Tax Insight

California proposal disallows credits for contractors with private detention facilities and immigration enforcement agencies

Insight
5 minute read
September 23, 2026

Update: the proposal below was vetoed by Governor Gavin Newsom on September 30, 2026.

What happened?

Proposed legislation sent to California Governor Gavin Newsom (D) on September 3 would restrict grants and loans and disallow tax credits for an entity that is directly invested in, owns, operates, or manages a private detention facility or that contracts to provide "covered services" to an out-of-state or federal agency engaging in immigration enforcement including certain technologies, transportation services, and supplies. The credit disallowance would apply to tax years beginning on or after January 1, 2027, for publicly traded companies providing covered services that have a market capitalization of at least $150 billion or entities that are related to such a publicly traded company.

[A.B. 2465, enrolled and presented to the Governor, 9/3/2026]

Why is it relevant?

The credit disallowance could apply broadly, reaching many suppliers, technology providers, and security contractors. The credit disallowance could result in an entire combined group becoming ineligible for any tax credit benefit in years in which any member of a group is disqualified for providing covered services.

Actions to consider

Taxpayers should consider that they may fall within the scope of the proposal even though they provide services to agencies outside the state. Governor Newsom has until September 30 to sign the proposed legislation, veto it, or allow it to become law on October 1 without his signature. Impacted businesses should monitor for the Governor's action on the proposed legislation by the end of September.