Senate subcommittee backs shifting financial institutions to single‑sales apportionment; change estimated to raise state revenue

The Senate Budget and Fiscal Review Subcommittee No. 4 voted to approve a budget proposal from the Department of Finance to require multi‑state financial institutions and savings and loan businesses to use single‑sales‑factor apportionment for California tax purposes beginning in tax year 2025.

What the change does - Single‑sales apportionment allocates a multistate firm’s taxable income to California based on the ratio of sales in the state to sales in the U.S. (or world), whereas three‑factor apportionment uses property, payroll and sales ratios. - Since Proposition 39 (2012) nearly all other businesses in California use single‑sales apportionment; financial institutions had historically remained on a three‑factor formula. - The proposal aligns financial institutions with the single‑sales approach used by most other industries and by many other states, the Department of Finance told the committee.

Fiscal and policy effects The Department of Finance estimated a revenue increase of roughly $330 million in the 2025‑26 budget year and about $250 million annually thereafter. The Legislative Analyst’s Office recommended approval, noting no clear policy rationale for exempting financial institutions from the single‑sales approach and observing the change is unlikely to produce significant economic distortions given the non‑targeted, economy‑wide nature of apportionment rules.

Committee action Senator Nilo moved the combined vote on centralized revenue opportunity system (item 2) and this single‑sales factor item; the motion passed on a roll call with committee members voting aye. The subcommittee adopted the administration’s placeholder trailer bill language for the change and advanced the item for further legislative consideration.