SB 220: New Tax Increases and Relief Proposal

On May 25, the Senate Budget and Fiscal Review Committee gutted-and-amended Senate Bill 220 to put forth their tax reform package, which has received opposition from Governor Gavin Newman and would require a 2/3 vote of each house.

Section 1 of the bill would add Chapter 6.3 (commencing with Section 6630) to Division 7 of Title 1 of the Government Code. Chapter 6.3 would be titled “Critical Needs Fund” and would create this fund in the State’s Treasury for the purpose of funding schools, providing childcare services, helping struggling hospitals, and reducing homelessness. The Controller, at the direction of the Department of Finance, would transfer annually the estimated about of net revenues derives from the tax increases that would be imposed by SB 220.

Section 2 of the bill would amend Revenue and Taxation Code Section 17052 regarding the earned income tax credit to allow the credit for an eligible individual to be $275 after January 1, 2023 if the amount of credit computed for an eligible individual is less than $275. This amount would be recomputed annually in the same manner as the recomputation of income tax brackets.

Section 3 of the bill would amend Revenue and Taxation Code Section 17053.5 regarding the renter’s tax credit to make the credit worth $250 if the qualified renter does not have dependents or $500 if the qualified renter has one or more dependents, beginning January 1, 2023. After January 1, 2024, the credit amounts would be recomputed annually by the Franchise Tax Board in a specified manner in order to adjust for the percentage change in the California Consumer Price Index.

Section 4 of the bill would amend Revenue and Taxation Code Section 17053.75 regarding the workers’ tax credit for dues paid to a labor organization by providing that, after January 1, 2024, the workers’ tax credit adjustment factor is 0% and the dollar amount allowed is $0 for each taxable year unless otherwise specified in the annual Budget Act. The bill would also repeal the legislative intent statement that the annual revenue loss resulting from the credit should be limited to no more than $400 million.

Section 5 of the bill would amend Revenue and Taxation Code Section 23151 regarding the corporate tax rate of 8.84%. For January 1, 2023, the rates would be:

In any taxable year in which the federal corporate tax rate is 32.85 percent or greater, the tax for taxable income over $1.5 million would be computed at a rate of 8.84 percent.

Section 6 of the bill would amend Revenue and Taxation Code Section 23153 regarding the minimum franchise tax of $800 by reducing it to $600 beginning January 1, 2023.

Section 7 of the bill would amend Revenue and Taxation Code Section 23802 regarding the “S” corporation tax rate of 1.12%. For January 1, 2023, the rates would be:

Section 8 of the bill would provide legislative findings and declarations that it is not a gift of public funds to compensate low- and middle-income renters for the increasing rates of rent throughout the state by restructuring the renters tax credit. Section 9 of the bill would provide a legislative finding and declaration that it is not a gift of public funds to assist individuals with the cost of being a member of a union for the worker tax credit. Section 10 of the bill would provide that SB 220 is a bill related to the Budget Bill would take effect immediately.