Get Full Government Meeting Transcripts, Videos, & Alerts Forever!
Get email alerts on the Corporate Tax Credits topic
No spam. Unsubscribe anytime.
Governor's proposal would cap corporate tax credits; industry groups warn of long-term harm
Summary
The May Revision would impose a permanent limitation on business tax credits (greater of $5M per corporation or 50% of pre-credit liability) with an exception for low-income housing credits; administration projects sizable revenue gains while life-sciences and industry groups said the cap would undercut R&D incentives and long-term growth.
The administration proposed a permanent limitation on business tax credits beginning with tax year 2027, limiting credits to the greater of $5 million per corporation per year or 50% of pre-credit tax liability, Department of Finance staff told the Assembly subcommittee.
"The purpose of this proposal is to ensure that large profitable corporations pay at least some minimum level of tax rather than offsetting all their tax liability with tax credits," a Finance official said during the hearing.
Department officials said the cap excludes the Low-Income Housing Tax Credit and does not change refundability or the calculation for other personal income tax credits. Finance estimated revenue gains broadly in the hundreds of millions to low billions across the multi-year window.
The LAO said the proposal is a reasonable option for increasing corporate tax revenues but flagged that the measure would mostly operate through the R&D tax credit and could reduce incentives for incremental research by firms claiming large credit amounts.
Industry groups including California Life Sciences, Biocom and the Advanced Medical Technology Association urged rejection. Jennifer Snyder of California Life Sciences said the cap would "undermine what has made California a leader in innovation" and could harm the state's ability to attract and retain research-intensive companies. Speakers from labor and anti-poverty organizations urged approval as a way to recoup revenue for social programs.
Committee members pressed officials on impacts to programs that rely on tax credits, such as California Competes and housing-related credits, and on whether legislative guardrails should be added to protect priority programs; Finance said language would exclude the low-income housing credit and expected limited impact on California Competes awards.
