State Tax Day - Current, S.2, California—Multiple Taxes: Business Tax Credits Limitation Extended, Minimum Franchise Tax Reduced for New LLCs/LPs/LLPs, (Jul 2, 2026)
California has enacted legislation that:
extends the current limitation on business tax credits through tax year 2029;
establishes a new limitation on business tax credits beginning in tax year 2030;
reduces the minimum franchise tax for new limited liability companies (LLCs), limited partnerships (LPs), and limited liability partnerships (LLPs) for tax years 2027 through 2029; and
imposes a new tax on any federal Anti-Weaponization Fund payments for tax years 2026 through 2029.
Business tax credits limitation
The current $5 million per year limitation on the amount of business tax credits that a taxpayer may claim under the corporate tax law or personal income tax law is extended for an additional three years, through tax year 2029. Existing provisions allowing a taxpayer to make an election to receive a refundable credit in later years for the amount of business tax credits over the $5 million cap are also extended.
Beginning in tax year 2030, a new permanent business tax credit limitation applies. The new limit will be $5 million per year or 70% of a taxpayer’s tax liability, whichever is greater.
Exceptions to the limitations are provided for certain refundable credit amounts.
Minimum franchise tax
For tax years 2027 through 2029, the annual minimum franchise tax for LLCs, LPs, and LLPs is reduced from $800 to $400 for an entity’s first tax year.
Tax on federal Anti-Weaponization Fund payments
For tax years 2026 through 2029, California will impose a 100% tax on any settlement fund payments received by taxpayers from the Anti-Weaponization Fund established by the federal Department of Justice or any similar fund, settlement, or agreement. The tax would be imposed in addition to, and not in place of, any corporate tax or personal income tax.
Sales and use tax changes
Sales and use tax changes made by the legislation are separately reported.
Ch. 23 (S.B. 122), Laws 2026, effective June 29, 2026, and applicable as noted