California Restores ESOP Tax Benefits

California has enacted legislation restoring special ESOP tax benefits for firms in the state. The state had not been recognizing the tax-deferred rollover for sales to qualifying ESOPs, the deductibility of ESOP dividends passed through to employees or used to repay a loan, or the interest income exclusion available to lenders on "Section 133" loans. (As explained in the previous column, however, the interested income exclusion was repealed in August 1996.) The new law is retroactive to January 1, 1996. As far as we know, California had been the only state that had a corporate income tax that was not tracking federal law.