Like businesses all around the country, California’s small businesses are struggling in the face of the coronavirus crisis. To offset the economic impacts of forced closures and slowed sales, on November 30th Governor Gavin Newsom announced three significant relief programs.
The first will extend deadlines for sales tax collections from the state, allowing those impacted to apply the funds “for any obligations you may have,” while another establishes emergency appropriation funds that will provide small businesses with cash grants up to $25,000. Finally, the state will be allocating funds in a new business rebuilding account, an idea that originated from former chair of the Federal Reserve Janet Yellen, who is President-elect Joe Biden’s nominee for U.S. Treasury Secretary and a member of Newsom’s business advisory task force.
Though California businesses pay their sales taxes at different times and different intervals based upon the type of business they are, the new relief packages arrived in the nick of time. California is anticipating an increased number of small businesses in its counties to shut down in the midst of new shelter in place orders as more and more people are testing positive for COVID-19. Once areas are classified as “Purple Tier,” more service businesses like hair and nail salons, bars and restaurants, and other hospitality businesses will be facing economic instability again.
In announcing what may amount to billions in temporary tax relief, the governor expressed his concerns over the situation small businesses are facing, saying, “We have to be more mindful than ever about the economic impact and consequences of these further restrictions.”
Last April, Newsom had issued an executive order that led to almost 10,000 small businesses applying for and receiving approximately $149 million in tax relief, and the new program essentially builds on those original efforts. The tax payment extensions will be automatically granted to businesses with $5 million or less in sales and those with up to $1 million in sales tax collections by California’s Tax and Fee Administration Department. Larger businesses will be able to receive the same benefit by applying for the extended time period, which Newsom said they can use as a float should they need it. Newsom explained by saying,“You can hold that money. You can use that money for any obligations you have, just fill out a form.”
The relief is welcomed by those who can take advantage of it, but as outgoing state Sen. John Moorlach, R-Costa Mesa pointed out, there are many businesses in the state that it won’t help. Retailers and restaurants collect sales taxes but many others do not. “It’s an interesting strategy,” he said, but “if you have a service like an accountant or a lawyer, you don’t generate sales tax. It’s not universal.”
In recognition of the different types of impacts being seen in the state, Newsom also announced a boost of an additional $12.5 million for the California Rebuilding Fund, which is a public-private partnership meant to help these organizations recover from pandemic-related losses by making loans of up to $100,000 available through community-based lenders. The fund was the brainchild of the governor’s Task Force on Business and Job Recovery, and had already seen an allocation of $25 million. The new commitment will likely bring its funding from public, private and philanthropic sources to $125 million. The governor also committed to a program for cultural and non-profit entities and small businesses that can apply for cash grants up to $25,000 from a $500 million COVID Relief Grant program.
In addition to executive orders, the hope is that when the state’s leaders meet for their next legislative session, they will commit to additional small business assistance. Newsom is hoping for support to provide businesses with hiring and employee retention incentives and for fee reductions for businesses that have been most heavily impacted by closures and restrictions related to the pandemic. He expressed hope for funding to allow the creation of economic development programs and increased infrastructure investment, saying, “These programs (announced Monday) will be a bridge over the next couple of weeks to what we will work on with the Legislature. We have a whole list of things we are actively engaged in.”
More than anything, Newsom expressed a level of impatience and urgency for additional assistance. “We can’t wait,” he said. “We need to get moving on these supports to help these small businesses who are putting everything on the line.” While the state and local governments have already taken dramatic steps, providing $100 million in disaster relief loan guarantees for businesses unable to qualify for loans due to lack of credit and making payments to restaurants that provided seniors with millions of free meals, the long interim since help came from the federal government has meant that much more assistance is needed.
About Bob Mason, CPA
Santa Cruz based Bob Mason, CPA (Coast Financial Services) has been providing the people of Santa Cruz with years of expertise in the tax and accounting industry. He provides a broad range of accounting, bookkeeping and small business services to help your business succeed. Using their expertise in technology they have built an intuitive website with useful tools and calculators and a monthly blog which they post to on a frequent basis. Check back weekly for their next tax or accounting topic.
