1. (a) Qualified expenditures shall be allowed as provided in sections 17053.98.1(b)(17) and 23698.1(b)(17) of the Revenue and Taxation Code.

   1. (1) For a television series that is allocated tax credits under the California Film and Television Tax Credit Program 4.0 and that is based on a pilot, eligible subsequent costs related to the pilot episode, such as but not limited to re-shoots or additional scenes, that are incurred after CAL issuance for the television series shall be considered qualified expenditures.
   2. (2) Examples of Qualified Expenditures are set forth on the Qualified Expenditure Charts as identified on the CFC website. These charts are provided as a reference for the applicant and should not be considered conclusive or limiting.

   3. (3) The following expenses shall not be allowed as qualified expenditures:

      1. (A) State and federal income taxes.
      2. (B) Certified public accountant expenses for the report required in Section 5555(b)(6) of this article.
      3. (C) Expenditures for rentals or purchases outside the state, regardless of whether those rentals or purchases are used in the state.
      4. (D) Expenditures for services performed outside the state, including but not limited to digital visual effects work which is physically performed out-of-state.
      5. (E) Expenditures for the exhibition of the qualified motion picture including, but not limited to, digital cinema distribution copies and release prints.

      6. (F) Expenditures incurred thirty (30) calendar days after the creation of the final elements, such as, but not limited to, composite answer print, air master, and digital cinema files.

         1. 1. Creation of additional versions for foreign distribution and/or archival purposes are not considered final elements.

      7. (G) Financial contribution expenditures related to:

         1. 1. The career pathways program, required pursuant to sections 17053.98.1(e)(1)(A)(iii), 17053.98.1(e)(1)(A)(iv), 23698.1(e)(1)(A)(iii), and 23698.1(e)(1)(A)(iv) of the Revenue and Taxation Code.
         2. 2. The career readiness program, allowed pursuant to section 5554.1(b)(5)-(6) of this article.
         3. 3. The above clauses refer specifically to financial contributions made by a production to satisfy one or both requirements and not to qualified wages paid to individuals affiliated with the career programs, which are allowed as qualified expenditures.

2. (b) Qualified expenditures shall include qualified wages, as defined in section 17053.98.1(b)(22) and 23698.1(b)(22) of the Revenue and Taxation Code.

   1. (1) Qualified Wages shall also include payments to a qualified entity, as defined in sections 17053.98.1(b)(16) and 23698.1(b)(16) of the Revenue and Taxation Code, to the extent its services are performed in California.

   2. (2) Pursuant to sections 17053.98.1(b)(22)(B) and 23698.1(b)(22)(B) of the Revenue and Taxation Code, qualified wages shall not include:

      1. (A) Expenses, including wages, related to new use, reuse, clip use, licensing, secondary markets, or residual compensation, or the creation of any ancillary product, as these terms are defined in sections 17053.98.1(b) and 23698.1(b) of the Revenue and Taxation Code, including, but not limited to, a soundtrack album, toy, game, trailer, or teaser.
      2. (B) Expenses, including wages, paid or incurred with respect to acquisition, development, or turnaround of the qualified motion picture, or for any rights to the qualified motion picture.
      3. (C) Expenses, including wages, related to financing, overhead not directly related to the production, marketing, promotion, or distribution of a qualified motion picture.
      4. (D) Expenses, including wages, paid per person per qualified motion picture for writers, directors, music directors, music composers, music supervisors, producers, and performers, other than background actors with no scripted lines.
      5. (E) Expenses, including wages, paid per person per qualified competition show exclusively for writers, directors, music directors, music composers, music supervisors, executive producers, co-executive producers, show runners, other producers whose duties include developing, shaping, or determining the creative narrative or story structure of the production, and performers, other than background actors with no scripted lines. All other producers and associate producers in roles including, but not limited to, segment, post, and talent, are considered qualified wages.

3. (c) All applicants shall utilize the following tags in their qualified expenditure budget and audit documents, as applicable to their productions:

   1. (1) Qualified wages shall be tagged QW.

      1. (A) Qualified wages for labor outside the Los Angeles zone shall be double-tagged QW, ZW.
      2. (B) Qualified wages for local hire labor shall be double-tagged QW, LW.

      3. (C) For soundstage applicants:

         1. 1. Qualified wages for picture editing and postproduction sound labor shall be double-tagged QW, PW.
         2. 2. Qualified soundstage wages shall be double-tagged QW, SW.

   2. (2) Qualified non-wage expenditures shall be tagged QE.

      1. (A) Qualified non-wage expenditures for consumables incurred and entirely used outside the Los Angeles zone shall be double-tagged QE, ZC.
      2. (B) Qualified non-wage expenditures incurred outside the Los Angeles zone and used both outside and inside the Los Angeles zone shall be double-tagged QE, ZE.

      3. (C) For soundstage applicants:

         1. 1. Qualified expenditures for picture editing and postproduction sound services shall be double-tagged QE, PE.
   3. (3) Non-qualified wages and expenditures incurred in California shall be tagged NQ.
   4. (4) Non-qualified wages and expenditures incurred outside California shall be tagged XX.
   5. (5) Expenditures to which VFX uplift or bonus points can be applied shall be double tagged QW, VU or QE, VU, as applicable.
   6. (6) Expenditures to which music wage bonus points can be applied shall be double tagged QW, MW, as applicable.
   7. (7) Examples of budget tagging organized by production roles and expenses are available in the Budget Tagging and Tracking Tips on the CFC website. These charts are provided as a reference for the applicant and should not be considered conclusive or limiting.

Note: Authority cited: Sections 17053.98.1(e) and 23698.1(e), Revenue and Taxation Code; and Section 11152, Government Code. Reference: Sections 17053.98.1(a), 17053.98.1(b), 17053.98.1(g), 23698.1(a), 23698.1(b) and 23698.1(g), Revenue and Taxation Code; and Section 14998.1, Government Code.

History

1. New section filed 12-17-2024; operative 4-1-2025 (Register 2024, No. 51).

2. New subsection (b)(2)(E) filed 1-2-2026 as an emergency; operative 1-2-2026 (Register 2026, No. 1). A Certificate of Compliance must be transmitted to OAL by 7-1-2026 or emergency language will be repealed by operation of law on the following day.