Today, the California Senate joined the Assembly in passing AB/SB 122 that makes the following changes to California tax law. The Governor is expected to sign the bill.
AB/SB 122 proposes to:
- Impose sales and use taxes on purchases of digitally delivered prewritten software, which includes software as a service (SaaS; products such as Slack, Zoom, tax software, etc.), effective January 1, 2027;
- Extend the current $5 million business credit cap (without a percentage-based limit) through the 2029 tax year, and then impose a permanent business credit cap equal to the greater of $5 million or 70% of the total taxes imposed, beginning with the 2030 tax year;
- Reduce the annual tax imposed on new LLCs, limited partnerships, and limited liability partnerships from $800 to $400, but only for their first year of operation for the 2027 through 2029 tax years; and
- Impose a 100% tax on any settlement fund payments received by taxpayers during the 2026 through 2029 tax years from any anti-weaponization settlement fund established by the federal Department of Justice.
The NOL suspension currently in effect was not extended as part of the budget deal, meaning that is currently scheduled to expire at the end of 2026.
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