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Tax Relief Due to COVID-19

While COVID-19 and the resulting lockdown have dealt a devastating blow to several sectors, it has particularly affected small businesses. Several state governments have stepped in to help the beleaguered sector. Last week, California Gov. Gavin Newsom announced temporary tax relief for eligible businesses that have been affected by the pandemic. The tax relief is scheduled to have billions of dollars in impact.

Highlights of the California tax relief measures

  • Extension for small business taxpayers: There will be an automatic three-month extension for taxpayers whose sales tax liability is below $1 million.
  • Extension of payment agreements: The package has extended penalty and interest-free payment agreements to businesses that have up to $5 million in taxable sales. This is in line with the government’s move to facilitate more businesses to avail of interest-free payment agreements.
  • New grant: The governor has also announced a new grant aimed at providing relief to small businesses. The California Office of the Small Business Advocate at the Governor’s Office of Business and Economic Development will be the administrator for the $500 million grant.
  • Fund for small and micro-businesses: The measures also specify an addition of $12.5 million to the California Rebuilding Fund, which brings the total investment to $37.5 million. The fund has been created to facilitate the distribution of grants to small and micro-businesses. The maximum a business can avail from the fund is $25,000. Importantly, nonprofit organizations are also eligible to claim the benefit.

Much-needed measures

The state has 4.1 million small businesses which account for 99.8 percent of all businesses. Small businesses create two-thirds of all new jobs in the state. They also employ almost 50 percent of the private sector workforce, with a total employee count of 7.2 million. Due to the pandemic, almost 44 percent of them are on the verge of permanently closing their operations.

Minority-owned businesses have been the most vulnerable to the pandemic. They have been disproportionately affected, with African American-owned businesses shutting down by 41 percent. Small businesses owned by Latinos, Asians, and immigrants are also under severe stress.

Continuing tax relief

The measures announced last week were recommended by the Governor’s Task Force on Business and Jobs Recovery. They are an extension of a slew of measures the government had earlier announced to provide relief to small and micro businesses in the state.

The governor had allowed interest and penalty relief to taxpayers in April. This was for 90 days, aimed at taxpayers who have below $1 million in taxable sales. According to government figures, small businesses have availed of tax relief to the tune of $149 million through the program.

California had also authorized $100 million in hiring tax credit for small businesses through the Main Street Hiring Tax Credit. It amounts to $1,000 per employee and up to $100,000 for the employer.

With the pandemic showing no signs of slowing down, economic recovery for small and micro businesses will be challenging. Sensing that, the government is expected to provide more legislative action for the sector in the coming year.

Time is running out!​

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