A 5-year, $500 million tax credit for California

California is determined to keep its feature film and TV production in its own backyard with a stunning new five-year $500 million tax credit that will make producers think twice about shooting in states with tempting government incentives.

Passed by the California legislature Feb. 19, the Production Incentive Program covers 20% of below-the-line expenses for production of up to $75 million and 25% of expenses for indie feature productions of up to $10 million and for all TV series relocating to California.

“Eligible film and television productions must shoot at least 75% of the total days in California; the credits will be applicable for tax years beginning in January 2011,” said Amy Lemisch, head of the state’s film commission.

California’s first significant incentives in a decade goes into effect July 1 with a cap of $100 million annually.

Although California’s tax credit rates are far below those in some other states, like Michigan’s 42% credit, Hollywood’s existing infrastructure and the desire to stay close to home has the potential to reverse more than a decade of runaway production, Variety reported.

Under former Gov. Gray Davis, the Film California First program allocated a meager $21 million to the industry before ending in 2003. Several other subsequent efforts failed, even with strong support from Gov. Arnold Schwarzenegger, after coming under attack by legislators outside L.A. as subsidizing already wealthy producers.

But with most other states having enacted incentive programs and the state’s economy in a dive, the argument turned on the benefits of providing an economic stimulus to below-the-liners.

Schwarzenegger has contended that money spent on showbiz production in California created nearly three times that amount in economic activity.

California’s move comes a year after ABC’s “Ugly Betty” abandoned Hollywood for New York’s incentives and two weeks after the office of New York Gov. David Paterson announced that funds for its popular incentive program had been exhausted after going through $500 million in less than a year.

The legislation, authored by Assemblyman Paul Krekorian (D-Glendale), doesn’t cap how much of a credit can be distributed to each production. A spokesman for Krekorian said the California Film Commission will have to develop regulations to administer the credit program and may choose to specify a maximum per-production credit allotment to spread the funds around to as many productions as possible.

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