Blab Tech
Californias Life-Science Sector Opposes Gov. Newsoms Proposed Corporate Tax Credit Cap
The state’s life‑science community has formally lodged a protest against Gov. Gavin Newsom’s latest fiscal initiative: a permanent ceiling on California’s corporate tax credits. Set to bite in the 2027 tax year, the cap would trim the yearly amount a company can claim—most notably the research and development (R&D) credit that fuels biotech innovation.
California’s Finance Department argues the measure would pull a few billion dollars from the coffers each year without hurting small firms. Yet the proposal is part of a broader push to shore up corporate tax revenue. The state’s franchise tax sits at 8.84%, a decline from 9.6% in 1980 and 9.3% in 1987. With the economy ranking among the world’s top five, the impact would fall hardest on the handful of fewer than 100 major corporate taxpayers.
According to the Legislative Analyst’s Office (LAO), the cap would reduce the R&D credit and could generate roughly $3.5 billion annually under the present system. LAO economist Rowan Isaaks told a budget subcommittee that lawmakers were skeptical about whether the credits actually spur new research. “These companies were going to do this R&D anyway,” he said.
The LAO’s own model projects the cap raising $850 million in 2026‑27 and between $1.7 billion and $1.8 billion each year from 2027‑28 through 2029‑30.
Life‑science firms argue the cap would erode a sector that injects almost $400 billion into California’s economy. Sam Chung, senior vice president for government relations at California Life Sciences, warned that the industry’s “global biomedical leadership is not guaranteed” and that “all these bills take a chunk of flesh out of our leadership.” He added that drug development demands significant time and capital, and a reduction in R&D credits could prompt companies to relocate to states with friendlier incentives.
Darien Shanske, a UC Davis law professor who helped draft the billionaire tax proposal, expressed doubt that other states’ tax credits would outstrip California’s. He cited the state’s education system and other benefits that lure researchers. Tim Scott, president and chief executive of Biocom, cautioned that “reducing R&D tax credits could threaten hiring.” He noted that the life‑science industry employs more than 336,000 people directly and about one million indirectly, with the Bay Area alone hosting 107,000 direct jobs in 2025.
Opponents of the cap point out that the credit would not vanish—it would simply be capped at $5 million or 50 percent of a company’s tax, whichever is greater, and would not apply to net operating losses. Shanske said the credit has allowed companies to “stockpile” credits for past research, effectively avoiding tax. The LAO estimate of a $3.5 billion annual check reflects this practice.
The proposal has attracted criticism from lawmakers across the aisle. On May 22, 50 assembly members wrote to Assembly Speaker Robert Rivas and Senate Pro Tem Monique Limon, stating, “The answer to the state’s long‑term budget challenges is not to weaken the sectors driving California’s economy and generating state revenues.” A separate letter from 33 Democrats and 17 Republicans warned that limiting R&D incentives “may generate short‑term budgetary gains, but risks long‑term economic consequences.”
The Assembly is reviewing the proposal. Nick Miller, spokesperson for Rivas, said the Assembly is taking a close look at the governor’s proposals. Senate Budget and Fiscal Review Committee chair John Laird added, “California’s innovation economy is enormously important, but we’re also facing significant fiscal challenges.”
The cap is part of a series of measures aimed at increasing corporate tax revenue, including a potential November ballot initiative to tax billionaires. The life‑science industry—who led the nation in venture‑capital funding for the sector in 2025—views the cap as a new regulatory curveball that could erode its competitive advantage.
The outcome of the legislature’s deliberations remains uncertain. The industry and its allies continue to lobby for a repeal or modification of the cap, while the state government maintains that the measure is necessary to ensure larger corporations pay a minimum level of tax without affecting small businesses.
California’s Finance Department argues the measure would pull a few billion dollars from the coffers each year without hurting small firms. Yet the proposal is part of a broader push to shore up corporate tax revenue. The state’s franchise tax sits at 8.84%, a decline from 9.6% in 1980 and 9.3% in 1987. With the economy ranking among the world’s top five, the impact would fall hardest on the handful of fewer than 100 major corporate taxpayers.
According to the Legislative Analyst’s Office (LAO), the cap would reduce the R&D credit and could generate roughly $3.5 billion annually under the present system. LAO economist Rowan Isaaks told a budget subcommittee that lawmakers were skeptical about whether the credits actually spur new research. “These companies were going to do this R&D anyway,” he said.
The LAO’s own model projects the cap raising $850 million in 2026‑27 and between $1.7 billion and $1.8 billion each year from 2027‑28 through 2029‑30.
Life‑science firms argue the cap would erode a sector that injects almost $400 billion into California’s economy. Sam Chung, senior vice president for government relations at California Life Sciences, warned that the industry’s “global biomedical leadership is not guaranteed” and that “all these bills take a chunk of flesh out of our leadership.” He added that drug development demands significant time and capital, and a reduction in R&D credits could prompt companies to relocate to states with friendlier incentives.
Darien Shanske, a UC Davis law professor who helped draft the billionaire tax proposal, expressed doubt that other states’ tax credits would outstrip California’s. He cited the state’s education system and other benefits that lure researchers. Tim Scott, president and chief executive of Biocom, cautioned that “reducing R&D tax credits could threaten hiring.” He noted that the life‑science industry employs more than 336,000 people directly and about one million indirectly, with the Bay Area alone hosting 107,000 direct jobs in 2025.
Opponents of the cap point out that the credit would not vanish—it would simply be capped at $5 million or 50 percent of a company’s tax, whichever is greater, and would not apply to net operating losses. Shanske said the credit has allowed companies to “stockpile” credits for past research, effectively avoiding tax. The LAO estimate of a $3.5 billion annual check reflects this practice.
The proposal has attracted criticism from lawmakers across the aisle. On May 22, 50 assembly members wrote to Assembly Speaker Robert Rivas and Senate Pro Tem Monique Limon, stating, “The answer to the state’s long‑term budget challenges is not to weaken the sectors driving California’s economy and generating state revenues.” A separate letter from 33 Democrats and 17 Republicans warned that limiting R&D incentives “may generate short‑term budgetary gains, but risks long‑term economic consequences.”
The Assembly is reviewing the proposal. Nick Miller, spokesperson for Rivas, said the Assembly is taking a close look at the governor’s proposals. Senate Budget and Fiscal Review Committee chair John Laird added, “California’s innovation economy is enormously important, but we’re also facing significant fiscal challenges.”
The cap is part of a series of measures aimed at increasing corporate tax revenue, including a potential November ballot initiative to tax billionaires. The life‑science industry—who led the nation in venture‑capital funding for the sector in 2025—views the cap as a new regulatory curveball that could erode its competitive advantage.
The outcome of the legislature’s deliberations remains uncertain. The industry and its allies continue to lobby for a repeal or modification of the cap, while the state government maintains that the measure is necessary to ensure larger corporations pay a minimum level of tax without affecting small businesses.
