California: Governor Newsom’s Budget Plan Released

Listen to a brief overview of state tax developments this week, including California, or read full California development below.

Detailed California Development

This past week some updated budget news was released in the Golden State. After several years of operating at a surplus, the state is facing an estimated $54.3 billion dollar deficit for the remainder of FY20 and through FY21, which begins July 1. This shortfall is largely driven by reduced individual and corporate income and sales tax collections due to the Coronavirus.  In his recently-released May budget revisions, Governor Newsom proposed a number of across the board spending cuts, including state employee pay reductions, as well as certain tax increases on businesses. Specifically, the Governor is proposing to suspend net operating losses for 2020, 2021, and 2022 for “medium and large businesses.” The revised budget also envisions limiting business incentive tax credits from offsetting more than $5 million of tax liability for 2020, 2021, and 2022. The budget is, however, far from a done deal, as it now goes to the Legislature for negotiations. There are a number of moving parts as the budget process moves forward, including, but not limited to, the length of time that the state’s stay at home orders remain in place and the amount of aid California may receive from the federal government.  Although a budget is constitutionally required to be in place by June 15, it seems likely a placeholder budget will be enacted and negotiations will continue into the summer.

In other news, there are many recently-amended bills of interest to business taxpayers pending in the California Legislature. The fate of these proposals remains uncertain in light of the budget situation.  Assembly Bill 2166, as amended, would conform California law to the NOL carryback provisions in the federal CARES Act.  Assembly Bill 3208 would exclude from gross income the amount of any loan forgiven under the CARES Act. Assembly Bill 2496 would adopt an income tax credit for California businesses for cleaning and sanitizing supplies related to COVID-19. Assembly Bill 2712 would create the California Universal Basic Income Program, which would provide certain California residents meeting statutory requirements with a basic income of $1,000 per month. The bill requires the CDTFA to issue a report on the feasibility of funding the program by imposing a VAT on most goods and services, adopting a services tax and/or increasing corporate taxes. Finally, Assembly Bill 2570 would apply the state’s False Claims Act to claims, records, or statements made under the Revenue and Taxation Code if specified conditions are met.  Please contact Gina Rodriquez at 916-551-3132 with questions. 

This Week's Developments

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Sarah McGahan

Sarah McGahan

Managing Director, State & Local Tax, KPMG US