This summer, California’s government received nearly $2 billion more in corporate taxes than expected, including a significant $844 million in July alone. Experts suggest that a recent change in tax law could be one reason for this unexpected windfall, with speculation pointing to Nvidia as a significant contributor.
In a report by CalMatters, it was noted that shortly after Governor Newsom made significant spending cuts to reduce the budget deficit in June, the state experienced an influx of tax revenue that prompted widespread speculation about its origins. Since April, corporate tax receipts have exceeded expectations by nearly $2 billion, with July marking an unusually large jump. State officials and accounting experts believe this extra revenue likely comes from a handful of companies, with Nvidia, a manufacturer of AI chips, being a major player.
The substantial tax influx highlights the tension between California’s increasing regulatory focus on tech companies— evidenced by six bills signed by the governor this year aimed at managing the use of artificial intelligence—and the state’s reliance on tax revenues from these firms. Legislative analyst Brian Uhler told CalMatters that on July 16, the state received over $800 million more in corporate taxes than anticipated, making it the highest-grossing tax day in July in 40 years.
While tax records are confidential, accounting professionals interviewed by CalMatters indicated that the surge in corporate tax payments in July could be linked to the state tax law changes adopted in June. These reforms aimed to help offset the deficit by suspending certain deductions companies could claim for lost profits, known as Net Operating Loss deductions, and capping R&D and other expense claims at $5 million.
Experts suggest that companies anticipating significant profits may have realized they owed more taxes, prompting them to pay large estimated tax amounts immediately after the reforms took effect. Companies expected to owe taxes must make quarterly estimated payments, and late payments may incur penalties. State analysts believe that the new tax revenue may disproportionately come from higher-risk or more innovative businesses, such as technology, film, and transportation sectors.
One standout tech company fitting the profile of high profits and innovative risks is Nvidia, which has benefited immensely from the AI boom, earning record profits. As other companies race to gain an edge in the AI market, they are purchasing Nvidia’s chips, driving the company to new heights. On August 28, Nvidia announced a second-quarter net profit of $16.6 billion, more than double that of the same period last year.
Francine McKenna, an independent financial journalist writing for Dig, stated that if Nvidia is indeed responsible for the unexpected tax revenue in July, the company could potentially report significant taxable income this year due to estimated tax payments. She added that if this is the case, and considering the limited amount of tax credits the company can claim, Nvidia might face another substantial tax bill in the third quarter.
Neither Nvidia nor the governor’s spokesperson provided comments regarding this issue.
