California Gov. Gavin Newsom signed a $6.2 billion tax cut for small businesses “hardest hit” by the pandemic.
Under Assembly Bill 80, written by Assemblymember Autumn Burke out of Inglewood, forgiven Paycheck Protection Plan loans use by California small businesses will not be taxed.
“California’s small businesses have been hampered and hammered by this pandemic, and we are using every tool at our disposal to help them stay afloat,” Gov. Newsom said before signing the bill at a San Fernando restaurant. “Help is on the way in the form of a $6.2 billion tax cut, which will provide support, not to large publicly traded companies, but to the mom-and-pop businesses – the beauty salons, restaurants and dental offices – which have been resilient during this difficult time. This small business tax relief is exactly what is needed to keep businesses open so they can continue paying their employees.”
The PPP loans offered during the pandemic were meant for small businesses to retain or rehire furloughed employees, with up to $10 million available per business. The loans covered employee salaries, commissions and hazard pay, so long as they didn’t pass $100,000 for any given employee.
Businesses could then file for PPP loan forgiveness if the money was used for payroll costs (including employee benefits), interest payments on any covered mortgage obligation incurred before February 15, 2020, payment of rent under a lease prior to Feb. 15, 2020, or utility payments for services before Feb. 15, 2020.
While the loans would be forgiven, businesses would have still paid taxes on them, which is what the Assembly Bill 80 aims to change.
Although the bill passed through both the state assembly and senate, worries remained about two disqualifications for businesses who did not experience a 25% reduction in profits for at least one quarter of the pandemic and for publicly traded small businesses.
Despite the concerns, the assembly analysis felt the bill would still “capture the vast majority of all PPP loans made.”