SB 132 mandates that financial institutions use a single sales factor formula for apportioning business income for California franchise/income tax purposes starting 1 January 2025.
California Governor Gavin Newsom signed SB 132 on 27 June 2025, a budget trailer bill that changes how financial institutions apportion business income for California franchise/income tax purposes.
Effective for tax years starting 1 January 2025, financial institutions must now use a single sales factor formula instead of the previously required three-factor formula.
Historically, businesses with over 50% of gross receipts from “qualified business activities,” including savings, loans, and banking, used an equally weighted three-factor formula.
SB 132 removes savings, loans, and banking activities from the “qualified business activities” definition.
However, the Franchise Tax Board’s special sourcing rules for banks and financial institutions (CCR 25137-4.2) remain in effect for now.
