Both houses of the Legislature are scheduled to vote Monday on a budget deal that includes $9.2 billion in tax increases on California businesses via a suspension of the net operating loss deduction and a $5 million-per-year limit on business tax credits – including the research-and-development credit – for three years retroactive to the beginning of this year.
CalTax is leading a coalition of more than 50 trade associations and local taxpayer groups in opposition to the tax increases, which are included in identical budget trailer bills: AB 85 (Assembly Budget Committee) and SB 114 (Senate Budget and Fiscal Review Committee).
“Californians are fighting an unprecedented economic and health crisis, with record unemployment and employers of all sizes struggling to stay in business,” CalTax President Robert Gutierrez said. “There couldn’t be a worse time for a $9.2 billion tax increase on California employers.”
CalTax has provided lawmakers with fact sheets on the R&D tax credit and NOL deduction to inform policymakers of the important role the tax incentives play in California’s economic growth and recovery.
The Senate Budget and Fiscal Review Committee convened this morning, and voted 12-5 to send AB 85 to the Senate floor. The vote was split down party lines, with Democrats in support and Republicans opposed.
The Assembly Budget Committee is scheduled to meet Monday morning, and both houses plan to meet Monday afternoon to approve a balanced – on paper – budget bill prior to the constitutional deadline to pass a budget by midnight (or forfeit pay).
The budget was negotiated behind closed doors by Assembly Speaker Anthony Rendon, Senate President Pro Tem Toni Atkins and Governor Gavin Newsom, who originally proposed the corporate tax increases. A group of 27 Assembly members (22 Democrats, four Republicans and one independent) signed a letter last month in opposition to the tax proposals.
The main budget bill (SB 74, Mitchell) requires just a majority vote in each house, but the tax increase bills must reach the two-thirds threshold (54 votes in the 80-member Assembly and 27 votes in the 40-member Senate) for passage. Legislative absences and vacancies do not change the vote thresholds.
Atkins and Rendon released a joint statement this week saying they plan to approve a skeletal budget before the constitutional deadline, then continue working on the details:
“We entered this process with Legislative budget priorities that are faithful to the pragmatic fiscal structure put forth by Governor Newsom in his May Revision. We shared the goal of closing the $54 billion budget gap and providing strong footing as California enters challenging economic times. In order to meet the Constitutional deadline for passing the budget by June 15 and to comply with the 72-hour-in-print rule, we must pass the updated Legislative version of the budget while our productive negotiations continue with the Governor. We will approve any amendments to the Legislature’s version of the budget as soon as they are eligible for floor action. A key update to the Legislature’s version is that we now explicitly anticipate budget savings achieved through the collective bargaining process in the even anticipated federal funds do not materialize. We encourage labor unions to engage and finalize agreements with the Administration prior to July 1. Savings through the collective bargaining process are critical to maintaining the state’s fiscal health, in the event additional federal support does not materialize.”