California Sends Newsom a Review of Its Biggest Business Tax Breaks; Colorado Puts a 4.4% Income Tax Cap on the Ballot

The bottom line today

California and Colorado spent the same week on the same question, what a state should do with its business tax base, and came out in opposite places. California’s Legislature sent the governor SB 1349, which tells the Legislative Analyst to grade six of the state’s largest business and investor tax breaks and say which to repeal [1, 3, 4]. In Colorado, a measure that would cap the corporate and individual income tax rate at 4.4% qualified for the November ballot [10, 11]. Pratt’s read: a study bill is cheap to pass and expensive to live with, because every employer that relies on those breaks now has to plan around a hearing date. Two smaller California bills deserve credit for fixing real paperwork problems.

CA California SB 1349: the Legislative Analyst grades six tax breaks

What it does. SB 1349, by Sen. Gonzalez, directs the Legislative Analyst’s Office to assess each “major tax expenditure,” publish a report and make a recommendation to the Legislature [1]. The bill names six: the water’s-edge election, the research credit, the stepped-up basis on inherited property, like-kind exchanges, the deduction for research and experimental costs, and the special apportionment for qualified cable operators [1]. The analyst must identify savings from reducing or limiting each break and weigh cost-effectiveness, the effect on the General Fund and Proposition 98, and the effect on jobs, wages and the economy, or else say whether the Legislature should repeal it [1]. Reports run from January 1, 2028, through a fifth and final report on January 1, 2032, with joint Revenue and Taxation hearings by August 15, 2028, and in later sessions [1]. The Franchise Tax Board, the Department of Tax and Fee Administration and the Employment Development Department must hand the analyst anonymized taxpayer data [1]. The provisions repeal January 1, 2033 [1].

Where it stands. The Assembly passed it 57-18 on August 20, and the Senate concurred 30-10 on August 24 [3, 4]. The governor has until September 30 to act on bills passed in the session’s last weeks [9].

Pratt’s read. The bill raises no tax by itself; the Franchise Tax Board says it would not change anyone’s tax computation [1]. The case for it is about oversight. The author says the state’s more than 100 tax expenditures cost $94 billion in general fund revenue in 2025-26, and that programs created before 2014 lack modern performance standards [2]. SEIU California argues that breaks which miss their goals take money from schools and safety-net programs [1].

The list is the problem. Five of the six are business provisions: how California taxes multinational groups, research spending, property exchanges and one industry’s apportionment. A water’s-edge election or a research credit is something a company builds a California footprint around, and the opponents (the California Chamber of Commerce, California Life Sciences and the California Taxpayers Association) say so [1]. CalTax warned the bill “would create significant uncertainty with respect to the future of the state’s tax structure and would adversely affect California’s ability to retain and attract jobs and investments” [1]. A biotech weighing where to put a lab will read a scheduled repeal recommendation as a risk, whatever the report eventually says.

California tried this before. SB 468 in the 2019-20 session would have created a review board, and the governor vetoed it, writing that “creating a new board to accomplish that goal is unnecessary” [1]. This version skips the board and hands the work to the analyst [1]. The Senate’s own Appropriations Committee noted the analyst could likely absorb the work but would be less able to serve other legislative requests [2].

CA California SB 1049: providers get 90 days to fix a claim

What it does. SB 1049, by Sen. Weber Pierson, requires a health plan or insurer that denies a claim, in whole or in part, or sends an overpayment notice because of a defect a corrected claim could fix, to give the provider at least 90 calendar days to submit the correction [6]. The plan may not reject that corrected claim for missing some other filing deadline, and disputes over corrected claims go through the plan’s existing dispute process [6]. The Assembly amendments added partial denials and let the Department of Managed Health Care, the Department of Insurance and the Department of Health Care Services issue guidance outside the Administrative Procedure Act [6].

Where it stands. Passed the Assembly 73-0 on August 20; the Senate concurred 32-6 on August 24 [3, 4, 6].

Pratt’s read. Credit where due. This is a bill about the cash flow of medical practices and hospitals, which are businesses too. The sponsors’ example: a Sacramento obstetrics practice was told 40 claims paid from June 2023 to February 2025 had been “paid incorrectly,” creating a $90,000 “overpayment” over a missing diagnostic code, and its corrections were then rejected as late [5]. The California Association of Health Plans and the Association of California Life and Health Insurance Companies argue the state already has a full provider-dispute framework and the bill will cause confusion over which deadline applies [5, 6]. That concern is fair, and the guidance authority is the right answer to it. The Department of Managed Health Care puts its cost at about $271,000 in 2026-27 [6].

CA California AB 2418: a private plan check when the city is slow

What it does. AB 2418, by Assemblymember Mark González, brings last year’s housing permit timelines to commercial projects [7]. As it left the Assembly, a building department had to give an estimated review time on a complete nonresidential permit application; if the estimate ran past 30 days, or 60 days for resubmitted plans, the applicant could hire a qualified private reviewer at its own expense, and the department then had 10 days to issue the permit or say what doesn’t comply [7]. Inspections of completed work would have to happen within 10 business days of notice, and cities that charge nonresidential permit fees must post the schedule online [7]. The applicant indemnifies the city [7]. According to Connect CRE, Senate amendments keep local authority over reviewer qualifications, project eligibility and the final permit decision [8].

Where it stands. The Senate passed it 38-0, and the Assembly concurred 76-0 on August 20 [3, 8].

Pratt’s read. This is the best bill of the week for employers. A restaurant buildout or a warehouse tenant improvement that sits in plan check for months costs rent with no revenue. NAIOP SoCal’s Stephane Wandel said projects that “should take weeks to review are instead taking several months” [8]. No opposition was on file in the Assembly’s analysis [7]. The cost of the shortcut falls on the applicant who chooses it, which is how it should be.

CO Colorado Initiative 232: a 4.4% ceiling, and a graduated tax waiting in line

What it does. Initiative 232 adds a statute providing that, starting January 1, 2027, “neither the individual income tax rate nor the corporate income tax rate may exceed 4.4%” of federal taxable income [11]. It is a statutory measure, sponsored by Advance Colorado [12, 13]. Initiative 195, from the Bell Policy Center and the Protect Colorado’s Future coalition, would replace the flat rate with six tiers, from 3.7% on the first $25,000 to 8.4% on income above $1 million [12].

Where it stands. The Secretary of State’s office qualified Initiative 232 on August 20 after a random sample of its 184,454 signatures projected valid signatures above 110% of the requirement [10]. Backers of Initiative 195 turned in about 157,000 signatures, and officials had not ruled on them as of Colorado Politics’ report [12].

Pratt’s read. A rate cap at the current rate costs the state nothing it collects today; it blocks an increase [13]. The graduated tax would raise about $2 billion a year for schools, health care and early childhood programs, its backers say, and would cut rates for filers earning under $100,000 [13]. Those are real goals. But the higher tiers start at $500,000, and the Colorado Sun describes them reaching corporations as well as people [12, 13]. Owners of pass-through firms would feel them on business profits, which is where a family manufacturer or a farm operation keeps its expansion money. If both pass, the one with more votes wins where they conflict, and the two sides already disagree about what survives [12].

On the calendar

Gov. Newsom has until September 30 to sign or veto SB 1349, SB 1049 and AB 2418 [9]. Colorado votes on Initiative 232 on November 3, with Initiative 195’s signature ruling still pending [10, 12]. If SB 1349 becomes law, the first report lands January 1, 2028 [1].