23685, Section 23695, or go to film.ca.gov.

Independent film

For the original credit, an independent film means a motion picture with a minimum budget of one million dollars ($1,000,000) and a maximum budget of ten million dollars ($10,000,000) that is produced by a company that is not publicly traded and publicly traded companies do not own, directly or indirectly, more than 25% of the producing company.

For the new credit, an independent film means a motion picture with a minimum budget of one million dollars ($1,000,000) that is produced by a company that is not publicly traded and publicly traded companies do not own, directly or indirectly, more than 25% of the producing company.

Television series

For the original credit, television series means a television series that relocated to California, without regard to episode length or initial media exhibition, that filmed all of its prior season or seasons outside of California and for which the taxpayer certifies that this credit is the primary reason for relocating to California.

For the new credit, television series means a television series, without regard to episode length or initial media exhibition, with a minimum production budget of one million dollars ($1,000,000) per episode,that filmed its most recent season outside of California or has filmed all seasons outside of California and for which the taxpayer certifies that this credit is the primary reason for relocating to California.

Affiliated corporation

Affiliated corporation has the meaning provided in R&TC Section 25110(b), except that “100 percent” is substituted for “more than 50 percent” wherever it appears in the section and “voting common stock” is substituted for “voting stock” wherever it appears in the section. For more information, see General Information C, Credit Assignment.

C. Credit Assignment

Both the original and new credit may be assigned to an eligible assignee. The original credit is assignable for taxable years beginning on or after January 1, 2011, under R&TC Section 23685(c)(1). The new credit is assignable for taxable years beginning on or after January 1, 2016, under R&TC Section 23695(c)(1). The credit must first exceed the tax of the qualified taxpayer (the assignor) for the taxable year in which the credit is to be assigned.

The election to assign any credit is irrevocable. The assignor shall make the election and report the credit assignment by completing Part IV, Credit Assigned to Affiliated Corporations Pursuant to R&TC Section 23685 or Section 23695. Once a credit is assigned to an eligible assignee, it cannot be reassigned. The assignor will reduce the credit amount available for assignment by the amount of the credit assigned.

After assignment of an eligible credit, the eligible assignee may use the credit against income tax liability, or apply it against CDTFA qualified sales and use taxes. Also, the restrictions and limitations that applied to the assignor (entity that originally generated the credit) may apply to the eligible assignee.

There is no requirement of payment or other consideration for assignment of the credit by an eligible assignee to an assignor. The assignor and the eligible assignee shall maintain the information necessary to substantiate any credit assigned and to verify the assignment and subsequent use of the credit assigned. Lack of substantiation may result in the disallowance of the assignment. The assignor and the eligible assignee shall each be liable for the full amount of any tax, addition to tax, or penalty that results from any disallowance of the credit assigned under R&TC Section 23685 or Section 23695. The Franchise Tax Board may collect such amount in full from either the assignor or the eligible assignee.

Note: This credit may also be assigned under the credit assignment rules of R&TC Section 23663. Any portion of the original credit assigned under R&TC Section 23663 or Section 23685, or any portion of the new credit assigned under Section 23663 or Section 23695 may not be subsequently assigned under either statute. For more information on credit assignment under R&TC Section 23663, get form FTB 3544, Election to Assign Credit Within Combined Reporting Group, and form FTB 3544A, List of Assigned Credit Received and/or Claimed by Assignee.

Assignor. An assignor is the qualified taxpayer that receives the CFC Tax Credit Certificate. The following rules must be met before a credit can be assigned:

  • The assignor must be taxed as a corporation.
  • The credit must first exceed the “tax” of the assignor for the taxable year in which the credit is to be assigned.
  • The eligible assignee must be an affiliated corporation as defined by R&TC Section 23685(c)(1) or Section 23695(c)(1).

Eligible assignee. An eligible assignee is any affiliated corporation, which includes a corporation where one of the following applies:

  • Owns, directly or indirectly, 100% of the assignor’s voting common stock.
  • The assignor owns, directly or indirectly, 100% of the voting common stock.
  • Is wholly owned by a corporation or individual owning 100% of the voting common stock of the assignor, or
  • Is a stapled entity as defined in R&TC Section 25105.

D. Limitations

The credit cannot reduce the S corporation 1.5% entity-level tax (3.5% for financial S corporations), the minimum franchise tax (corporations and S corporations), the annual tax (limited partnerships, limited liability partnerships, and LLCs taxed as partnerships), the alternative minimum tax (corporations, exempt organizations, individuals, and fiduciaries), the built-in gains tax (S corporations), or the excess net passive income tax (S corporations).

For corporate taxpayers, the credit can reduce the regular tax below the TMT. For individual taxpayers, the credit cannot reduce regular tax below the TMT. For more information, get Schedule P (100, 100W, 540, 540NR, or 541), Alternative Minimum Tax and Credit Limitations.

S corporation. If a C corporation has unused credit carryovers when it elects S corporation status, the credit carryovers may not be passed through to the S corporation or the shareholders. For more information, get Schedule C (100S), S Corporation Tax Credits.