California lawmakers are nearing a compromise to soften the impact of a new $5 million annual cap on corporate tax credits for the film industry, though the deal falls short of the full exemption sought by Hollywood. The cap, introduced in the state budget approved in June, applies across the board for three years as part of efforts to stabilise state revenues, but the Motion Picture Association and entertainment unions warned it would undermine California's $750 million film and TV production incentive by preventing larger companies from redeeming their credits.

Under the emerging agreement, tax credits for independent film productions would be fully exempted from the cap, preserving their value since they are transferable and sold to buyers offsetting their own tax bills; studio projects would instead get a mechanism to accelerate refunds. The deal would also extend the expiry of old, non-refundable credits by five years, reducing the risk that unused credits go to waste. Some industry figures remain frustrated, viewing the cap as reneging on last year's incentive expansion, while lawmakers have been wary that a full carveout could prompt Silicon Valley firms to demand similar treatment; the legislation is expected to be announced this week, ahead of an 31 August deadline to pass bills.