Assembly trailer bill analysis packet released
SB/AB 122 expected to generate more state revenue than SB/AB 176 would through 2030
The Assembly Budget Committee has published a packet with analyses of “trailer bills” now in print, including SB/AB 125 (the MCO tax trailer bill, essentially as proposed by the Governor in the May Revision) and SB/AB 122, a tax trailer bill that contains a business tax limitation proposal as an alternative to SB/AB 176.
The legislative budget proposal announced last week assumes the May Revision tax proposals included in both SB/AB 125 and SB/AB 176.
As noted below, SB/AB 122, if adopted, would generate more state General Fund revenue than the May Revision tax proposals through 2030. On an ongoing basis over the long term after 2030, SB/AB 122 would generate more revenue than current law, but less than the May Revision proposal.
Both SB/AB 122 and SB/AB 176 contain these provisions:
May Revision sales tax proposal concerning software
May Revision proposal to temporarily reduce the $800 annual tax for new businesses by half
100% tax on “Trump anti-weaponization fund” payouts
SB/AB 122 and SB/AB 176 contain different proposed limitations on businesses’ use of tax credits, principally including the state’s research and development (R&D) tax credit:
SB/AB 122 essentially extends a three-year business tax credit cap previously adopted for 2024, 2025, and 2026 for three additional years: 2027, 2028, and 2029. As with the prior three-year cap, the extended cap would allow taxpayers to receive a refundable tax credit to cover most of their higher payments in later years. Compared to the May Revision tax limit proposal in SB/AB 176, the proposal in SB/AB 122 would generate $7 billion more in estimated revenue between now and 2029-30.
SB/AB 122 would institute a new permanent business tax credit limit starting in 2030, limiting businesses’ tax credit usage to $5 million per company per year or 70% of a company’s tax liability, whichever is greater. Refundable credits generated through 2029 could continue to be claimed in addition to the credit cap. By contrast, SB/AB 176—the May Revision tax credit limitation proposal—would establish a new permanent credit limit starting in 2027, limiting businesses’ tax credit usage to $5 million per company per year or 50% of a company’s tax liability, whichever is greater. Refundable credits generated through 2026 could continue to be claimed in addition to the credit cap under SB/AB 176.
The Assembly analyses, based on administration estimates, describe the fiscal effects of the software sales tax and new business tax reduction proposals from the May Revision. For their respective tax credit limit proposals, increases of General Fund revenues for SB/AB 122 are estimated at “$1 billion in 2026-27, $3.3 billion in 2027-28, and growing to over $4.5 billion through 2029,” while increases of General Fund revenues for the SB/AB 176 tax credit limit are estimated at “$850 million in 2026-27, $1.7 billion in 2027-28, and similar ongoing revenues.” Specific estimates generally are not provided after 2029-30, the final year of the current Department of Finance multiyear forecast period.
The Assembly Budget analysis packet is online here.