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Public Policy Newsletter Article

Governor Newsom Releases Proposed Revised 2020-21 Budget, Includes R&D and NOL Tax Impacts

  • 2020-05-21T15:00:00.000+0000
  • California
  • Author: Jimmy Jackson

On May 14, Governor Gavin Newsom released his May Revision to his proposed 2020-21 state budget released in January. Clearly, the financial outlook for the state is vastly different from five months ago, when the budget reflected a projected $5.8 billion surplus, to the current situation in which revenues are projected to be $41,2 billion less that in that January budget. A summary of the May Revise can be found here.

There are two proposals the Governor is putting forward to help address the deficit that will directly impact some life science companies via temporary changes to the utilization of Net Operating Loss and Research & Development (R&D) credits. Per the summary, “…the May Revision suspends NOLs for three years for medium and large businesses and limits credit utilization to no more than $5 million in recognition of the COVID-19 Recession and its impacts on small businesses.” (pg 162-163 of the budget summary)

The structure of the proposed NOL suspension can be found here, while the trailer bill language for the proposed limits on tax credits (including the R&D credit) is not yet available. A summary of possible implications of the revised budget prepared by Biocom Sacramento contract lobbying firm Sloat, Higgins, Jensen & Associates is available here. The State Legislature continues work with the Administration to pass its own version of a state budget, which by law must be done by June 15.