California Gov. Gavin Newsom vowed on Tuesday to make the state’s film and TV tax credit refundable, in a major change to the program that marks a significant benefit to studios.

If approved by the Legislature, the change will allow companies that have little California tax liability — particularly streaming services like Netflix — to nevertheless benefit from the state’s production subsidy.

Newsom has previously said that he supports extending the $330 million program for an additional five years, to 2030, and reiterated that commitment on Tuesday.

Several other states — including major film incentive states like Georgia and New York — already make their tax credits either refundable or transferrable.

“California is now in a position where we feel like we need to be able to offer that option,” said Nancy Rae Stone, deputy director of the state’s film and TV tax credit program. “There are so many companies that would like to film in California, but if they don’t have tax liability they can’t utilize the credits and therefore California isn’t an option.”

The Motion Picture Association has previously lobbied for the change, and commissioned a report last year from the Los Angeles Economic Development Corporation that included refundability among its recommendations.

Under the current program, companies can obtain a tax credit worth 25% or 20% of their production costs. The program is capped at $330 million per year, though Newsom temporarily expanded it in 2021 to $420 million for two years.

The credit allows companies to offset their liability for state income, sales and use taxes. Two major studios — Disney and NBCUniversal — have significant tax liability in the state because they operate theme parks, which generate sales taxes.

But the credit is less valuable to companies that do not have such ancillary lines of business.

“It just opens up the program to more possible applicants, which is a good thing,” Stone said.

The credit will be refundable at a discount, so companies will not be able to exchange $1 of credits for $1 in cash. There could also be some limit on the total amount of credits that can be refunded at any one time, though some of the details have yet to be determined.

Under Newsom’s proposal, the refundability provision applies only to Program 4.0, which would run from 2025 to 2030. It is not clear if companies that have already accumulated a large stockpile of unused credits will be able to exchange them.

In Georgia — where film tax credits topped $1.2 billion last year — companies are allowed to sell their credits, typically at around 85 to 90 cents on the dollar. That allows companies that are not based in the state to nevertheless utilize the program.

In California, credits that go to independent productions have also been transferable.

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