California’s new $308 billion state budget provides direct tax refunds for millions of Californians, extends tax credits, provides grants, changes how cannabis is taxed, and allows a one-time tax penalty abatement.
The budget, signed by Gov. Gavin Newsom on June 30, also heavily invests in measures to combat climate change; provides additional relief to smaller businesses to offset cost increases related to supplemental paid sick leave and unemployment insurance; and temporarily suspends a portion of the sales tax on diesel fuel.
Read on for a summary of some top measures to be aware of.
Relief tax refunds
Individuals with income up to and including $75,000 ($150,000 for joint filers) are eligible for a $350 rebate per person, with another $350 for those with one or more dependents, with a maximum rebate of $700 for single filers ($1,050 for joint filers).
Individuals with income over $75,000, up to and including $125,000 ($150,000-$250,000 for joint filers), are eligible for $250 per person, plus $250 for those with dependents, with a maximum of $500 for single filers ($750 for joint filers).
Individuals with income over $125,000, up to and including $250,000 ($250,000-$500,000 for joint filers), are eligible for $200 per person, plus $200 for those with dependents, with a maximum of $400 for single filers ($600 for joint filers).
PPP conformityCalifornia now extends its partial conformity to federal Paycheck Protection Program (PPP) loan treatment to also apply to loans approved after March 2021, allowing expense deductions. Note that the “25% reduction in gross receipts” threshold must still be met to deduct those expenses.
Credits and grants
Taxpayers who did not claim the Main Street Tax Credit on their original California tax return are now allowed to amend the return to claim the credit.
The California Competes Tax Credit program has been extended through 2027-28 at the current level of $180 million per year. An additional $120 million has been provided to extend the California Competes Grant Program for a second year, subject to new standards to meet the criteria to claim the credit.
Cannabis tax relief
As of July 1, 2022, the cannabis cultivation tax is repealed.
Effective Jan. 1, 2023, collection of the cannabis excise tax will take place at the point of sale.
For taxable years starting on or after Jan. 1, 2023, and before Jan. 1, 2028, qualified cannabis businesses can claim a credit of up to 25% of their qualified expenditures, up to $250,000 per year.
Penalty abatementFor tax years starting on or after Jan. 1, 2022, taxpayers have an option to request a one time only abatement of a timeliness penalty, if they are in good standing with all other tax matters at the time of the request.
What does CohnReznick think?The 2022-23 budget provides a host of tax incentives, credits, and grants that can be utilized by California taxpayers. Taxpayers should consult with their accountants to see how the changes may impact their specific tax positions/calculations, and whether these new provisions could potentially aid them.
Subject matter expertise
JD, Principal, Practice Leader, State and Local Tax (SALT) Services
Let’s start a conversation about your company’s strategic goals and vision for the future.
Please fill all required fields*
Please verify your information and check to see if all require fields have been filled in.
CohnReznick Tax: Alerts and Webinars
Any advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues. Nor is it sufficient to avoid tax-related penalties. This has been prepared for information purposes and general guidance only and does not constitute legal or professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice specific to, among other things, your individual facts, circumstances and jurisdiction. No representation or warranty (express or implied) is made as to the accuracy or completeness of the information contained in this publication, and CohnReznick LLP, its partners, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.