California Offers Tax Relief to New and Struggling Businesses by Stephanie Vozza

California Offers Tax Relief to New and Struggling Businesses

California's new COVID-19 economic initiatives are meant to be a lifeline for small businesses.

by Stephanie Vozza
updated December 11, 2020 ·  min read

California Governor Gavin Newsom recently announced a new COVID-19 driven plan for small businesses to help them stay afloat. The benefits for small businesses include an automatic interest- and penalty-free three-month extension for filing sales tax returns on up to $1 million in sales.

The state also created a $500 million COVID Relief Grant. Small businesses that have been impacted by COVID and government-mandated health and safety restrictions can receive up to $25,000 by early 2021.

Increases to the California Rebuilding Fund will provide more low-interest loan opportunities to small businesses without access to traditional bank loans.

The Real Impact on Small Business

Shelli Woodward, tax analyst for California-based MerchantMaverick.com, a small business service provider, says the recent tax relief assistance is a great step in the right direction.

“Governor Newsom is taking initiative as businesses cannot afford to wait for the federal government to implement additional relief during the pandemic," she says. “An interest-free deferral of sales and use tax has been implemented of up to $50,000. This is great, but for businesses that do not collect sales tax, it offers no support. I believe the COVID Relief Grant and the California Rebuilding Fund will have a greater impact to help businesses rebound from the impacts of the pandemic."

Keeping Local Business Afloat

Chris Abrams, founder of Abrams Insurance Solutions, a San Diego-based insurance agent and investment advisor, says Governor Newsom's recent tax relief initiatives are a lifeline for local businesses.

“The three-month income tax extension will have an immediate impact on businesses by freeing up cash flow for necessary expenses," Abrams says. “Although it's not a one-size-fits-all solution, the tax relief should help local businesses keep their heads above water through early 2021."

Does Support Reach Far Enough?

Eric Avirett, owner of Eric Allan Hair in Berkeley, Calif., was forced to close his salon from March to September, and he expects that he'll have to close again.

“I've looked into [the governor's plan] and the two initiatives that I qualify for are an income tax credit of $1,000 per employee and a low-interest loan," he says. “I applied for the tax credit through the California tax and use website but won't hear back until January. It's all pretty cumbersome. I imagine the average small-business owner would have a really hard time navigating everything."

Courtney Lutkus, owner of Simply Radiant Event Planning in Orange County, Calif., says the initiatives won't help her type of business. Still she appreciates the action taken by the governor to help other small-business owners.

“Any financial support in such a difficult time provides the opportunity for companies to keep their doors open and not have to close," she says. “As an event planning company, having larger groups gather is the basis of what we do, and not being able to for others' safety has caused us not to have income most of the year. The financial need for [tax] extensions are needed more than ever in this time."

Dylan Gallagher owns a tour company in San Francisco called White Wolf Private Tours. While he plans to take advantage of the program if he can, he says that the success of his business is ultimately up to him.

“We cannot expect government to always bail us out," he says. “Will we make it? Not sure. Whatever happens, though, we will rebuild because we know we have a great product."

Where the Plan Falls Short

The plan does little for businesses that have to close due to mandates, says Jim Decker, owner of Double Decker Lanes in Rohnert Park, Calif. and president of the Bowling Proprietor's Association of America.

“Businesses would be allowed to defer sales taxes for three months, with no interest penalty. This is good if your business is open and you are actually doing sales," he says. “And the tax credit businesses that have hired new employees after June 30 is great for businesses that might be open, but I doubt it will help anyone who is having to deal with capacity limits and other mandates. These types of businesses most likely have reduced their number of employees or are still closed altogether. This tax credit will do nothing for them."

Jen Grech, owner of Poppy Boutique in San Carlos, Calif., says Governor Newsom's plan could be a short-term solution with long-term implications.

“Retail is a fairly small margin business, and taking loans, or deferring payments of tax can be a dangerous proposition," she says. “I appreciate the goodwill. However, this will not be good for our business long term. It will be critical to keep expenses low as we begin the post-pandemic recovery."

Will California Be a Bellwether For Other States?

Business owners will need to decide if the plan helps their unique situations, and Woodward hopes that other states follow California's lead and proactively support their local communities.

“Helping businesses survive during this time will allow our local economies to rebound faster," she says. “Waiting to see what the federal government decides is not strong leadership, in my opinion."

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Stephanie Vozza

About the Author

Stephanie Vozza

Stephanie Vozza is an experienced writer who specializes in business, finance, and technology. She has been a regular co… Read more