As a long-time entertainment industry enthusiast and someone who has witnessed countless changes within this dynamic world, I am immensely relieved by the recent signing of SB 422 by Governor Gavin Newsom. The loan-out structure, which has been the backbone of the industry for decades, was under threat due to a state audit earlier this year. This bill not only codifies the loan-out structure in state law but also clarifies that loan-outs, not payroll companies, are responsible for paying payroll taxes – a move that ensures the stability of our industry during these challenging times.
On Monday, Governor Gavin Newsom approved a legislation sponsored by unions, shielding loan-out corporations from potential risks stemming from a state review conducted earlier in the year.
As a devoted fan, I’d like to shed light on an interesting aspect of the Hollywood scene. Unlike traditional employees, actors, writers, and crew members aren’t typically considered studio staff. Instead, they receive payment through their personal service companies, which essentially loan their talents to the studios.
The long-standing system enables artists to subtract agent fees, manager costs, and other taxable income expenses from their tax returns. However, this setup was called into doubt when the California Employment Development Department performed an audit on Cast & Crew, a significant payroll service provider in the field, back in May.
During the COVID-19 pandemic, the Employment Development Department (EDD) was inundated with a large number of jobless claims, even extending to entertainment professionals who found themselves out of work due to a widespread halt in their industry.
In response, they carried out checks to verify if the loan-out firms had indeed remitted the payroll taxes essential for the unemployment insurance scheme, as mandated by law.
In an audit, the EDD argued that instead of loan-out companies, it was Cast & Crew’s responsibility to pay the payroll taxes on behalf of the studios they were distributing checks to.
In May, the production team (Cast & Crew) notified Hollywood unions that the Employment Development Department (EDD) was ignoring the loan-out system and viewing workers as employees of Cast & Crew instead. Consequently, the unions advised their members that the EDD aimed to significantly change how the industry operates.
This development triggered additional concerns, causing the EDD to release a statement clarifying that they were not enforcing a ban on loan outs, but instead, focusing on making sure all tax obligations are met.
Over the subsequent months, I found myself immersed backstage, working tirelessly alongside Newsom’s team and key players in the cinematic world, to devise a workable resolution.
Senator Anthony Portantino, a Democrat from Burbank and a close ally of the industry in Sacramento, presented and successfully passed SB 422 during the last few days of the legislative session in August. Governor Newsom signed the bill into law on Monday, which was the last day to take action on legislation.
The legislation solidifies the structure of loan arrangements within state regulations. Additionally, it explicitly states that loan arrangements, not payroll service providers, are liable for paying payroll taxes. To facilitate tax collection, this bill mandates that payroll companies, such as Cast & Crew, submit quarterly reports to the EDD detailing payments made to loan arrangements, starting from 2026.
In endorsement of the proposed legislation, a group of Hollywood unions expressed their view that it is crucial to avoid any disruptive changes in our sector, given the immense turmoil we are currently experiencing and the potential job loss for many of our union members.
In May, Cast & Crew officials informed EbMaster that approximately 2,000 loan-out businesses were being audited. During this period, Cast & Crew was arguing against the EDD’s decision in a private hearing before an administrative law judge.
Initially, it was anticipated that approximately 2,000 businesses would receive notifications regarding an upcoming audit. Contrarily, these notices were not issued. Instead, the parties involved collaborated on finding a legal solution to address the problem directly.
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2024-10-01 03:18