The proposal includes a shift to a single-sales-factor apportionment for financial institutions, aiming to increase tax revenue starting in tax year 2025.
On January 10, 2025, California Governor Gavin Newsom released his January Budget Proposal for the 2025 – 2026 fiscal year. Notably, Governor Newsom’s budget would increase tax revenue by requiring banks and financial corporations to move from an equally weighted three-factor formula, comprising property, payroll and sales factors, to a single-sales-factor formula for purposes of apportioning income to the state. Agricultural and extractive businesses would continue to use the three-factor formula. The proposed change would take effect immediately, beginning with tax year 2025. A copy of the trailer bill is available here.
Between February and May, budget subcommittees in California’s Senate and Assembly will hold hearings to review the proposed budget in depth. Governor Newsom must release a revised budget by May 14, and the California legislature is constitutionally required to pass the budget by June 15. Stay tuned as the budget proposal moves through the legislative process in the coming months.
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