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California Tax Updates for 2025: What You Need to…

As we move through 2025, several significant tax changes are taking effect in California, impacting residents, businesses, and local governments. Here’s a comprehensive overview of the key updates:

🏛️ Statewide Tax Policy Changes

1. Proposition 35: Managed Care Organization (MCO) Tax Reform

Approved by voters in November 2024, Proposition 35 modifies the use of revenue from the MCO tax. Historically utilized to offset General Fund spending on Medi-Cal, the amount available for this purpose has been reduced and will decrease further starting in 2027. ​California Budget and Policy Center+1Politico+1

2. Business Tax Credit Limitations

For tax years 2024 through 2026, businesses with at least $1 million in profits face two significant changes:​California Budget and Policy Center

• A cap of $5 million on the use of tax credits.​Stees, Walker & Company, LLP Blog+10California Budget and Policy Center+10CalChamber Advocacy+10

• Suspension of deductions for prior-year losses (net operating losses or NOLs).​California Budget and Policy Center

These measures are projected to increase state revenues by $5.5 billion in 2025-26. ​California Budget and Policy Center

3. Shift to Single-Sales-Factor Apportionment for Financial Institutions

Starting in tax year 2025, California proposes a shift to a single-sales-factor apportionment method for financial institutions. This change aims to increase tax revenue by basing taxation solely on sales within the state, rather than a combination of sales, property, and payroll. ​Pillsbury Law

🏙️ Local Sales and Use Tax Adjustments (Effective April 1, 2025)

Several cities and counties have implemented new sales and use tax rates:​CDTFA+1Tax Foundation+1

• Sonoma County: Extended an existing 0.25% countywide tax to March 31, 2045, and added a new 0.25% countywide tax following the approval of Measure I in November 2024.​CDTFA

• City of Clovis (Fresno County): Approved a new 1.00% citywide tax, increasing the total tax rate from 7.975% to 8.975%.​CDTFA

• City of Seal Beach (Orange County): Implemented a new 0.50% citywide tax, raising the total tax rate from 8.75% to 9.25%.​

• City of Sierra Madre (Los Angeles County): Measure A repealed a previous 0.25% countywide tax and introduced a new 0.50% countywide tax, adjusting the total tax rate accordingly.​CDTFA

These changes reflect local efforts to increase revenue for community services and infrastructure projects. ​Politico+1California Budget and Policy Center+1

🎬 Film and Television Tax Credit Expansion

Governor Gavin Newsom’s 2025–26 budget proposal includes a significant increase in the California Film and Television Tax Credit program. The annual tax credit cap is proposed to rise from $330 million to $750 million for fiscal years 2025 through 2030. This expansion aims to retain and attract film and television productions within the state, countering competition from other regions offering more lucrative incentives. ​CalChamber Advocacy+1Business Insider+1

🔥 Tax Relief for Wildfire-Affected Residents

In response to the devastating wildfires in Los Angeles County, the IRS has announced tax relief measures for affected individuals and businesses. Those impacted have until October 15, 2025, to file returns and pay any taxes originally due during this period. This extension provides much-needed flexibility for residents recovering from the disasters. ​AARP States+2IRS+2CalMatters+2

📅 Key Tax Filing Deadlines

• General Deadline: April 15, 2025, is the standard deadline for filing both California state and federal tax returns.​AARP States

• Extended Deadline for Wildfire Victims: Residents in areas affected by the January wildfires have until October 15, 2025, to file their returns. ​AARP States

Interest Rates Remain the Same for the Third Quarter…

IR-2017-104, June 9, 2017

WASHINGTON ― The Internal Revenue Service today announced that interest rates will remain the same for the calendar quarter beginning July 1, 2017.  The rates will be:

• four (4) percent for overpayments (three (3) percent in the case of a corporation);
• 1 and one-half (1.5) percent for the portion of a corporate overpayment exceeding $10,000;
• four (4) percent for underpayments; and
• six (6) percent for large corporate underpayments.

Under the Internal Revenue Code, the rate of interest is determined on a quarterly basis.  For taxpayers other than corporations, the overpayment and underpayment rate is the federal short-term rate plus 3 percentage points.

Generally, in the case of a corporation, the underpayment rate is the federal short-term rate plus 3 percentage points and the overpayment rate is the federal short-term rate plus 2 percentage points. The rate for large corporate underpayments is the federal short-term rate plus 5 percentage points. The rate on the portion of a corporate overpayment of tax exceeding $10,000 for a taxable period is the federal short-term rate plus one-half (0.5) of a percentage point.

The interest rates announced today are computed from the federal short-term rate determined during April 2017 to take effect May 1, 2017, based on daily compounding.

Revenue Ruling 2017-13, announcing the rates of interest, is attached and will appear in Internal Revenue Bulletin 2017-26, dated June 26, 2017.