Businesses in California will no longer be able to deduct losses carried forward from previous years, resulting in a potential cost of $2 billion this fiscal year. This change comes as a response to the state’s significant budget deficits, with businesses facing higher taxes to bridge the gap between spending and revenues. The loss of net operating loss deductions and debts owed to the federal government for pandemic-related benefits will impact businesses statewide, potentially costing them billions of dollars in the current and future fiscal years.
Experts warn that the inability to carry forward losses could disproportionately affect certain industries, leading to a less equitable tax system. Additionally, limits on tax credits and other changes may result in increased taxes for some businesses, discouraging investment in California and potentially prompting existing businesses to leave the state.
The state’s debt from overdue loans and fraudulent unemployment claims further complicates the financial situation for businesses. With California owing nearly $19.3 billion in interest on unemployment debt, businesses will have to bear the burden of this debt. Despite negotiations between the Governor and the Legislature, a budget was passed with additional amendments to address the state’s fiscal challenges.
While Gov. Gavin Newsom emphasized the importance of long-term fiscal stability, he ruled out the possibility of raising taxes to address the budget shortfall. The impact of these changes on businesses remains a concern, with many facing significant tax liabilities and financial challenges in the coming years.
It is my strong belief that we must live within our means.
He pointed out that the state’s current corporate tax rate of 8.84 percent and personal income tax rate as high as 13 percent are reasons why he is hesitant to rely on new revenues to balance the budget.
“We have some of the highest tax rates in the United States for high-income earners,” Mr. Newsom stated. “Our corporate tax rates are also among the highest.”
Mr. Newsom did not respond to requests for comment by the deadline.
