California to Raise Taxes Significantly?: What Impact on the Entertainment and Technology Industries?

In past posts, here and here, I discussed federal estate taxes in the United States and the right of publicity.  Celebrities at death may owe significant federal estate taxes based on a valuation of their right of publicity.  Generally, most states in the United States do not have an estate tax, including California.  However, that may change soon.  According to a recent update by Baker and McKenzie, a California bill creates a California estate tax in SB 378 (as well as a gift tax and generation skipping tax).  It would include an exemption of around US $3.5 million and has a cap at the level of the federal exemption of a single filer of US $11.4 million (the federal exemption).  This means that California would basically receive around 40% of every dollar between US $3.5 million and US $11.4 million.  Every dollar above US $11.4 million would be taxed by the federal government by 40%, but not by the state of California, according to the article.  This new tax would seem to impact workers in many important California industries, including the entertainment and technology industry.  Notably, the taxes collected by SB 378 would be used specifically to create a fund to benefit under-resourced people in California to achieve “'socio-economic equality and build assets among people who have historically lacked them.'”  


Moreover, the U.S. Supreme Court will also soon decide a case concerning the ability of a state to tax undistributed income from out-of-state trusts (see here and here).  

The Coming Trade War with China: More Posturing by the Trump Administration

According to Fox News, the Trump Administration will soon take and propose action against intellectual property theft by China.  Notably, the Fox News article focuses on the entertainment industry and movies.  White House Director of Trade and Manufacturing, Peter Navarro, is quoted as stating: “We are going to move forward with some recommendations for the president. And I tell you what, there’s nobody who is going to oppose that in this country.”

In the article, Horizon Investments Chief Global Strategist Greg Valliere states “he expects the Trump administration to “hit them hard” with anti-China tariffs on imports that include Chinese investments and visas for students who want to study in the U.S.”  The article notes that the EU is “on board.” 

California Senate Passes Film Production Tax Credits Bill

This blog recently discussed California Assembly Bill 1839 concerning film production tax credits, here.  The bill is designed to incentivize the production of films (and create jobs) in California.  As noted in the previous post, the Milken Institute provided numerous recommendations modifying California's current film tax credit system. Assembly Bill 1839 followed many of the recommendations of the Milken Institute, but appeared to retain the criticized lottery system for determining who would benefit from the tax credits.  As discussed in the Los Angeles Times, after negotiations with Governor Brown, the Senate passed a version of the Bill that decreased the total amount of tax credits from $400 million a year to $330 million a year.  This still more than triples the amount of the tax credit from the current film tax credit system.  Moreover, the lottery system is also expressly abandoned for a system which allocates the tax credits based on number of jobs generated by the project.  This seems to heavily favor blockbuster, big budget movies.  However, the Assembly Bill does expressly allocate some funding for independent films. 

There is little doubt that Governor Brown will sign the Bill.  The current version appears to be a done deal: $330 million a year for tax credits, blockbuster movies are included and the lottery system is dead.  As to the total amount of tax credits, this is still less than the $420 million amount of film tax credits provided by New York State.