Gov. Gavin Newsom signed Assembly Bill (AB) 1577 into law last week allowing small businesses to exclude Paycheck Protection Program (PPP) loans from gross income for state taxes.
“AB 1577 is one of only two bills that the legislature approved that we can think of that is actually a positive for small businesses,” said John Kabateck, director for the state of California's National Federation of Independent Business (NFIB) “The remainder of bills that made it to Gov. Newsom’s desk that are work-related are ones that we are urging him to veto.”
The second pro-business bill that Gov. Newsom signed last week was Senate Bill 1447, which allows entrepreneurs to claim a $1,000 tax credit for up to 100 workers employed on a full-time basis and offers up to $100 million in hiring credits with benefits for individual businesses capped at $100,000.
“The only other victories that we can hail are those bills that we successfully killed before they got to the governor’s desk and these two bills otherwise there’s a whole slew of bills, including expanded family care, expanded leave, expanded medical leave programs and huge reporting requirements for businesses for employees or customers who may have gotten COVID-19 in the workplace,” Kabateck said.
Now that AB 1577 is state law, it conforms to federal law by excluding from gross income Paycheck Protection Program loans that were forgiven through the federal CARES Act and subsequent amendments in the Paycheck Protection Program and Health Care Enhancement Act of 2020.
“Without it, small businesses could have been hit with some surprise state tax bills, probably from the franchise tax board, and administrative burdens related to PPP,” Kabateck told the Southern California Record.
Authored by Assemblywoman Autumn Burke (D-Marina del Rey), AB 1577 permits tax-paying small business owners to omit not only PPP loans but also Health Care Enhancement Act payments from their federal and state income taxes,” according to media reports.
It also erases the debt equal to the amount of the recipient’s payroll costs, mortgages, rents and utility payments.
“So often, these open-ended tax credits go to a handful of well-resourced companies, not necessarily the companies that need it the most,” Gov. Newsom told the California Globe. “Small businesses are feeling vulnerable to the pressures of this pandemic. So much so that they believe they are likely to close in the not too distant future. That is a jaw-dropping percentage of small businesses that are looking at the prospect of a financial cliff.”
The number of coronavirus cases has been rising throughout California.
As of Sept. 20, there were 774,135 coronavirus cases statewide and 14,912 deaths, according to the California Department of Public Health dashboard.