California's $750 million film and TV tax credit program could become far less competitive against rival production hubs unless lawmakers carve out an exemption from a new state law before the legislature adjourns Aug. 31.

That's the warning from the Entertainment Union Coalition, which says more than 350,000 letters have flooded Sacramento from union members urging a fix to Senate Bill 122. Gov. Gavin Newsom signed SB 122 on Monday, June 29, as part of the state budget, capping annual business tax credits at 70% of a company's liability or $5 million, whichever is greater.

The law was aimed at tech companies using R&D credits to erase their tax bills. But it caught the film industry too.

Under the cap, a studio that earns tens of millions in credits by filming in California could take years to collect the full value, according to The Hollywood Reporter. Paramount received $37.7 million in credits for productions including a Viola Davis thriller and a Clueless sequel series but can now recoup only $5 million per year. Disney faces the same constraint on $45 million in credits for an untitled detective series.

Assemblymember Rick Chavez Zbur, D-Hollywood, who co-carried the 2025 bill expanding the incentive program, told The Wrap on Tuesday, Aug. 18, that he is negotiating a fix with studios, unions and the governor's office.

"We're currently in the process of discussing all of this with the independents, the studios, the Entertainment Union Coalition, and with Gov. Newsom and legislative leaders, and now we are in the process of building out a fix that would mitigate the impacts that SB 122 has on this program," Zbur said.

Zbur acknowledged many lawmakers believed the film credit was already exempt when they voted on SB 122. It wasn't. The exemption in the bill applied only to the program's refundability provisions, not the annual cap.

The stakes are local. Scripted TV production in Los Angeles is down nearly 30% since 2019, according to Luminate data cited in industry reporting. The expanded credit program showed early signs of reversing that slide: FilmLA data cited by the governor's office showed LA television production up 34.4% in the second quarter of 2026 over the prior quarter, with TV dramas jumping 55.1%.

The EUC and the Motion Picture Association argue a full exemption is necessary for the program to work as intended. But insiders told The Wrap that granting studios a carveout could trigger demands from tech companies seeking their own exemptions.

Brigitta Romanov, president of the California IATSE Council, told The Hollywood Reporter on Aug. 18 that amending SB 122 "is about helping to ensure the entertainment industry continues to fuel jobs that feed families and our state's economy."

Separately, AB 2319, a bill creating a refundable tax credit for post-production work done in California, cleared the Senate Appropriations Committee on a 5-1 vote and heads to the Senate floor before the same deadline, Variety reported.

All bills must be submitted in writing at least three days before the session ends, giving lawmakers until Aug. 28 to finalize language.