California Provides Financial Relief for Struggling Small Businesses
By John Bonk, National State & Local Tax Leader & Zakariya Hussain, Supervisor, Tax & Business Services
On September 9, 2020, California Governor Gavin Newsom announced the signing of Senate Bill 1447, as part of an effort to provide relief to small businesses struggling due to the coronavirus pandemic. The bill allows a credit against personal income and corporate income taxes for certain qualified small business employers for each taxable year beginning on or after January 1, 2020, and before January 1, 2021. A qualified small business employer would receive a credit equal to $1,000 for each net increase in qualified employees.
“Qualified small business employers” are defined under the bill as taxpayers that had both employed a total of 100 or fewer employees as of December 31, 2019, and which had experienced a 50% decrease in gross receipts (determined by comparing gross receipts for the three-month period from April to June 2020 with the taxpayers’ gross receipts from April to June 2019). Such qualifying taxpayers are authorized under the bill to submit an application to the California Department of Tax and Fee Administration for a tentative credit reservation and can also make an irrevocable election to apply the income tax credit amount against qualified sales and use taxes imposed in the reporting period commencing on January 1, 2021, and ending on April 30, 2026.
The Department of Tax and Fee Administration is required to allocate the credit reservations on a first-come, first-serve basis, up to a total of $100 million aggregate, and to notify applicants of their respective tentative credit reservation amounts. Taxpayers, on the other hand, are limited to a maximum credit amount of $100,000 per qualified small business employer. Any excess credit received by a taxpayer can be carried over (and under the terms of the bill, will not be refunded) to reduce the tax in the following periods, but will expire after April 30, 2026.
For more information regarding CA Senate Bill 1447 and how your business can obtain relief during the coronavirus pandemic, please contact your Marcum State and Local Tax professional.