Public Policy Update
Lani Lutar, Vice President of Public Policy
After nearly three months of deadlock, Governor Schwarzenegger signed the State Budget on September 23, 2008. The $144.5 billion budget includes a number of provisions that will impact your business.
Let’s start with the good news. The budget includes economic stimulus components such as providing flexibility in overtime laws for exempt high-paid software engineers, expediting the allocation and disbursement of existing transportation and housing bond funds for economic growth and job creation, and authorizing new lease revenue bonds to accelerate capital outlay projects for higher education. The budget does not borrow from local property tax revenues and it reflects full Prop 42 funding of $1.4 billion for transportation purposes.
Now for the bad news: The fact of the matter is that the budget was balanced on the backs of California businesses and investors. It depends on $5.8 billion more in taxes this fiscal year and $1.6 billion next fiscal year. Taxes are being increased or accelerated on limited liability corporations, the self-employed and small businesses, as well as companies that experience losses and invest in research and development and manufacturing equipment.
Three significant business tax law changes are highlighted below:
- Net Operating Loss (NOL) Suspension and Carryback: The NOL deductions will be suspended for tax years 2008 and 2009. However, taxpayers with an annual income of less than or equal $500,000 will be exempt from this provision. Starting in 2011, taxpayers will be permitted to carryback losses for 2 years bringing the state into conformity with federal law. Carrybacks will be limited to 50 percent of losses for the 2011 tax year, and to 75 percent for the 2012 tax year. The full NOL could be carried back starting in 2013.
- Tax Credit Limitation and Usage Modification: This provision will limit the tax reduction from tax credits to 50 percent of tax liability, which goes into effect for tax years 2008 and 2009 for corporate and individual taxpayers. The 50 percent limitation will no longer apply after tax years 2010 or later. Corporations will be allowed to share credits within a unitary group, but only in cases if the receiving member of the group was in the group when the credit was earned. Credit sharing is not allowed if a corporation is sold or transferred to another unitary group.
- Limited Liability Companies (LLC) Payment Date Change: This provision will require the LLC to make an estimated payment of the fee amount on the 15th day of the sixth month of the LLC year, which is usually June 15. LLC’s were not required to pay the fee until after the end of the year under the previous law.
Please contact your professional accountant or financial advisor to learn what other implications the recently adopted budget may have on your business.
The Chamber’s Government Interface Committee will be developing principles by which the next budget will be evaluated in the months ahead. Those principles will be the basis for our policy agenda to lobby our State legislators and the Governor this winter. For more information, please contact me directly at llutar@sdchamber.org or (619) 544-1309.
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