California exempts independent films from tax credit cap, AB 186 passes Senate and Assembly

Legislators approved a bill that shields indie productions from the $5 million corporate tax credit limit, preserving access to the state’s $750 million film incentive program.

Lawmakers are poised to adopt Assembly Bill 186, a measure that will exempt independent Hollywood productions from the new corporate tax credit cap that limits companies to $5 million or 70 % of their tax liability, whichever is higher. The bill, which cleared the Senate on March 20 2025 and the Assembly on August 31 2026, aims to keep independent films eligible for California’s film-and-TV tax credit program despite the cap’s broader restrictions.

The tax credit program, administered by the California Film Commission, allocates $750 million annually across TV projects, relocating TV, indie features and non-indie features, and was doubled last year to help retain jobs after pandemic-related setbacks. Independent films, which typically have smaller budgets and claim less credit, make up roughly 10 % of the $750 million pool, according to the program’s baseline data.

AB 186 not only carves out an exemption for indie productions but also revises several mechanics of the credit: it extends the carry-over period to 15 years, raises the refundable portion of unused credits to 95 % (up from 90 %), and shortens the cash-out window to two years instead of five. A legislative analysis estimates the change could cost the state up to $170 million in annual tax revenue.

The core of the bill is a full exemption for independent film credits from the $5 million cap, ensuring that indie producers can continue to claim the full amount of their qualified expenditures without hitting the ceiling. This exemption aligns with the industry’s push for a “carve-out” that was championed by the Motion Picture Association and a coalition of entertainment unions during the summer budget hearings.

AB 186 also lengthens the period that unused credits can be carried forward, allowing producers to apply leftover credits for up to 15 years, a significant increase from the current nine-year limit. The legislation further boosts the refundable portion of unused credits to 95 % of their value, up from the existing 90 %, and mandates that the state issue cash refunds within two years rather than the five-year timeframe previously required.

According to a legislative analysis, the combined effect of these changes could reduce state tax revenue by as much as $170 million each year. The bill also clarifies that credits issued before 2025 that were non-refundable will now be extendable by up to five years, protecting studios that still hold large balances of old credits.

Studio executives and union leaders welcomed the compromise, describing it as a “meaningful improvement” that balances fiscal responsibility with the need to keep production jobs in California. Kathleen Thompson, vice president of tax incentives at Cast & Crew, said the deal “throws a bone to both the studios and independents.” SAG-AFTRA and the Teamsters’ lobbyist Shane Gusman called the measure a fair compromise after arguing for a full exemption.

The exemption is expected to stabilize employment for thousands of crew members who rely on indie productions, which often shoot in neighborhoods across Los Angeles and the surrounding studio zone. By preserving access to the credit, AB 186 helps maintain the competitive edge of the state’s film ecosystem against other jurisdictions that offer more generous incentives, thereby supporting the broader Los Angeles economy.

AB 186 matters for Los Angeles because independent films are a pipeline for emerging talent, neighborhood shoots, and small-business vendors that keep the city’s creative economy vibrant. By shielding indie productions from the cap, the bill safeguards jobs for crew members, post-production houses, and local vendors that depend on a steady flow of modest-budget projects.