California Governor Gavin Newsom has signed legislation (i.e., S.B. 113) to, among other things, reinstate business tax credits and net operating loss (NOL) deductions originally limited by the enactment of A.B. 85 in 2020.

At the beginning of the pandemic, California anticipated the state would face a large tax revenue deficit.  Consequently, through A.B. 85, the legislature suspended the use of NOLs for taxpayers with taxable income of $1 million or more, and limited the utilization of business tax credits – including the Research and Development (R&D) Credit – to an aggregate of $5 million per year.  These limitations were originally meant to remain in place through the 2022 tax year.  However, California’s tax revenue situation has fared dramatically better than originally feared, allowing for the removal of these limitations to occur one year earlier than planned.

In response to the Governor’s execution of this new legislation, California Taxpayers Association (CalTax) President Robert Gutierrez released a statement approving the development for keeping “the economy strong” by improving “California’s competitiveness for jobs and investments, which is critically important.”

Indeed, business taxpayers can look forward to resume benefitting from the full use of these business tax credits and NOL deductions from the 2022 tax year onward.

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