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Governor Gavin Newsom visited the Fresno Fairgrounds on February 10, 2021. He is expected to sign legislation providing tax relief to businesses that have received <a class=loans from the federal government’s Paycheck Protection Program.” title=”Governor Gavin Newsom visited the Fresno Fairgrounds on February 10, 2021. He is expected to sign legislation providing tax relief to businesses that have received loans from the federal government’s Paycheck Protection Program.” loading=”lazy”/>

Governor Gavin Newsom visited the Fresno Fairgrounds on February 10, 2021. He is expected to sign legislation providing tax relief to businesses that have received loans from the federal government’s Paycheck Protection Program.

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Many California businesses will not have to pay state taxes on their federal pandemic loans under a bill Governor Gavin Newsom signed into law on Thursday.

The measure, Assembly Bill 80aims to help businesses that received loans under the Paycheck Protection Program, which the federal government put in place to help businesses survive the COVID-19 pandemic shutdown.

Newsom’s office described the law as “providing a $6.2 billion tax cut” to small businesses affected by the coronavirus pandemic.

“This state is about to have a big comeback,” Newsom said just before signing the bill at a sushi restaurant in San Fernando. “We are experiencing this comeback thanks to the small business leaders who have persevered.”

Under the program, businesses can have their loans forgiven, meaning they don’t have to pay the money back, if they use the money for eligible expenses such as employee salaries, rent and public services.

Under AB 80, businesses whose loans are forgiven will not have to pay taxes on that money and will be able to deduct eligible expenses if they can show a reduction of at least 25% in their income. for at least a quarter due to the pandemic. The bill also applies to Economic Disaster Loan Advance Grants, another federal assistance program that targeted businesses in low-income communities.

Listed companies are excluded from the bill.

Newsom and lawmakers had tried to push through the policy earlier this year alongside other pandemic relief bills, but had to wait to get assurances from the federal government that it would not violate any provision of the latest federal stimulus package.

After the Biden administration gave the go-ahead, lawmakers stressed the need to pass the measure quickly to provide clarity for businesses waiting to pay their 2020 taxes.

“At a time when California businesses are struggling, it is imperative that state leaders do everything in their power to help,” said Congresswoman Autumn Burke, the Marina Del Rey Democrat who drafted Monday. the bill at a committee hearing. “AB 80 provides critical, timely and meaningful tax relief to businesses that need it most.”

The measure was unanimously approved by both houses of the Legislative Assembly, although some lawmakers and industry groups fear the 25% loss requirement could exclude some businesses still reeling from the pandemic.

Anthony Samson, who represents the California New Car Dealers Association, noted that the federal government only introduced the 25% loss rule for its second round of grants, so some recipients in the first round won’t meet that standard. .

“For California, retroactively applying this 25% reduction standard to these first-round PPP loans for California tax purposes is concerning and hurts the very businesses that have used the loans to retain their California workforce during periods difficult,” he said during a Monday hearing on the bill.

Burke said lawmakers were cost-constrained to expand the bill further.

A legislative analysis estimates the measure will cost California between $4.4 billion and $6.8 billion over six years. At a hearing this week, Burke said expanding the tax relief would have cost an additional $1 billion or more.

Even with the 25% threshold, Burke said the bill would help about 75% to 85% of businesses that received Paycheck Protection Program loans.

This story was originally published April 29, 2021 1:56 p.m.

CORRECTION: A previous version of this story mischaracterized the requirements for businesses to be eligible for tax relief in Assembly Bill 80. Businesses must show a 25% reduction in revenue, not profit, to qualify.

Corrected May 3, 2021

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Sophia Bollag covers California politics and government. Before joining The Bee, she reported in Sacramento for the Associated Press and the Los Angeles Times. She grew up in California and graduated from Northwestern University.
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