Governor Signs Tax Conformity as Part of State Budget.

With the passage of the California budget in June, Gov. Newsom also signed Assembly Bill 91 into law. The Loophole Closure and Small Business and Working Families Tax Relief Act of 2019 selectively conforms to provisions of the 2018 Tax Cuts and Jobs Act and expands the current California Earned Income Tax Credit (EITC). The expanded credit increases the income range for those that qualify for the EITC and the credit amount available for certain taxpayers. To offset the expanded credit, the bill selectively conformed parts of the state tax code to recent federal tax code changes, which is anticipated to increase revenues by approximately $1.6 billion. Outlined below are the areas of conformity:

* Achieving a Better Life Experience (ABLE) Accounts: Eliminates differences in qualification criteria for ABLE accounts between federal and California tax law to increase contribution limits and allow taxpayers to roll-over Section 529 plans to ABLE accounts.

* Student Loan Debt: Excludes from an individual's gross income the amount of student loan indebtedness discharged after Dec. 31, 2017, due to death or disability of the student.

* Federal Deposit Insurance Corporation (FDIC) Premiums: Limits the amount banks may deduct for FDIC premiums paid by disallowing deductions entirely for depository banks with assets above $50 billion, and limits them for banks with assets between $10 billion and $50 billion.

* Excess Employee Compensation: With respect to compensation in excess of $1 million, revises the definition of covered employee and publicly held corporation to limit the amount that may be deducted for ordinary and necessary expenses. Additionally, disallows the performance-based compensation and commission exceptions with respect to the deduction limitation.

* Net Operation Loss (NOL) Carrybacks: Repeals the ability for taxpayers to carry back NOLs to previous taxable years.

* Small-Business Accounting Simplification: Increases the following thresholds to conform with federal law:

1. From $5 million to $25 million the amount of average annual gross receipts of a small business to be allowed to use the cash method of accounting;

2. From $10 million to $25 million the average annual gross receipts of a taxpayer exempt from provisions precluding the deductibility of certain property costs and determining whether those costs are inventory costs or are capitalized; and

3. Exempts a small business with average annual gross...