Personal Income Tax Law: Corporation Tax Law: sale of net operating losses.
Should AB 1105 be enacted, it will have a significant effect on state laws governing the treatment of net operating losses for tax purposes. From January 1, 2024, until January 1, 2029, amounts received from the sale of these losses will be excluded from gross income for tax filings, encouraging more businesses to utilize this strategy for economic sustainability. The legislation reflects a broader commitment to support California's startup ecosystem and combat the monopolization trends within the tech industry by enhancing competition. Furthermore, the bill mandates the Franchise Tax Board to establish and oversee a program for startups to apply for the sale of their losses, helping ensure compliance and monitoring of the implementation.
Assembly Bill 1105, introduced by Assembly Member Petrie-Norris, aims to amend sections of the California Revenue and Taxation Code to allow startup innovators to sell their net operating losses to unrelated taxpayers. This legislation seeks to provide financial relief to innovative businesses, enabling them to convert losses into capital that can support their growth and sustain operations during challenging periods. The bill stipulates that the sale price of the net operating loss must be at least 80% of its value, and that a startup innovator can sell a maximum of $20 million worth of losses in total. The initiative is designed to foster a more dynamic economic environment in the science, technology, engineering, and math (STEM) sectors.
Overall sentiment regarding AB 1105 appears to be positive among proponents, who argue that it offers vital support for startups that often face liquidity challenges. They view it as a progressive step towards nurturing innovation and entrepreneurship within California's economy. However, there are concerns from competing businesses regarding the implications of such tax relief measures, which might grant certain startups an unfair advantage over others. Critics may also worry that the sale of net operating losses could lead to revenue losses for the state in the long term, although advocates argue that increased growth and job creation could offset these potential downsides.
Key points of contention around AB 1105 include the long-term fiscal implications for state tax revenues, as well as concerns related to the enforcement of the bill's provisions. Critics may question whether the limitations on the aggregate sale of net operating losses are adequate to prevent potential abuses of the system. The bill incorporates aspects that expand perjury laws, aiming to enforce compliance for innovators who certify that the proceeds from sold losses will only be used for specific purposes. This creates an additional layer of regulatory oversight, which may generate discussion regarding the balance of trust versus verification in legislative processes for economic initiatives.