California Moves Toward Federal Tax Code Conformity for the First Time in a Decade

On May 28, 2025, the California Senate took a major step toward aligning the state’s tax laws with federal tax code changes by unanimously passing a federal conformity bill — the first such overhaul in nearly a decade.

This legislation, which still needs approval from the State Assembly and Governor Newsom, aims to incorporate over 1,000 federal tax changes made since 2015 into California’s Revenue and Taxation Code. The move is expected to simplify tax compliance, reduce administrative burden, and improve consistency for both individual and business taxpayers operating in the state.

Where Do Things Currently Stand?

California has long stood out as a "non-conforming state", meaning its tax laws do not automatically update to reflect changes in the federal Internal Revenue Code (IRC). Instead, the state selectively conforms by passing separate legislation.

As a result, tax preparers and filers have had to navigate a dual system — one for federal taxes and another for state taxes, often with different rules on:

• Depreciation schedules

• Qualified business income deductions

• Net operating loss rules

• Research & development credits

  
  

This creates unnecessary complexity and often leads to confusion, delayed filings, and costly errors — especially for businesses operating in multiple states.

What Does the New Bill Propose?

The bill (designated SB 711 pending assignment) proposes a sweeping alignment with federal tax changes made from 2015 through 2024, including:

• Revisions from the Tax Cuts and Jobs Act (TCJA)

• Updates from the CARES Act and Inflation Reduction Act

• Changes related to bonus depreciation, business interest limits, and pass-through deductions

  
  

It also includes transition rules and safe harbors to help taxpayers manage the change.

Why This Matters to CPAs and Tax Professionals

If passed, this conformity bill would make California's tax system:

• More predictable for multistate businesses

• Easier to reconcile with federal tax returns

• Less error-prone, especially in areas like depreciation and credits

  
  

For tax professionals, it may significantly reduce the need for manual state-level adjustments and allow for more streamlined software automation and client education.

What’s Next?

• The bill now moves to the California State Assembly

• If passed, it will require signature from Governor Gavin Newsom

• The new rules would apply starting with the 2025 tax year

  
  

Lawmakers have signaled bipartisan support, but implementation details — particularly around transition guidance and affected provisions — are still under discussion.

Final Thoughts

California’s long-awaited move toward federal tax conformity could be a game-changer for tax compliance in the state. It’s also a reminder that while federal laws set the tone, state-level adoption remains critical in shaping the tax landscape for businesses and individuals alike.

At Bizora AI, we’re monitoring conformity legislation across all 50 states to keep your firm ahead of what’s changing — and how it impacts the returns you file every day.