Many California businesses will not have to pay state taxes on their federal loans in the event of a pandemic under a bill Governor Gavin Newsom enacted Thursday.
The measure, Assembly Bill 80, aims to help businesses that have received loans under the Paycheck Protection Program, which the federal government has put in place to help businesses survive stopping the COVID-19 pandemic.
Newsom’s office described the law as “providing a $ 6.2 billion tax cut” for small businesses affected by the coronavirus pandemic.
âThis state is about to make a big comeback,â Newsom said just before signing the bill at a sushi restaurant in San Fernando. “We are experiencing this comeback thanks to the small business leaders who persevered.”
Under the program, businesses can have their loans canceled, meaning they don’t have to repay, if they use the money for qualifying expenses such as employee salaries, rent, and utilities. .
Under AB 80, businesses whose loans are canceled will not have to pay tax on that money and can deduct qualifying expenses if they can show a reduction of at least 25% in profits for at least a quarter in due to the pandemic. The bill also applies to Advance Grants for Economic Disaster Loans, another federal aid program that targeted businesses in low-income communities.
Listed companies are excluded from the bill.
Newsom and lawmakers had tried to push through the policy earlier this year along with other pandemic aid bills, but they had to wait for assurances from the federal government that it would not violate any of the provisions of the latest federal stimulus plan.
Once the Biden administration gave the green light, lawmakers stressed the need to pass the measure quickly to give more clarity to businesses waiting to pay their 2020 taxes.
âAt a time when California businesses are struggling, it is imperative that state leaders do everything in our power to help,â said on Monday MP Autumn Burke, the Democrat for Marina Del Rey who wrote the bill, during a committee hearing. “AB 80 offers big, timely and important tax relief to businesses that need it most.”
The measure authorized both houses of the legislature unanimously, although some lawmakers and industry groups have expressed concern that the 25% loss requirement will exclude some businesses still reeling from the pandemic. .
Anthony Samson, who represents the California New Car Dealers Association, noted that the federal government only introduced the 25% loss rule for its second round of grants, so some first-round recipients will not meet this standard. .
“The fact that California is applying this 25% reduction standard retroactively to these first-round PPP loans for California tax purposes is of concern and hurts the very companies that have used the loans to retain their California workforce during the years. difficult times, “he said at a hearing on Monday the bill.
Burke said lawmakers were pressured by the cost to further expand the bill.
Legislative analysis estimates the measure will cost California between $ 4.4 billion and $ 6.8 billion over six years. Burke, in a hearing this week, said expanding the tax break would have cost another billion dollars or more.
Even with the 25% threshold, Burke said the bill would help about 75% to 85% of businesses that received paycheck protection program loans.