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Panel supports requiring single-sales-factor apportionment for financial institutions
Summary
The administration proposed requiring financial institutions and savings-and-loan businesses to use single-sales-factor apportionment beginning tax year 2025; the LAO recommended approval and DOF estimated a net revenue increase of several hundred million dollars.
The administration proposed amending California's apportionment rules to require financial institutions and savings-and-loan businesses to use single-sales-factor apportionment beginning in tax year 2025. DOF staff explained that since Prop. 39 (2012) nearly all businesses have been required to use single-sales-factor apportionment, and the proposed change would align financial institutions with other industries and other states.
Nicholas Thomas of DOF said the change would make taxation more equitable by removing the property-and-payroll factors from apportionment for these firms. DOF presented an estimated net revenue increase of $330 million in 2026 and $250 million-plus annually thereafter.
Rowan Isaacs of the Legislative Analyst's Office recommended the Legislature approve the governor's proposal, concluding the arguments for a financial-institutions carve-out do not apply: such firms can provide services from anywhere, and there is not a clear legislative policy to use apportionment to favor financial firms.
Committee members asked clarifying questions about which firms would be winners or losers under the change; DOF said firms with relatively more property and payroll in California would likely pay less, while firms with proportionally more sales in California would face higher liabilities.
No formal vote was taken; LAO and DOF both recommended approving the change for fairness and consistency reasons.
