With millions of people out of work in California, Gov. Gavin Newsom on Wednesday signed a law giving tax breaks to small businesses that hire more workers over the next three months.
The law will offer businesses of 100 employees or less a credit of $1,000 on their state tax bills for each new employee hired by Dec. 1. It only applies to businesses that have lost at least half of their revenue from April to June this year compared to the same time period last year.
The credit is capped at $100 million statewide, or $100,000 for each business. Businesses get the credit only if they hire employees, not contractors. Small businesses that are owned by large companies are not eligible.
Newsom called it “one of the most significant tax credits in our state’s history” because of the provisions that restrict the benefits to small businesses impacted by the pandemic.
“So often these open-ended tax credits go to a handful of well resourced companies, not necessarily those small businesses that need them the most,” Newsom said.
California’s economy has been devastated by the coronavirus pandemic as the Newsom administration ordered many businesses to close for months to slow the spread of the disease. Californian lost 2.4 million jobs in April, more than all the jobs lost during the Great Recession a decade ago. The state has added back nearly a third of those jobs since then, but the unemployment rate is still 13.3% — higher than it ever got during the Great Recession.
As of Tuesday, the state lists 33 of the state’s 58 counties as the most at risk for the coronavirus, a designation that requires many businesses to halt indoor operations.
Unlike most tax breaks, businesses can also use the credit to lower the amount of sales taxes they have to send to the state. The goal is to help retailers what don’t pay much in income taxes but collect lots of sales taxes.
“There was a commitment among all of us to make sure that our small businesses come back,” said state Sen. Anna Caballero, a Democrat from Salinas who co-authored the bill along with Sen. Steven Bradford, a Democrat from Gardena. “We absolutely need to see them be successful and this is going to be one of the tools.”
Earlier this year, California allowed businesses with less than $5 million in taxable sales keep up to $50,000 of sales collections for the next year. It’s essentially a no-interest loan to these businesses. Wednesday, Newsom said the program has provided $106 million so far for these businesses.