February 26, 2021
The Honorable Phil Ting
Chair, Assembly Committee on Budget
State Capitol, Room 6026
Sacramento, CA 95814
The Honorable Wendy Carrillo
Chair, Assembly Budget Subcommittee 4 on
State Administration
State Capitol, Room 4167
Sacramento, CA 95814
The Honorable Vince Fong
Vice Chair, Assembly Committee on Budget
State Capitol, Room 2002
Sacramento, CA 95814
RE: RESTORING NET OPERATING LOSS DEDUCTIONS AND BUSINESS INCENTIVE TAX CREDITS
Dear Assemblymembers Ting, Fong, and Carrillo:
We, the undersigned Members of the Legislature, respectfully request that this year's budget restore the net operating loss (NOL) deduction and business incentive tax credits that were suspended and capped in the 2020 budget via AB 85 (Chapter 8, Statutes of 2020). We approved this action last year in order to close an estimated $54.3 billion budget deficit, which thankfully never came to fruition. Sunsetting the suspension and cap would assist employers in their economic recovery and incentivize them to remain in California. The sunset provision is also timely considering California's General Fund is experiencing a windfall.
In July, we approved the Governor's proposal to suspend the use of personal and business NOLs and limit the use of existing business tax credits to offset their tax liability for years 2020-2022. This proposal was advanced to raise approximately $9.2 billion in revenue to help address the budget shortfall expected as a result of COVID-19. While the tax increases were painful for employers, they were willing to pitch in to support the state's pandemic response.
However, California is not even close to experiencing a budget shortfall in 2021. In fact, California's budget contains a record $22 billion in reserves with $15.6 billion in the state's Rainy Day Fund (Proposition 2). California's revenues have actually triggered the State Appropriations Limit (Proposition 4), which could require the state to return revenue in excess of the limit to taxpayers. Accordingly, the tax increases adopted last year as emergency measures are no longer needed. Businesses should be allowed to immediately utilize NOLs and earned tax credits to offset any harm they suffered as a result of this pandemic. This will encourage employers who are considering leaving the state to stay.
The business-incentive tax credit cap was particularly troubling considering many of California's employers are actively engaged in researching and developing COVID-19 vaccines and anti-viral therapies. These are activities the state should encourage. Additionally, the NOL suspension is causing an even greater financial strain on employers who have suffered staggering losses over the past year and have no way to offset their revenue declines. Struggling businesses need help now — not in several years when the 2020 budget's carryback provisions take effect.
California ranks 49th on the Tax Foundation's 2021 State Business Tax Climate Index. Some of California's most storied companies are either leaving the state, choosing to expand elsewhere, or encouraging employees to relocate to lower-cost states. Sunsetting the NOL suspension and cap on business incentive tax credits would send a strong, positive message that our state's employers are important to our government.
For these reasons, we urge the Budget Committee to end the NOL suspension and cap on business incentive tax credits this year.
Sincerely,
EVAN LOW
Assemblymember, 28th District
MARC BERMAN
Assemblymember, 24th District
STEVEN CHOI
Assemblymember, 68th District
JIM COOPER
Assemblymember, 9th District
JORDAN CUNNINGHAM
Assemblymember, 35th District
TOM DALY
Assemblymember, 69th District
LAURIE DAVIES
Assemblymember, 73rd District
JIM FRAZIER
Assemblymember, 11th District
ADAM GRAY
Assemblymember, 21st District
TOM LACKEY
Assemblymember, 36th District
BRIAN MAIENSCHEIN
Assemblymember, 77th District
DEVON MATHIS
Assemblymember, 26th District
CHAD MAYES
Assemblymember, 42nd District
PATRICK O'DONNELL
Assemblymember, 70th District
JIM PATTERSON
Assemblymember, 23rd District
COTTIE PETRIE-NORRIS
Assemblymember, 74th District
BILL QUIRK
Assemblymember, 20th District
ROBERT RIVAS
Assemblymember, 30th District
RUDY SALAS
Assemblymember, 32nd District
SUZETTTE VALLADARES
Assemblymember, 38th District
CARLOS VILLAPUDUA
Assemblymember, 13th District
PATRICIA BATES
Senator, 36th District
ANDREAS BORGEAS
Senator, 8th District
JIM NIELSEN
Senator, 4th District
SCOTT WILK
Senator, 21st District
cc:
Angie Wei, Legislative Affairs Secretary, Office of the Governor
Members, Assembly Committee on Budget
Christian Griffith, Chief Consultant, Assembly Committee on Budget
Kristin Kolpitcke, Assembly Republican Caucus
Senator Nancy Skinner, Chair, Senate Committee on Budget and Fiscal Review
Senator Anna Caballero, Chair, Senate Budget Subcommittee 4