Legislative Changes Under California SB 122 / SB 180
California recently enacted Senate Bill 122 and Senate Bill 180, which modify several state tax credit programs and conformity with federal tax law. (ftb.ca.gov)
What’s New in California Business Credits
- The sunset for certain business credit limitation and annual refundable credit election periods has been extended three years, now applying to taxable years beginning before January 1, 2030. (ftb.ca.gov)
- Starting January 1, 2030, specified tax credits will only reduce a taxpayer’s liability by up to 70% of tax (or net tax), or $5 million, whichever is greater. Unused credit amounts become credit carryovers. (ftb.ca.gov)
First Year Minimum Tax Annual Reduction for Pass-Through Entities
For LLCs, LPs, LLPs not classified as corporations: for taxable years beginning 2027 through 2029, their first-year annual/minimum tax will be halved—reduced from $800 to $400. (ftb.ca.gov)
Other Conformity Updates
- California is aligning state law with recent federal changes related to ABLE Accounts under IRC § 530A and federal legislation. (ftb.ca.gov)
- The ABLE/530A conformity helps taxpayers benefit from federal savings and investment options now recognized at the state level. (ftb.ca.gov)
Practical Implications for Tax Planning
| Taxpayer Type | Impact & Recommended Strategy |
|---|---|
| Businesses with big tax credits | Be mindful of the 70% limitation starting 2030—plan to use credits before the limitation takes effect, or structure incentive usage across years. |
| Small or mid-sized LLCs / LLPs entering their first year | Reduced annual minimum tax for 2027-2029 eases initial burden—use this window to plan entity formation timing. |
| Those using ABLE accounts | Ensure investments or contributions under ABLE meet both state & federal criteria moving forward. |
| Families with children born 2025-2028 | Trump Accounts pilots may also play a role under ABLE conformity. |
Example Scenarios
- A California LLC formed in 2027 will pay $400 minimum tax in its first year rather than $800. |
- A C-corporation using multiple state credits worth $10 million in 2031 may only use credits to offset up to 70% of tax—carryovers required for the rest. |
- A parent opening an ABLE or Trump‐linked account should check whether California recognizes the account structure & investment eligible at the state level. |
Bottom Line: California’s SB 122 / SB 180 bring big changes—expanding conformities and limiting credit usage. Businesses and pass-throughs should act now to structure credit eligibility, minimize tax liability, and take advantage of temporary benefits.