On January 10, California Governor Gavin Newsom issued his proposed budget for the upcoming fiscal year. Of interest to business taxpayers, the proposal would allow taxpayers to again fully utilize business tax credits, like the R&D credit, and net operating loss deductions in 2022. For tax years 2020 to 2022, AB 85 (enacted in 2020), limited the amount of business tax credits that can be claimed annually to $5 million and suspended use of net operating loss deductions for business taxpayers with income of $1 million or more (see our previous coverage on AB 85 here and here).

The proposed budget also includes two new tax credits for businesses investing in activities to mitigate climate change and those developing green energy technologies. Overall, the budget proposes $286.4 billion in spending, a 9.1% increase from the budget for the current fiscal year. This proposed budget will be revised in May, then the Legislature must approve the budget and send a budget bill to the Governor by June 15.