California Net Operating Loss (NOL) Suspension

On June 29, 2020, California’s Governor Newsom signed Assembly Bill-85 suspending CA net operation loss utilization for tax years 2020, 2021, and 2022. The suspension however would not apply to any taxpayer with a net business income of less than $1million. The existing 20 year carry-forward for NOLs (10 years for losses incurred in 2000-2007 tax years) would be extended for up to three years if losses are not used due to the NOL suspension.

The bill also limits the use of business tax credits for the tax years 2020-2022. The maximum tax credit that can be used for these years cannot be more than $5 million.

So if you are a startup that had taxable income of more than $1 million in 2020, and do not have any credits this year, do plan for an outflow of cash for California taxes!

For details check out the Franchise Tax Board website.