Douglas Andersen, Tax Partner | Juan Acevedo, Tax Manager

October 23, 2025

On October 1, 2025, California Senate Bill 711 (SB 711) was signed into law, marking a major step toward aligning the state’s Revenue and Taxation Code with the federal Internal Revenue Code. The legislation modernizes California’s tax framework by advancing its conformity date, adopting key federal provisions, and selectively decoupling from others to maintain the state’s fiscal independence.

What is California Senate Bill 711?

SB711 is a major legislative effort designed to align California's Revenue and Taxation Code (RTC) more closely with the federal Internal Revenue Code (IRC). By advancing California's conformity date and selectively adopting provisions from federal legislation—such as the Tax Cuts and Jobs Act of 2017 (TCJA), the Consolidated Appropriations Act of 2021, and the Inflation Reduction Act of 2022 (IRA)—the bill:

• Streamlines compliance for taxpayers and the Franchise Tax Board (FTB)
• Increases the efficiency of the tax preparation and filing process
• Minimizes discrepancies between state and federal tax computations

At the same time, SB 711 deliberately decouples from certain federal provisions to preserve California’s fiscal policies and revenue protections.

Key Conformity Updates

1. Updated Conformity Date:
1. Advances California's general conformity with the IRC from January 1, 2015 to January 1, 2025.
2. Applies to taxable years beginning on or after January 1, 2025.
3. The FTB must release a public analysis of the fiscal and administrative impacts of the conformity adjustments and submit findings to the Legislature.
2. Like-Kind Exchanges:
1. Conforms to federal restrictions under IRC Section 1031, limiting like-kind exchange deferrals to real property only.
2. For exchanges completed after January 10, 2019, but before January 1, 2025, income thresholds apply ($500,000 AGI for joint filers/heads of household/surviving spouses; $250,000 for other individuals).
3. For exchanges completed on or after January 1, 2025, thresholds are removed.
3. Research and Development (R&D) Credit:
1. Adopts the federal Alternative Simplified Credit (ASC) methodology, effective for taxable years beginning on or after January 1, 2025.
2. California provides a credit for qualified research expenses (QREs) exceeding 50% of the average QREs over the prior three taxable years at a rate of 3% (vs.  14% federally). Taxpayers with no QREs in the preceding three years have a credit rate of 1.3% (vs. 6% federally).
3. California retains the 15% credit for in-state QREs and 24% for basic research payments, but excludes conformity to IRC Section 41 (h) for qualified small businesses and certain TCJA amendments.
4. The state decouples from TCJA required amortization of research expenses under IRC Section 174, preserving immediate expensing for state purposes.
4. Interest Expense Limitation:
1. Decouples from the federal Section 163(j) business interest expense deduction limitation.
2. California continues to apply IRC Section 163 as of January 1, 2015, with no EBITDA-based cap on deductions, thereby allowing fuller deductibility of interest expenses for state tax purposes.
3. Ensures no state-level restrictions on carryforwards of disallowed business interest.
5. Corporate Alternative Minimum Tax (AMT):
1. California maintains its existing corporate AMT regime 7% rate (6.65% for banks/financial institutions) on alternative minimum taxable income (AMTI) exceeding the exemption amount.
2. Does not conform to the federal corporate AMT framework which imposes a 15% minimum tax on adjusted financial statement income for large corporations.  
6. Renewable Energy Provisions:
1. Declines conformity to new IRA renewable energy incentives, including provisions for production tax credits, investment tax credits, and clean energy manufacturing credits
2. Maintains California's independent energy-related tax incentives, avoiding federal elective payment or transferability options while maintaining state-specific credits and deductions.
7. Additional Decouplings- SB 711 also does not conform to:
1. IRC Section 199A (qualified business income deduction)
2. Certain TCJA amendments to long-term contract accounting

Next Steps for Taxpayers

Businesses and individuals with California filing obligations should:

• Assess how conformity and decoupling could impact state tax positions beginning in 2025.
• Stay alert for further FTB analysis and legislative developments.

Have Questions or Need Guidance?

If you have any questions regarding SB 711, its potential impact on your tax obligations, or further details on conformity updates and related provisions, please contact your HCVT state and local tax partners for personalized assistance.