Federal loans buoyed some businesses during the pandemic, but California wants to further help struggling businesses with additional tax breaks.
(CN) — California will give business owners impacted by the pandemic over $6 billion in tax breaks on federal loans doled out under the Paycheck Protection Program.
The tax breaks are part of a Covid-19 relief package signed by California Governor Gavin Newsom this past February. Newsom signed AB 80 on Thursday at Hanzo Sushi in the city of San Fernando, which will help businesses that weathered the economic fallout over the last year with the help from federal loans.
“The state is coming back. The state is roaring back,” said Newsom inside the restaurant where he signed the bill next to business owners and actor Danny Trejo, who owns the restaurant Trejos Tacos.
Newsom added the tax breaks as a part of a wider effort the state mustered in response to the economic fallout from the pandemic. Newsom said over 5 million low-income Californians will receive stimulus checks from the state and $2.5 billion small business grants are also available.
“This disease has humbled all of us. It has certainly humbled me,” said Newsom.
But progress against Covid-19 has been steady in the last few months with declining rates of infection and deaths along with rising vaccination rates. Newsom said 58% of Californians have received at least one Covid-19 vaccine, but he also fielded questions about the effort to recall him from office.
“We’re going to defeat the recall, we’re going to focus on getting people back to work, we’re going to focus on getting instruction back in our schools and get this economy moving again,” said Newsom. “And more importantly we’re going to get the vaccines into people’s arms faster.”
“This guys been trying to save our lives since this shit – since this pandemic started,” Trejo in defense of the governor after Newsom signed the bill.
The governor’s signature arrives more than a year after his office ordered all 40 million Californians to stay home due to Covid-19. The state’s first “stay-at-home” health orders went into effect March 19, 2020. Congress passed the Coronavirus Aid, Relief, and Economic Security or CARES Act on March 27, 2020. That includes the Paycheck Protection Program (PPP).
Since then, California reported 3.7 million confirmed Covid-19 cases and over 61,500 deaths due to the virus.
While large retail businesses remained open during the pandemic, health orders forced smaller businesses to close their doors. When those businesses could reopen, they needed face masks and gloves for their employees along with plastic partitions, cashless transactions and many more expenses.
The Golden State received more than $97 billion from over 1 million PPP loans according to available federal data. The average loan amount was approximately $96,000 and the top businesses that applied for the loans included restaurants and law offices.
Portions of the loan can be forgiven based on how a business spent their federal dollars, but as originally written, the PPP amounts were excluded from taxation. That means business owners could not deduct wages if they were paid for by the forgiven funds. California followed the federal mandate, but then Congress recognized the wage issue and passed the Consolidated Appropriations Act. When that update was made, California fell out of conformity with federal law.
According to Assemblywoman Autumn Burke, a Democrat representing Marina del Rey and who authored AB 80, the tax breaks written in the bill would capture more than 86% of all PPP loans made in California. Over the next six years, the bill will give business owners roughly $2 billion in tax relief. They will be able to deduct up to $150,000 of expenses if they were paid with funds from the PPP loans.
“At a time when California businesses are struggling, it makes no sense to penalize small businesses for accessing much needed assistance,” Burke said in a statement. “It is imperative that state leaders do everting without our power to help. By providing critical, timely, and significant tax relief, AB 80 does just that.”
This is a developing story.