Bradley R. Marsh and Ruben Sislyan, of Greenberg Traurig LLP, have made available for download their article, “California SB 113 Eliminates Suspension on NOL Deductions, Lifts Limitation on Use of Tax Credits, and Expands Elective Pass-Through Entity Tax,” published in a Greenberg Traurig Alert. The abstract is as follows:
Senate Bill 113 (SB 113), which Gov. Newsom signed into law Feb. 9, 2022, contains important California tax law changes, including reinstatement of business tax credits and net operating loss (NOL) deductions limited by Assembly Bill 85 (AB 85) of 2020, as well as expansion of California’s pass-through entity (PTE) tax.
Reinstatement of NOL Deductions and Tax Credits
AB 85 suspended use of NOLs for tax years 2020-2022 for taxpayers with California taxable income of at least $1 million. That bill also limited the use of business tax credits, such as research-and-development credits, for tax years 2020-2022 to $5 million annually. SB 113 removes these limitations for tax year 2022, in effect shortening the longer suspension period for NOL deductions and use of tax credits under SB 85.
Expansion of Elective PTE Tax
SB 113 also modifies the state’s elective PTE tax and corresponding tax credit. Under law existing prior to SB 113, for tax years beginning on or after Jan. 1, 2021, and before Jan. 1, 2026, qualifying PTEs may annually elect to pay an entity-level state tax on income. Qualified taxpayers receive a credit for their share of the entity-level tax, reducing their California personal income tax. Effective for tax years beginning on or after Jan. 1, 2021, except as noted below, SB 113 expands the availability and benefit of the elective PTE tax and corresponding tax credit with the following changes:
Posted by Anthony Tran, Associate Editor, Wealth Strategies Journal