SACRAMENTO (AP) – California lawmakers on Monday revived a multi-billion dollar tax break for some businesses after the Biden government assured them the proposal would not jeopardize federal state aid to coronavirus.
The federal government granted approximately $ 97 billion in loans to California businesses during the pandemic, most of which entrepreneurs do not have to repay. Congress is already allowing entrepreneurs to deduct the costs associated with these loans from their federal taxes. But California entrepreneurs still owe state taxes on that money.
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California lawmakers wanted to change that, and they were ready to do so earlier this year. But they put it off because they feared the proposal could force them to lose some of their own federal coronavirus aid.
That’s because Congress has banned states from using coronavirus bailouts to pay for tax cuts. Because the proposal would reduce the amount of money entrepreneurs pay in state taxes, Governor Gavin Newsom’s administration feared it would be seen as a tax cut and jeopardize some of the $ 26 billion in state aid.
The US Treasury Department assured the state it could pass the bill without sacrificing billions of dollars in federal aid. The Senate voted 37-0 on Monday. The bill is now going to the state assembly, where assembly spokesman Anthony Rendon described it as “one of the largest proposed tax cuts in California history”. The California Treasury Department says the tax break will cost the state between $ 4.4 billion and $ 6.8 billion over the next six years.
Rendon’s office said the congregation plans to review the proposal in committee and then take it “as soon as possible”.
“The large number of co-authors on this bill shows his broad legislative support,” he said.
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The proposal is a relief for tax advisors who have advised clients to postpone filing their state taxes while waiting for the fate of the law in the legislature. Now that the bill is moving again, it will spark a flurry of activity as accountants rush to determine its impact, which depends on how regulators interpret it.
“That has been our big problem for the past three to four months, a lack of clarity about who might qualify for forgiveness,” said John P. Schultz, an accountant in the city of Ontario east of Los Angeles and a member of the California Society Auditors. “It will be a mystery to get everything ready.”
But not every company will benefit from it. The tax break only applies to companies that are not publicly traded and to companies that have reported a loss of at least 25% of gross income in at least one quarter of 2020.
“While it excludes some companies, it’s a very small number,” said Senator Nancy Skinner, a Berkeley Democrat and chair of the Senate Budget and Tax Audit Committee.
State Senator Andreas Borgeas, a Republican from Fresno, said he could draft another bill later this year to help companies excluded from the proposal. But he said he voted for the proposal on Monday because it “affects the vast majority of businesses that need help now”.
“It is fundamentally unfair for California to tax federal emergency funds,” he said. “This is a huge win for companies in California.”
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