BILL ANALYSIS
AB 1936
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Date of Hearing: May 19, 2010
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Felipe Fuentes, Chair
AB 1936 (De Leon) - As Introduced: February 19, 2010
Policy Committee: Revenue and
Taxation Vote: 6-3
Urgency: No State Mandated Local Program:
No Reimbursable:
SUMMARY
This bill repeals provisions passed with the 2008-09 budget that
allow net operating losses (NOLs) incurred by businesses
beginning in 2011 to be carried back to offset income during the
two prior years under the personal income tax and corporation
tax.
FISCAL EFFECT
The Franchise Tax Board estimates that this bill will result in
revenue gains of $25 million in 2010-11, $250 million in
2011-12, $145 million in FY 2012-13, and similar amounts
thereafter.
COMMENTS
1)Background . For the past two decades, California has partly or
fully conformed to federal tax provisions allowing businesses
incurring NOLs in one year to carry them forward and deduct
them against earnings in subsequent years. However, California
has not historically conformed to federal provisions allowing
businesses to carry back losses by filing amended returns and
deducting the losses against the earnings posted during the
two prior years.
As part of the budget agreement for 2008-09, the governor
signed AB 1452 (Budget Committee), Chapter 763, Statutes of
2008, which, among other things, suspended the NOL deductions
for 2008 and 2009, authorized NOL carry-backs for losses
incurred in 2011 or later tax years, and expanded the NOL
carry-forward period from 10 years to 20 years for losses
AB 1936
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incurred after January 1, 2008. The carry-back provisions are
scheduled to phase in, with carrybacks allowed for 50% of NOLs
incurred in 2011, 75% of NOLs incurred 2012, and 100% incurred
in 2013 and thereafter.
2)Rationale . This bill is intended to repeal a budget agreement
that is resulting in significant revenue losses to the state.
The author asserts that the Legislature needs to "reassess the
corporate tax giveaways that have been enacted over the last
few years and repeal those that neither generate economic
activity nor assist in the economic recovery of our state."
Proponents of repeal also assert that the carry-back
provisions, by requiring the state to issue refunds on taxes
already collected, add to the volatility of the GF revenues.
3)Opponents state that the NOL carry-back is particularly
important for keeping struggling businesses afloat, and that
rescinding the NOL carry-back deduction will undermine
employers' faith in California's commitment to keeping
employers in the state.
Analysis Prepared by : Brad Williams / APPR. / (916) 319-2081