Income tax: credits: commercial production.

The bill's sections were renumbered from 17053.98.5/23698.5 to 17053.98.2/23698.2 in the Revenue and Taxation Code, likely to fit within an existing section numbering scheme.

The definition of 'generative artificial intelligence' was expanded to include 'an artificial intelligence system that can generate derived synthetic content, including text, images, video, and audio that emulate the structure and characteristics of the system's training data,' broadening what qualifies as generative AI beyond the original 'without direct contemporaneous creative control' language.

The definition of 'qualified commercial' was expanded to include productions 'produced in whole or in substantial part within the state for public distribution through any audiovisual media, communications platform, or technology, whether now existing or hereafter developed,' broadening eligibility beyond traditional broadcast and internet distribution.

The detailed 'covered worker' definition (listing cast, background performers, crew, production assistants, technical/creative/craft classifications) was removed entirely from the bill.

The term 'autonomous vehicles' now includes a cross-reference to Section 38750 of the Vehicle Code for its definition, providing a statutory anchor rather than leaving the term undefined.

Labor standards were significantly simplified. The Assembly version required workers to be employed under a valid CBA or terms no less favorable than comparable CBAs (specifying minimum wage, overtime, meal/rest periods, health/welfare, pension). The Senate version replaces this with four requirements: compliance with laws, wages at or above the average weekly rate for similar workers, health insurance for all employees, and a defined-benefit pension for all employees. CBA compliance remains as a safe harbor.

A new 50 percent test was added: if production costs are incurred both inside and outside the Los Angeles zone, the commercial is treated as filmed inside the LA zone if 50 percent or more of in-state costs are attributable to the LA zone. A single commercial can only receive one credit percentage.

A new cap was added limiting any single qualified taxpayer to no more than 20 percent of the aggregate credit amount available for allocation in any fiscal year, preventing one producer from dominating the $15 million annual pool.

A five-year credit carryover provision was added: if the credit exceeds the taxpayer's tax liability for the year, the excess can be carried forward to reduce tax in up to five succeeding taxable years.

A new subdivision (h) gives the California Film Commission detailed regulatory authority, including standards for verifying production costs were incurred in-state, determining whether a natural person performed a principal creative role, verifying labor compliance (with consultation with the Labor Commissioner), procedures for denial/reduction/recapture of credits upon material noncompliance, and notification to the Franchise Tax Board.

Documentation requirements were expanded to include '(v) Other documentation that the California Film Commission may deem necessary to verify compliance with the requirements of this section,' giving the commission broader discretion in what it can require.

A sunset provision was added: the section remains operative only until December 1, 2032, and is then repealed.

A deduction reduction rule was added: deductions for amounts that form the basis of the credit must be reduced by the credit amount, and the credit is in lieu of any other credit for qualified production costs under the same part of the code.

A sunset date was added: the credit now applies only to taxable years beginning on or after January 1, 2027, and before January 1, 2032. Previously the credit had no expiration.

Fiscal committee review and state-mandated local program designation both changed from 'no' to 'yes,' indicating the bill now triggers additional legislative oversight requirements.

The credit is now calculated only on qualified production costs in excess of $500,000 per commercial. Productions with total costs at or below $500,000 receive no credit at all.

A new exclusion disqualifies any commercial that uses generative AI, automated technologies, or autonomous vehicles in a manner that replaces or diminishes job functions customarily performed by a human worker. This goes well beyond the prior 'created entirely by AI' standard.

A new exception allows use of generative AI, automated technologies, or autonomous vehicles if authorized by and carried out in accordance with a valid collective bargaining agreement covering the affected employees.

A new requirement that at least 75 percent of production costs paid or incurred directly and predominantly in the actual filming or recording of the commercial must be costs incurred in California.

A new requirement that total qualified production costs of a qualified production company exceed $500,000 in the aggregate during the calendar year.

A new exclusion for commercials longer than three minutes, unless specifically exempted by the California Film Commission or a valid collective bargaining agreement. Packages of commercials are not excluded if each individual commercial is three minutes or less.

Labor standards changed from 'satisfy one of the following' to 'do all of the following.' Productions must now simultaneously meet CBA-or-comparable-terms requirements, comply with all applicable laws, pay at least average weekly wages for similar occupations, provide health insurance for all employees, and provide a defined-benefit pension for all employees. However, a production in compliance with a valid CBA is deemed to satisfy all of these requirements.

The California Film Commission must now allocate credits in four or more allocation periods per fiscal year (starting July 1, 2027 and before July 1, 2032) rather than a single annual allocation on July 1.

The bill went from a non-operative intent statement to full operative legislation adding Sections 17053.98.5 (personal income tax) and 23698.5 (corporation tax) to the Revenue and Taxation Code, creating an actual tax credit program for commercial production.

The state-mandated local program designation changed from 'no' to 'yes' because the penalty of perjury certification expands the scope of a crime, and the fiscal committee designation changed from 'no' to 'yes.'

Established a $15,000,000 aggregate annual cap on credits allocable per fiscal year across both the personal income tax and corporation tax provisions, plus any unallocated amounts from prior years.

Set credit rates at 20% of qualified production costs for commercials filmed inside the Los Angeles zone and 30% for those filmed outside it. Excluded news programs, network promos, stock footage-only content, trailers, game shows, award ceremonies, daytime dramas, and sexually explicit productions.

Excluded from eligibility any commercial created entirely by generative artificial intelligence, defined as one where all principal expressive elements are AI-generated and no natural person performs a principal creative role beyond de minimis technical prompting. Carve-outs preserve eligibility for AI-assisted processes where humans maintain principal creative control.

Required covered workers to be employed under a valid collective bargaining agreement or under terms no less favorable than the most comparable CBA, including minimum wage, overtime premiums, meal and rest periods, health and welfare contributions, and pension contributions.

Required the California Film Commission to establish an application process (Jan 1 - Apr 1 deadline), allocate credits starting July 1 annually, require certifications under penalty of perjury regarding AI exclusion and labor standards, and verify compliance through payroll records, benefit reports, CBA copies, and payroll provider attestations.

Credits apply to taxable years beginning on or after January 1, 2027. The bill takes effect immediately as a tax levy. Emergency regulations are authorized with an extended 240-day effective period.

Assembly Member Schiavo was added as coauthor. The bill's short title was expanded to reference the specific code sections being added.