With millions of people unemployed in California, Governor Gavin Newsom signed a bill on Wednesday that would give tax breaks to small businesses that hire more workers in the next three months.
The law allows companies with 100 employees or less to credit their state tax bills for $ 1,000 for each new employee hired by December 1. This only applies to companies that lost at least half of their sales from April to June of this year over the same period last year.
The loan is capped at $ 100 million across the state or $ 100,000 for each company. Companies only get the loan if they hire employees, not contractors. Small companies owned by large companies are not eligible.
Newsom called it "one of the most significant tax credits in our state's history," as the regulations limit benefits to small businesses affected by the pandemic.
"So often these perpetual tax credits go to a handful of well-resourced businesses, not necessarily the small businesses that need them most," Newsom said.
California's economy was devastated by the coronavirus pandemic when the Newsom government ordered many companies to shut down for months in an attempt to slow the spread of the disease. The Californian lost 2.4 million jobs in April, more than all jobs lost during the Great Recession a decade ago. The state has since rebuilt nearly a third of those jobs, but the unemployment rate is still 13.3% – higher than ever before during the Great Recession.
As of Tuesday, the state is listing 33 of the state's 58 districts as most at risk for the coronavirus, a designation that many companies are required to stop operating indoors.
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 aim is to help retailers who don't pay a lot of income tax but instead collect a lot of sales tax.
"We are all committed to making our small businesses come back," said Senator Anna Caballero, a Democrat from Salinas who co-wrote the bill with Senator Steven Bradford, a Democrat from Gardena. "It is imperative that we see that they are successful and that will be one of the tools."
Earlier this year, California allowed companies with taxable sales less than $ 5 million to hold up to $ 50,000 in sales collections for the next year. It is essentially an interest-free loan for these companies. On Wednesday, Newsom said the program has given these companies $ 106 million to date.