In addition to the budget bills we covered in our June 14 Flash E-mail (see “California budget bills pass with major tax changes”), the California Legislature has sent SB 175 to Governor Newsom for his approval. If enacted, SB 175 would eliminate the 2025 and 2026 NOL suspension and the $5 million business credit limitations contained in SB 167 if in the tax year:
- The California Department of Finance determines that there is sufficient money in the General Fund over the multiyear forecast to eliminate the limitation for that tax year; and
- The annual Budget Act provides that the credit limitation will not apply during that tax year.
The bill would also allow a taxpayer to make an irrevocable election in a tax year in which the $5 million credit limitation applies to treat the suspended credit amounts as a refundable credit. The refundable credit would be claimed equally (20% per year) over a five-year period beginning with the third taxable year after the tax year the election is made.
The Governor is expected to sign this bill.
No extension of first-year exemption from $800 annual tax
In our June 14 Flash E-mail, we also stated that the budget bills would extend the exemption from the $800 annual tax for LLCs, LPs, and LLPs if they organize or register in 2024 during their first year of doing business in California. While AB 107 did allocate money to administer the exemption, the exemption itself was not extended. This means that, absent any additional legislation enacted this year, there is no exemption from the $800 annual tax for LLCs, LPs, and LLPs that organize or register with the California Secretary of State’s Office in 2024. The first-year exemption for corporations still remains in effect.
The text of SB 175 is available at:
http://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=202320240SB175
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