Key tax and policy developments from January include budget issues, an update on Florida’s challenge to California’s tax apportionment rules, energy and climate updates, and proposed changes to the state’s antitrust law.
Revenue and Budget
AI-Driven Capital Gains Help Narrow Budget Deficit
Governor Gavin Newsom’s recently released 2026–27 state budget projects a modest deficit (approximately $2.9 billion) and includes revenue adjustments based on updated economic forecasts. Stronger-than-expected personal income tax receipts tied to tech and AI-related market gains helped narrow the deficit. At the same time, the Legislative Analyst’s Office and other observers have warned that the state’s revenue picture remains sensitive to equity-market swings, with downside scenarios far larger than the administration’s baseline. Pressure on core programs — especially health and human services — will frame discussions over revenue policy and structural reforms.
Tax Litigation
Florida’s Supreme Court Challenge to California’s Corporate Apportionment Receives Business Support
Taxpayer and business groups have filed briefs urging the Supreme Court to hear Florida’s case challenging a California tax apportionment regulation. Florida argues that the rules can result in unconstitutional extraterritorial taxation and discrimination against out-of-state activity.
Energy and Climate
CARB Proposes Amendments to California’s Cap-and-Trade Rules
The California Air Resources Board (CARB) issued a set of proposed regulatory amendments to the rules governing California’s greenhouse gas trading program, now referred to as Cap-and-Invest. The proposal is designed to realign the program with California’s long-term climate objectives, including the statutory goal of achieving economy-wide carbon neutrality by 2045. Read more at the California Energy Journal.
Trump Administration Sues to Overturn California Oil Setback, Citing Federal Preemption
The Trump administration is suing California to pause and overturn the state’s 2022 oil drilling setback law, known as SB 1137. The administration is arguing that the Mineral Leasing Act and the Federal Land and Policy Management Act preempts the law. The administration notes that the law would “knock out about one-third of all federally authorized oil and gas leases in California.” The lawsuit asks the court to declare SB 1137 unconstitutional and seeks an injunction against its enforcement. Read more at the California Energy Journal.
Antitrust and competition
CLRC Recommends Changes to California Antitrust Law
The California Law Revision Commission (CLRC) recommended creating new prohibitions against single-firm conduct in California’s antitrust law. The recommendations would change how the state approaches predatory pricing issues and “net effects” balancing.