California State Tax Updates

Our Dash of SALT Blog provides the most recent developments and changes in state and local tax regulations. Here are the latest updates for California.

January 14, 2026

California’s Battery-Embedded Waste Recycling Fee Now in Effect

Authored by: Bonnie Susmano, JD, MBA and Joe Petrucci

Effective January 1, 2026, California began requiring a Covered Battery-Embedded (CBE) Waste Recycling Fee on certain new or refurbished products sold or leased for use in California that contain a non-removable or embedded battery (i.e., not designed to be easily removed with commonly used household tools). The fee is 1.5% of the product’s retail sales price, capped at $15 per item, and retailers (including marketplace facilitators, where applicable) are generally required to register with CDTFA, collect the fee from customers at the time of the sale or lease, and separately state the fee on invoices. Returns and payments must be submitted and remitted in accordance with CDTFA requirements.

If you have any questions about California’s Embedded Battery Waste Recycling Fee, please reach out to a member of the Withum SALT Team.

October 27, 2025

California CDTFA Issues Updated Rule for Excise Tax Under Cannabis Sales

Authored by: Katerine Velasquez and Penny Sweeting, CPA

Effective October 2, 2025, the California Department of Tax and Fee Administration (CDTFA) issued a new rule clarifying the definition of “gross receipts from any retail sale by a cannabis retailer” for calculating the cannabis excise tax. The amended definition of cannabis includes all parts of the plant, such as Cannabis sativa, Cannabis indica, and Cannabis ruderalis. Previously, industrial hemp was excluded, but the amended definition now includes types of Cannabis sativa and any part of that plant with a total tetrahydrocannabinol concentration of no more than 0.3% on a dry weight basis. This definition is limited to agricultural products, including seeds, propagated plant material, immature or mature plants, harvested plants, fiber produced from the stalks, oil or cake made from the seeds of the plant, or any preparation that does not contain cannabinoids. The amended definition also outlines how to compute gross receipts from cannabis retail sales for excise tax purposes.

If you have questions about sales taxes, please reach out to a member of the Withum SALT Team.

September 16, 2025

California Adopts New Tax Rule for Sourcing Sales of Intangibles

Authored by: Brandon Spinella and Penny Sweeting, CPA

California’s Franchise Tax Board finalized new rules for taxing intangible asset sales, effective October 1, 2025, and applicable to tax years starting January 1, 2026. These rules clarify how businesses should assign sales of intangible items – like government contracts and asset management fees – when the location of the benefit is unclear. The changes stem from California’s shift to a single-sales-factor formula, which requires apportionment based on where the customer receives the service. The rules aim to simplify compliance, though the fiscal impact on the state remains uncertain.

If you have any questions about state market sourcing rules, please reach out to a member of the Withum SALT Team.

July 24, 2025

California Enacts Senate Bill 132 to Change Apportionment and PTET Rules

Authored by: Breea Boylan, CPA and Penny Sweeting, CPA

California Gov. Newsom enacted Senate Bill 132 on June 27, 2025, including two major changes for financial institutions and pass-through entities. Pursuant to SB 132, effective January 1, 2025, banking and financial institutions will use a single sales factor to calculate their California apportionment. Prior to January 1, 2025, banking and financial institutions used double-weighted sales apportionment. Due to the nature of the single sales factor, out-of-state banks and financial institutions that make loans to California borrowers may see their apportionment percentage increase significantly. It is recommended that they update their estimated tax requirements accordingly.

Additionally, SB 132 extends the elective pass-through entity tax from 2026 to 2030. In addition to the extension, the mandatory election deadline of June 15 for tax years effective 2026 was removed. If the June 15 payment is missed, qualified pass-through entities will still be eligible to make the election when they file their California return. Consenting owners will still be allowed to claim a credit; however, this credit will be reduced by 12.5% and interest and penalties may apply for the late payments.

If you have questions about California taxes, please reach out to a member of the Withum SALT Team.

June 24, 2025

California Reduces Tax Credits

Authored by: Katie Nguyen, CPA and Ryan Schupp

The California Competes Tax Credit Committee revoked or reduced approximately $76 million in tax credits from 24 companies for failing to meet hiring and investment commitments. One company lost a $20.5 million credit due to unfulfilled plans to create 1,065 jobs and $200 million in investments, while another lost a $10 million credit for not creating 320 jobs and $2.1 billion in investments. Meanwhile, the committee awarded $34 million in new credits to five companies with the expectation of meeting their goals.

This action, part of the final round of awards for the fiscal year ending June 30, reflects a trend of credit cancellations outpacing new awards, resulting in a $645 million program surplus. Established in 2014 to incentivize job creation in California, the California Competes program requires companies to meet commitments before claiming credits. According to program officials, despite ongoing applications, few companies can prove the credits significantly influence their expansion decisions. While California Competes seeks to make California an attractive state where to do business, taxpayers are obligated to meet (or exceed) their commitments to obtain the credits granted.

If you have questions about state incentives, please reach out to a member of the Withum SALT Team.

April 1, 2025

California: San Francisco Tax Collector Proposes Market-Based Sourcing for Business Tax

Authored by: Jessie Racioppi, MS and Katie Nguyen, CPA

On April 8, 2025, the San Francisco Tax Collector will hold a public hearing to discuss a market sourcing proposal for Business Tax. “Proposition M” approved by taxpayers on November 5, 2024, which restructured many aspects of San Francisco Business Tax, required the Tax Collector to issue additional guidance on how businesses must allocate their receipts. The proposal is similar to a recent California Franchise Tax Board (FTB) proposal. The Tax Collector proposes market-based sourcing and allows a Reasonable Approximation method of sourcing for taxpayers who do not have a customer billing address or a customer commercial domicile location.

If you have questions about San Francisco taxes, please reach out to a member of the Withum SALT Team.

March 27, 2025

California Governor Provided Property Tax Relief From Palisades Fire

Authored by: Brian Meier, MSA and Penny Sweeting, CPA

The California Franchise Tax Board (FTB) recently summarized several key tax legislation changes enacted in 2024. Notably, there is a three-year suspension of net operating losses (NOLs) and a cap on certain business tax credits, limiting them to $5 million annually. This suspension applies to taxable years from January 1, 2024, to January 1, 2027. However, businesses with net incomes under $1 million or disaster loss carryovers are exempt from the suspension. The carryover period for suspended losses is extended by up to three years, depending on when the losses were incurred. Additionally, businesses can elect to receive a refundable credit for disallowed credits due to the $5 million cap, spread over five years. If not elected, these credits can be carried over with an extended period.

If you have questions about California state tax credits and NOL treatment, please reach out to a member of the Withum SALT Team for more information. 

March 5, 2025

California Governor Provided Property Tax Relief From Palisades Fire

Authored by: Chao Zhang and Katie Nguyen, CPA

California Governor Gavin Newsom issued an executive order that stops penalties, costs, and interest on late property tax payments for properties damaged by the Palisades Fire. The relief suspends interest, penalties and costs until April 10, 2026, for property owners who were current on their property taxes as of January 7, 2025 (the date the State of Emergency was declared). Property owners delinquent on or before January 6, 2025, are not eligible for relief.

If you have questions about state tax disaster relief provisions, please reach out to a member of the Withum SALT Team.

January 30, 2025

California Governor Backs More Film Credit Funds, SALT Cap Workaround

Authored by: Brandon Spinella, Brian Meier, MSA and Courtney Easterday, MSA

California Governor Gavin Newsom’s fiscal 2026 budget proposes significant changes, including increased incentives for the movie industry, an extension of the SALT cap workaround, and the adoption of single-sales-factor apportionment for financial institutions. The budget also proposes to partially exclude military retirement benefits from state income tax and broadly exempt wildfire settlements from taxation for the next four years. The plan includes $228.9 billion in general fund spending and $322.3 billion in total spending. Newsom’s proposal to expand the film and television tax credit is expected to initially reduce revenues but bolster California’s entertainment industry. The application of single-factor sales apportionment to financial institutions is projected to increase state tax revenues. The budget seeks to extend the state’s workaround on state and local tax deductions beyond the scheduled 12/31/2025 sunset.

If you have questions about state tax changes, please reach out to a member of the Withum SALT Team.

January 30, 2025

California Governor Newsome’s Budget Proposal Contains Significant Changes

Authored by: Jessie Racioppi and Penny Sweeting, CPA

California’s 2026 fiscal year budget proposes to increase the annual cap of the State’s film and television credit to $750 million beginning in 2026 through fiscal year 2030. The current annual cap is $330 million. Governor Gavin Newsom proposed to increase the credit to further support the entertainment industry, which has a large presence within the state. Governor Newsom also proposed to extend the pass-through entity tax election, allowing owners of pass-through entities to make state tax payments at the entity level to work around the federal $10,000 state and local tax deduction cap. The budget also includes a proposal to change the apportionment formula for financial institutions from three-factor apportionment to single sales factor apportionment beginning with tax year 2025. For more details, please review the State’s Governor’s Budget Summary.

If you have questions about how state budgets affect your business, please reach out to a member of the Withum SALT Team.

December 3, 2024

San Francisco: Proposition M Leads to Changes in Business Taxes

Authored by: Katie Nguyen, CPA and Ryan Schupp

On November 6, 2024, San Francisco voters passed Proposition M, which will lead to important changes to the city’s business taxes by simplifying the tax compliance process and alleviating the tax burden on small businesses. Proposition M changes include changes to the gross receipts tax, homelessness gross receipts tax, overpaid executive gross receipts tax, administrative office tax, and business registration fees. Proposition M also increases business tax exemptions and changes how the city calculates taxes. In addition, the San Francisco Office of the Treasurer and Tax Collector must establish an advance-determination process to provide written guidance to taxpayers. These changes go into effect on January 1, 2025.

If you have any questions about this update, please contact the Withum SALT Team.

November 7, 2024

San Fransico Gross Receipts Tax Ballot Initiatives

Authored by: Katerine Velasquez and Penny Sweeting, CPA

The San Francisco voters could significantly change the city’s Gross Receipts Tax if either Ballot Measures L and/or M pass. Proposition L would add an additional tax on ride-share companies and transportation service providers using autonomous vehicles. The additional transportation tax would range from 1.5% to 4.5% of the business’s gross receipts exceeding $500,000. Proposition M will reduce the city’s gross receipts tax rate classifications from fourteen (14) to seven (7). Additionally, Proposition M will raise the gross receipts tax rates from 0.053% to 1.008% to 0.1% to 3.716%.

If you have questions about whether your business may be affected by Propositions M or L, please contact a member of the Withum SALT Team.

November 4, 2024

California Introduces Tax Regulation for Sourcing Sales of Intangible Assets

Authored by: Breea Boylan, CPA and Courtney Easterday, MSA

On September 29, 2024, California Gov. Newsom enacted SB No. 946. Beginning on or after taxable periods January 1, 2024, and before January 1, 2029, California will allow for an exclusion from gross income for amounts received by a qualified taxpayer as a California-qualified wildfire loss mitigation payment. The following definitions apply:

California-qualified wildfire loss mitigation payment: any amount which is received through the California Wildfire Mitigation Financial Assistance Program under Article 16.5 (commencing with Section 8654.2) of Chapter 7 of Division 1 of Title 2 of the Government Code for the benefit of a residential property owner or occupant with expenses paid, or obligations incurred, for wildfire loss mitigation.
Qualified taxpayer: a taxpayer that owns the structure for which a California-qualified wildfire loss mitigation payment was received.
Wildfire loss mitigation: an activity that reduces wildfire risks to a residential structure, its contents, or both.

If you have questions about California taxes, please reach out to a member of the Withum SALT Team.