California lawmakers call for rollback on business taxes

(The Center Square) – A group of 25 California legislators is seeking to restore net operating loss deductions and business incentive tax credits in the state’s new budget.

The lawmakers laid out their reasoning in a letter sent to the chairs of the of the Assembly Budget Committee and Assembly Budget Subcommittee on State Administration.

The net operating loss deduction was suspended last year and the tax credits were capped last year to address a predicted budget shortfall. The proposal was meant to increase the state’s revenue by about $9.2 billion.

“We approved this action last year in order to close an estimated $54.3 billion budget deficit, which thankfully never came to fruition,” the letter reads. “However, California is not even close to experiencing a budget shortfall in 2021. In fact, California’s budget contains a record $22 billion in reserves with $15.6 billion in the state’s Rainy Day Fund.”

David Kline, vice president of communications and Research at the California Taxpayers Association, said he thinks the legislators’ request will be approved.

“The fact this is a large group of bipartisan members from both chambers gives us optimism,” he said.

Kline also noted that many legislators who were philosophically opposed to the move last year ended up voting for it because they believed the state was facing a budget emergency.

“They will probably vote to restore the credits this time around.”

The letter also says that “sunsetting the suspension and cap would assist employers in their economic recovery and incentivize them to remain in California.”

The lawmakers said the business incentive tax credits are particularly needed by companies in the state involved in research and development.

Kline agreed.

“That’s especially important to companies working on coronavirus vaccines and treatment and whatever else comes our way next,” Kline said.

The letter says California ranks second to last among the states on the Tax Foundation’s 2021 State Business Tax Climate Index.

It goes on to say, “Some of California’s most storied companies are either leaving the state, expanding elsewhere or encouraging employees to relocate to lower-cost states.”

Kline said business incentive tax credits have a specific purpose to encourage employers to hire workers in California.

“When you compare our tax climate to other states, it’s an easy choice to move,” he said. “We want to see companies expand here and hire here. This is a large step in that direction.”

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