Newsom Signs Lifeline for California Small Businesses

Diners have lunch on the street in Old Pasadena, a pleasant perk from the novel coronavirus as cities block off lanes of traffic to accommodate restaurants and state-mandated outdoor dining. (Courthouse News photo / Bill Girdner)

SACRAMENTO, Calif. (CN) — Granting relief to small businesses hit hardest by the pandemic, California Governor Gavin Newsom on Wednesday signed legislation intended to keep Main Street afloat and spur new jobs. 

Warning that over 40% of the state’s small businesses are at risk of closing, Newsom approved a law that will allow businesses to claim a $1,000 tax credit for each net increase in full-time employees. The hiring credit will apply to businesses with fewer than 100 employees that have suffered a 50% decrease in gross revenue.

“This is really about the lifeblood of California’s economy, it’s about a sense of pride and spirt that we all have,” said Newsom during a signing ceremony. “This is about the California dream.”

Under Senate Bill 1447, the state will offer up to $100 million in hiring credits, with benefits for individual businesses capped at $100,000. The tax credit is good for qualified hires between July and November and the credit can be applied over the next five years. 

Supporters say the bill, hastily proposed during the final week of the legislative session, was drawn up as means to benefit minority and immigrant-owned businesses struggling in rural parts of the state. State Sen. Anna Caballero says SB 1447 will give business owners badly needed resources to rehire staff lost during the pandemic’s early stages.

“This pandemic has really placed an incredible burden on them and their family because their dreams have been delayed,” said Caballero, D-Salinas. “This tax credit is going to be tremendously important.”

The measure passed unanimously on the final day of the session in both the Senate and Assembly, but concerns were raised about its scope.

An Aug. 30 analysis by the Assembly Revenue and Taxation Committee cautions the relief won’t be available to small businesses that have yet to actually start their economic rebound. The committee’s lawyers additionally note the credits are available on a first-come, first-served basis, meaning the most adept businesses could scoop up the relief.

“This bill provides the most generous credit amounts to those businesses that have been able, for whatever reason, to hire back their workforce during the five-month period beginning July 1, 2020,” the analysis states. “Thus, it could be argued that this bill confers the most generous benefits on those businesses that are well on their way to recovery, as opposed to those businesses currently unable to operate at anything comparable to a pre-pandemic normal.”

Newsom also inked legislation that will allow businesses to exclude federal Paycheck Protection Program loans from their gross income tax filings. Both bills go into effect on Jan. 1, 2021.

The bill’s author said the loan forgiveness is necessary to ensure that businesses fortunate enough to receive the federal relief aren’t penalized with new tax liabilities next spring.

“Small businesses need protection — they are taking the brunt of the economic impact created by Covid-19,” said Assemblywoman Autumn Burke, D-Marina del Rey, in a statement. “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.” 

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