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The Scramble Begins – How to Fill Budget Gaps

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California’s governor has proposed temporarily suspending NOL deductions & limiting tax credits to $5 million for the next three years to address budget shortfalls.
1 minute read
May 16, 2024
Savannah Brown
Partner, State and Local Tax Services

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Californian money

As states scramble to fill budget gaps, California Governor Gavin Newsom has proposed a suspension of net operating loss (NOL) deductions for taxpayers with business income of more than $1 million and a limitation of tax credits to $5 million for tax years 2025, 2026, and 2027. The NOL suspension is estimated to increase tax revenue by $900 million in FY25, $5.5 billion in FY26, and $5.9 billion FY27.

After a record surplus of nearly $100 billion in 2022, California faces projected budget deficits of over $73 billion for the next two fiscal years. The Governor has said he is not prepared to increase taxes, but his proposed spending cuts do not fully cover the projected deficit that will need to be addressed to balance the budget.

California is just one state that is turning to tax law to balance its budget.  As this scramble unfolds, stay tuned to Weaver for the latest updates on how these changes could impact individual and business taxpayers.  Contact us for information about how the proposed suspension of NOL deductions and limit on tax credits in California could affect your business.

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