Jul. 7, 2022
California—Corporate, Personal Income Taxes: Tax Credit Changes, Forgiven PPP Loan Conformity, and More Enacted
California has enacted budget-implementing legislation that includes corporation franchise and income and personal income tax changes relating to:
- the Main Street Small Business Tax Credit;
- the Homelessness Hiring Tax Credit;
- the California Competes Tax Credit;
- forgiven Paycheck Protection Program (PPP) loans;
- penalty abatement; and
- offsetting delinquent accounts.
Other tax changes in the legislation reported separately.
Main Street Small Business Tax Credit
The Main Street Small Business Tax Credit changes include:
- removing the requirement that the credit be claimed on a timely filed original return; and
- extending the repeal date for the credit provisions from December 1, 2022, to December 1, 2026.
Homelessness Hiring Tax Credit
The Homelessness Hiring Tax Credit changes include:
- expanding the credit to include qualified taxpayers that employ a person who has recently received services from a homeless services provider; and
- allowing a continuum of care or a community-based service provider to issue recertifications to eligible individuals.
California Competes Tax Credit
The California Competes Tax Credit changes include:
- extending the fiscal years for which GO-Biz can allocate credits through 2027–28;
- limiting the aggregate amount of credit that may be allocated to $180 million for each fiscal year from 2023–24 to 2027–28;
- beginning with the 2023-24 fiscal year, authorizing the Governor’s Office of Business and Economic Development (GO-Biz) to consider, when determining whether to enter into a written agreement with a taxpayer, the taxpayer’s commitment to treating its workforce fairly and creating quality, full-time, wage and salary jobs in the state; and
- beginning with the 2023-24 fiscal year, authorizing GO-Biz to consider, when determining whether to enter into a written agreement with a taxpayer, the taxpayer’s willingness to relocate jobs into California from a state that, among other things, has enacted a law that discriminates against same-sex couples or their families, discriminates on the basis of sexual orientation, gender identity, or gender expression, or denies or interferes with a woman’s right to choose to bear a child or to choose and obtain an abortion.
Forgiven PPP Loan Amounts
California now conforms to federal law excluding from gross income any covered loan amounts forgiven pursuant to the PPP Extension Act of 2021 (P.L. 117-6).
Failure-to-File or Failure-to-Pay Penalty Abatement
For tax years beginning on and after January 1, 2022, the Franchise Tax Board must, upon request by an individual taxpayer, grant a one-time abatement of a failure-to-file or failure-to-pay penalty if the taxpayer:
- was not previously required to file a California personal income tax return or has not previously been granted abatement under these provisions;
- has filed all required returns as of the date of the request for abatement; and
- has paid, or is in a current arrangement to pay, all tax currently due.
Offsetting Delinquent Accounts
For tax years beginning on or after January 1, 2024, the Controller may not offset delinquent accounts against personal income tax refunds of an individual who received the Earned Income Tax Credit or the Young Child Tax Credit for the tax year. This does not apply to delinquent accounts for the nonpayment of child or family support.
Ch. 55 (A.B. 194), Laws 2022, effective June 30, 2022, and applicable as noted
California—Corporate, Personal Income Taxes: Tax Credits Provided to Cannabis Businesses
Jul. 6, 2022
For tax years beginning on or after January 1, 2023, and before January 1, 2028, California provides new corporation franchise and income and personal income tax credits to:
- licensed commercial cannabis businesses that meet certain employment requirements; and
- cannabis equity licensees.
The tax credits were enacted along with other cannabis tax changes as part of the state budget agreement. The other tax changes separately reported.
Commercial Cannabis Business Tax Credit
Qualified cannabis businesses may claim a credit equal to 25% of their qualified expenditures in a tax year, up to a maximum credit of $250,000 per tax year. If the credit allowed exceeds the tax due for the year, the taxpayer may carry over the excess to reduce tax in the following year and the succeeding seven years, if necessary, until the credit is exhausted. The total amount of credits that may be allocated to all taxpayers for all tax years, cumulatively, is $20 million.
Qualified cannabis businesses are California-licensed, commercial cannabis retailers or microbusinesses that provide full-time employees with all of the following:
- employment compensation;
- employer-provided group health insurance; and
- employer-provided retirement benefits or pension benefits.
Qualified expenditures are amounts paid or incurred by a qualified business for any of the following:
- employment compensation for full-time employees;
- safety-related equipment, training, and services; and
- workforce development and safety training for employees.
Taxpayers must request a credit reservation from the Franchise Tax Board (FTB) each year during the month of July, or within 30 days of the start of their tax year if their tax year begins after July. The FTB will approve tentative credit reservations, subject to the total credit cap.
Cannabis Equity Tax Credit
Cannabis equity licensees may claim an annual tax credit in the amount of $10,000. If the credit allowed exceeds the tax due for the year, a taxpayer may carry over the excess to reduce tax in the following year and the succeeding seven years, if necessary, until the credit is exhausted.
Other cannabis tax changes included in the legislation separately reported.
Ch. 56 (A.B. 195), Laws 2022, applicable as noted
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