Gov. Gavin Newsom signed legislation a week ago that allows businesses to claim a $1,000 tax credit for each worker employed on a full-time basis. Some pro-business advocates are thrilled with SB 1447 while others think it doesn't go far enough.
“Anything that can help jumpstart, encourage and provide some relief to businesses that are eager to hire and get people back on payroll and out of the unemployment line is a step in the right direction,” said John Kabateck, California state director of the National Federation of Independent Business (NFIB).
Senate Bill 1447 offers up to $100 million in hiring credits with benefits for individual businesses capped at $100,000, allowing the subsidy for 100 employees.
“Businesses across the state have been hard hit by the COVID-19 pandemic and they need support to keep their doors open and their employees on the payroll,” said Gov. Newsom in a statement online. “We are taking action to keep money in the hands of small businesses while expanding job opportunities for those who lost their jobs because of this virus.”
But Susan Shelley, vice-president of communications with the Howard Jarvis Taxpayers Association (HJTA), says the new law is too limited and criticized the way the law was enacted.
"It didn't go through the regular process with a normal legislature," Shelley told the Southern California Record. "All the power of government in California is now concentrated in the hands of the governor alone. We've had an unprecedented six months of this. If we had done things legitimately, we would have had the opportunity for hearings where we would have found out what the tax credit costs and who it covers. People would have testified and there would have been an opportunity for reason to debate."
Instead, it was a gut-and-amend trailer bill on the last day of the session, Shelley added.
"What it did is create a narrow tax credit for businesses that were harmed by the COVID-19 shutdown," she said. "It's not a wide longstanding tax credit for hiring, which would make sense and would be helpful for California to have a tax credit to encourage owners to hire more people. It's only a very narrow and limited small business tax credit."
Some 44% of businesses are at risk of shutting down, according to data from a Small Business Majority survey. From February to April 2020, there was a 22% drop of active business owners nationwide according to data released through the Census Current Population Survey with minority-owned businesses being disproportionately impacted. The study found the number of active businesses owned by African-Americans dropped by 41%, Latinx by 32%, Asians by 25% and immigrants by 36%.
“This will lower their tax bill,” Kabateck told the Southern California Record. “It doesn't solve every problem that they would face in a state like California but it eases their tax liability burden and gives them a little bit of a respite. It's a helpful bandaid right now for most businesses that are hemorrhaging profusely and will get them through some very challenging times. Hopefully, it will jump-start customers flocking to small businesses for the holidays.”
The tax credit, which can be applied over the next five years, is good for qualified hires but only between July and November.
“This is not perfect,” said Kabateck in an interview. “We don't want to drive-up state debt but certainly we need to take a close look at what kind of help we can get businesses past this timeline. For now, this is a responsible allocation of taxpayer dollars. Through Thanksgiving, it gives some business owners at least a bandaid of hope to make their way through the next several months.”
According to data from the governor's office, California is home to 4.1 million small businesses, representing 99.8 percent of all businesses and they employ 7.2 million workers or 48.5 percent of the state’s total workforce.
The hiring credit only applies to businesses with fewer than 100 employees that have suffered a 50% decrease in gross revenue.
“It may not apply to all small businesses but I'm confident that a good many of the mom and pop stores out there have seen their revenue cut at least by half, which is very disturbing,” Kabateck said. “Clearly, we’ve seen many of them, with these government COVID shutdowns, struggling and hanging by a thread.”