Governor Newsom Signs Legislation for Small Business
The California State Legislature concluded its ordinarily business for 2020 on Monday, August 31. While many bills died before they could be heard and sent to the Governor, a handful of bills dealing with relief for small businesses made the deadline, and were recently signed by Governor Gavin Newsom. Those bills are AB 1577 (Burke; D – Inglewood), SB 1447 (Bradford; D – Gardena), and SB 115 (Committee on Budget and Fiscal Review).
Specifically, the bills do the following:
AB 1577 – This bill conforms state law to federal law to allow the amount of PPP loan provided to California small businesses under the CARES act to be excluded from gross income for state tax purposes. This bill also denies the business expense deduction for those expenses that were paid for using forgiven loan funds.
According to the Author:
AB 1577 conforms California to the federal Paycheck Protection Program’s (PPP) Loan Forgiveness provisions. The Coronavirus Aid, Relief, and Economic Security (CARES) ACT, and subsequent legislation, established and expanded the PPP, which provides small businesses with loans to help pay up to eight weeks of payroll costs, mortgages, rent, and utilities during the COVID-19 crisis. If certain requirements are met, recipients may have their loans forgiven, and those forgiven loans are specifically excluded from gross income. Unfortunately, California does not conform to the federal exclusion, which means business owners may potentially have to pay taxes on forgiven loans. Without conformity, taxpayers would have to include forgiven PPP debt as income for state purposes while excluding it for federal purposes, and disallowing expenses for federal purposes while allowing expenses for state purposes. The mismatch in treatment of income and expensing can be extremely confusing and may result in errors. Conformity would provide clarity with respect to how taxable income is treated. It also seems unfair that a program that is designed to help keep businesses afloat during this very difficult time may ultimately add additionally financial stress.
Source: Assembly Floor Analysis
SB 1447 – This bill would allow, for taxable years beginning on or after January 1, 2020, and before January 1, 2021, a “small business hiring credit” to qualified small business employers that apply for and receive a tentative credit reservation. This credit would be available to taxpayers filing under either the PIT Law or the CT Law. To qualify for the credit, however, the small business employer would have to meet two requirements: First, as of December 31, 2019, the employer must have employed 100 or fewer employees and, second, the employer must have experienced a 50% decrease in gross receipts. This calculation would be made by comparing 2020 Second Quarter gross receipts with 2019 Second Quarter gross receipts.
For qualifying taxpayers, the credit amount would equal $1,000 for each net increase in qualified employees. This net increase, in turn, would be calculated by comparing the taxpayer’s average number of employees for the Second Quarter of 2020, with the average number of employees for the five-month period beginning July 1, 2020, and ending November 30, 2020. The credit itself would be capped at $100,000 per taxpayer.
Unlike the vast majority of income tax credits, this bill would also allow qualified small business employers to make an irrevocable election to apply the credit amount against qualified sales and use taxes imposed on the employer. This is likely being done to assist retailers that have limited income tax liability but do have sales and use tax liabilities for sales of TPP.
Finally, this bill caps at $100 million the aggregate amount of credit that may be allocated under this bill’s provisions.
Source: Assembly Floor Analysis
SB 115 – This is a budget trailer bill (not a typical, standalone piece of legislation), appropriates money from existing bond funds for construction projects.
The Governor’s Office press release from the bill singing is copied below.
Governor Newsom Signs Bills to Support Small Businesses Grappling with Impact of COVID-19 Pandemic, Bolster Economic Recovery
Published: Sep 09, 2020
AB 1577 allows small businesses to exclude PPP loans from gross income for state taxes
SB 1447 authorizes $100 million Main Street hiring tax credit program for small businesses
SB 115 accelerates $230.5 million in state bond funding to help jumpstart construction projects
Legislation builds on previous investments and support for California small businesses
SACRAMENTO — Today at Solomon’s Delicatessen, a small business in Sacramento, Governor Gavin Newsom alongside Senator Anna Caballero signed three bills into law to support small businesses grappling with the impact of the COVID-19 pandemic and another to jumpstart state construction projects.
“Businesses across the state have been hard hit by the COVID-19 pandemic and they need support to keep their doors open and their employees on the payroll,” said Governor Newsom. “Today, we are taking action to keep money in the hands of small businesses while expanding job opportunities for those who lost their jobs because of this virus. We have much more work to do together, but I know these bills will make a big difference for small businesses.”
California small businesses are drivers of economic growth – creating two-thirds of new jobs and employing nearly half of all private sector employees. California is home to 4.1 million small businesses, representing 99.8 percent of all businesses in the state and employing 7.2 million workers in California, or 48.5 percent of the state’s total workforce.
The COVID-19 pandemic has presented significant challenges to small businesses, employers and employees. Small Business Majority survey data found that up to 44% of businesses are at risk of shutting down. From February to April 2020, there was a 22% drop of active business owners nationwide according to data released through the Census Current Population Survey. Minority-owned businesses are disproportionately impacted: the number of active businesses owned by African-Americans dropped by 41%, Latinx by 32%, Asians by 25%, and immigrants by 36%.
“I’d like to thank Governor Newsom for signing my bill, AB 1577,” said Assemblymember Autumn Burke. “Small businesses need protection – they are taking the brunt of the economic impact created by COVID-19. The federal Paycheck Protection Program was designed to help businesses stay afloat during this crisis and AB 1577 furthers that goal by preventing surprise tax bills and easing administrative burdens for thousands of California’s small businesses.”
“For months, I have been working with my colleagues to champion small business relief and I am very proud SB 1447 has been signed into law,” said Senator Steven Bradford. “This bill will help small businesses that are working hard to persist despite COVID-19 by supporting them as they hire or re-hire employees. Small businesses are critical employers and engines of equitable job growth. This is particularly true for Minority, Women, Disabled Veteran, and LGBT business enterprises. This bill will help bring back jobs that were lost in our communities and support small businesses during this difficult period. I am proud to have worked with my legislative colleagues and the Governor on this effort.”
Governor Newsom signed three bills that will help support small businesses as they recover from the COVID-19 induced recession.
AB 1577 by Assemblymember Autumn Burke (D-Inglewood) conforms state law to federal law by excluding from gross income Paycheck Protection Program loans that were forgiven through the federal CARES Act and subsequent amendments in the Paycheck Protection Program and Health Care Enhancement Act of 2020.
SB 1447 by Senator Steven Bradford (D-Gardena), Senator Anna M. Caballero (D-Salinas) and Assemblymember Sabrina Cervantez (D-Corona) authorizes a $100 million hiring tax credit program for qualified small businesses. The hiring credit will be equal to $1,000 for each net increase in qualified employees, up to $100,000 for each qualified small business employer.
SB 115, a budget trailer bill, by the Committee on Budget and Fiscal Review appropriates $561 million in fiscal year 2020-21. This includes $411.5 million to advance economic stimulus with $230.5 million to help jumpstart construction projects.
Opened in 2019, Solomon’s Delicatessen is located at the sixth Tower Records location and named after its late founder, Russ Solomon. They closed in March after stay-at-home orders were announced. In April, they reopened for 10 weeks as a community kitchen through a $75,000 grant from Sacramento Covered and healthcare foundations (Kaiser, Dignity, Sutter) to help feed the homeless and medically fragile. They also participated in California’s Great Plates Delivered program.
Small businesses support is critical to ensure Californians are connected to the resources they need to pivot and adapt to the COVID-19 marketplace. The state is using every tool at our disposal to support small businesses as they work to safely reopen and recover from this public health crisis. Learn more here.