California Enacts Sweeping Tax Changes Impacting Businesses Across Sectors
SACRAMENTO – Acting Governor Eleni Kounalakis today signed the following bill:
- SB 167 by the Committee on Budget and Fiscal Review – Taxation.
California has passed significant tax legislation that will have far-reaching effects on businesses operating in the state. The new measures, set to take effect in the coming years, include both restrictions on existing tax benefits and new programs aimed at supporting specific industries.
Net Operating Loss Deductions Suspended
One of the most impactful changes is the suspension of net operating loss deductions for tax years 2024-2026. This means businesses will be unable to use past losses to offset current profits during this period, potentially leading to higher tax liabilities for companies that have relied on this strategy in recent years.
Cap on Business Tax Credits
The legislation also introduces a $5 million annual cap on the total amount of business tax credits a company can utilize from 2024-2026. This limitation is expected to primarily affect larger corporations that typically leverage multiple tax credit programs to reduce their tax burden.
Oil and Gas Industry Faces Reduced Tax Benefits
In a move signaling a shift away from supporting the fossil fuel industry, the new law eliminates or reduces several deductions and credits that have traditionally benefited oil and gas companies. This includes the removal of deductions for intangible drilling costs and changes to percentage depletion allowances.
Film and TV Production Incentives Extended
On a more positive note for the entertainment industry, the legislation extends California’s film and TV production tax credit program. This continuation of incentives aims to keep productions within the state, supporting jobs and economic activity in the sector.
Support for Historic Entertainment Venues
A new program established by the law will provide funding for historic entertainment venues. This initiative could offer a boost to businesses in the tourism and events sector, particularly those operating in or around these iconic locations.
These changes represent a mixed bag for California’s business community, with some sectors facing increased tax burdens while others receive continued or new support. As the provisions take effect, businesses across the state will need to reassess their tax strategies and adapt to the new landscape. The long-term impact on California’s business environment and state revenues will likely be closely watched by policymakers and industry leaders alike.
For full text of the bill, visit: http://leginfo.legislature.ca.gov.
SB 167, introduced by the Committee on Budget and Fiscal Review, is a comprehensive taxation bill that makes several changes to California’s tax laws. Key provisions of the bill include:
- Disallowing the net operating loss deduction for taxable years beginning on or after January 1, 2024, and before January 1, 2027, for businesses with annual revenue exceeding $1 million2 & 5.
- Amending provisions related to the California Tire Recycling Act, including changes to the California tire fee and its administration2.
- Modifying rules regarding tax deadline extensions during states of emergency, requiring the Director of Finance to determine whether a taxpayer is affected3.
- Repealing provisions related to reimbursement of the Franchise Tax Board for certain costs and terminating the Delinquent Tax Collection Fund as of June 30, 20242 & 3.
- Making changes to reporting requirements for cities and counties receiving money from certain funds3.
- Modifying various deductions and credits under the Personal Income Tax Law and Corporation Tax Law3 & 5.
- Making the Administrative Procedure Act inapplicable to legal rulings of counsel issued by the California Department of Tax and Fee Administration2 & 5.
The bill has been enrolled and presented to the Governor for signature on June 15, 20241 & 2. It has faced opposition from some business groups and taxpayer associations, who argue that the changes, particularly the suspension of the net operating loss deduction, could negatively impact California’s business climate and lead to job losses5.
Citations:
1. https://www.gov.ca.gov/2024/06/27/acting-governor-eleni-kounalakis-signs-legislation-6-27-24/
2. https://legiscan.com/CA/text/SB167/id/3009397
3. https://digitaldemocracy.calmatters.org/bills/ca_202320240sb167
4. https://legiscan.com/CA/bill/SB167/2023
5. https://www.cost.org/globalassets/cost/state-tax-resources-pdf-pages/cost-comments-and-testimony/ab-167-sb-167-afloor-061224.pdf
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