The California Chamber of Commerce welcomed news last week that Governor Gavin Newsom signed into law a measure that will bring California into partial conformity with the federal government’s treatment of deductible business expenses paid using Paycheck Protection Program (PPP) funds.
“We commend the leadership of the Governor and the Legislature in providing federal tax conformity for many of the 750,000 businesses in California that received Paycheck Protection Program loans to survive the pandemic,” said Allan Zaremberg, president and CEO of the California Chamber of Commerce.
“The Governor’s signature on AB 80 is particularly important for companies in the restaurant, hospitality, lodging, and tourist-based industries who have been dealing with devastating financial consequences from the pandemic for more than a year.
“While the bill exempts publicly traded companies and businesses that didn’t suffer a 25 percent loss in revenues, it will help those most impacted by devastating financial losses associated with COVID-19 shutdowns to stay afloat as we emerge from the pandemic.
“The key to a full economic recovery in California will be a continued focus on actions that support small businesses and provide them with needed regulatory and financial relief,” said Zaremberg.
Under the legislation, AB 80 by Assemblymember Autumn Burke (D-Inglewood), the forgiven PPP loans that businesses received from the federal government during the pandemic will not be counted as taxable income, and these businesses can also deduct the costs of expenses that those loans paid for.
This is additional state tax relief for the small businesses that have been struggling and will help them in efforts to reopen and plan for the future. However, AB 80 specifically prohibits two categories of taxpayers from deducting expenses: (1) publicly traded companies; and (2) taxpayers that failed to meet the 25% reduction in gross receipts test that the federal government required to receive the second round of PPP loans.
In signing the measure into law, Governor Newsom commented: “California’s small businesses have been hampered and hammered by this pandemic, and we are using every tool at our disposal to help them stay afloat. Help is on the way in the form of a $6.2 billion tax cut, which will provide support, not to large publicly traded companies, but to the mom-and-pop businesses — the beauty salons, restaurants and dental offices — which have been resilient during this difficult time. This small business tax relief is exactly what is needed to keep businesses open so they can continue paying their employees.”
The CalChamber is continuing to support all efforts to provide economic and regulatory relief to businesses impacted by COVID-19 related shutdowns.
According to the CalChamber, publicly traded companies should also be eligible for the same conformity provisions that are outlined in AB 80. The ownership structure of a company should have no bearing on whether the company should benefit from this type of tax incentive. Publicly traded companies employ workers, pay taxes and suffer losses every bit as much as privately held companies. This distinction is not a proxy for profitability, size, employment, location or any other attribute; it is merely an indication of ownership, which is irrelevant to whether a company suffered losses, closed operations, or required assistance.