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As of January 1, 2025, California has significantly reshaped the state tax landscape for financial institutions. A new law replaces the long-standing three-factor apportionment formula with a mandatory single sales factor approach. In this episode of PwC’s Financial Services audiocasts, Denise Schwieger and Ben Muilenburg break down the implications for financial institutions, outline potential tax liabilities, and emphasize strategic steps to mitigate risks and capture potential benefits.
Key takeaways
- Effective 2025, financial institutions in California must use single sales factor apportionment—based solely on California sales.
- The three-factor formula (property, payroll, sales) is no longer permitted for banks and financial corporations.
- Institutions with out-of-state operations may face increased California tax liability.
- Firms with in-state infrastructure may see tax savings under the new model.
- California projects a $330M revenue boost in fiscal year 2025–26, with ongoing increases of $250M annually.
- Financial institutions should begin now to model the tax impact and adjust provision estimates for 2025.
- Strategic considerations include reviewing sourcing methodologies, coordinating with stakeholders, and assessing operational structure.
Segmented topics with timestamps:
- 0:00 - Introduction by Denise Schwieger
- 0:33 - Overview of the new California tax legislation
- 0:50 - Explanation of the shift to single sales factor
- 1:26 - Impact on financial institutions with varying footprints
- 1:56 - California's projected financial gain from the change
- 2:20 - Immediate application and urgency for 2025 tax years
- 2:39 - Strategic steps for tax modeling and risk management
- 3:13 - Summary of implications for banks and action needed
- 3:45 - Closing remarks and reminder to stay informed
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