2020 Challenges in the California State Legislature

Date: October 29, 2019

Fixing the mess caused by the Supreme Court’s Dynamex decision continues as the top priority

The California State Legislature will open the second half of its two-year session on Jan. 6, 2020. The following issues are NFIB’s top priorities.

Preventing Further Loss of Work for Independent Contractors

By taking for itself what is rightly the job of a legislature, the California Supreme Court in its 2018 Dynamex decision sought to clarify once and for all, who is an employee and who is an independent contractor. Instead, it made things worse for millions of California’s independent contractors. Assembly Bill 5, which passed in 2019, sought to clarify the matter, but it only confused things further by giving free passes to numerous occupations while leaving thousands of other independent contractors in limbo. NFIB’s top priority in 2020 will be to work for a business-to-business exemption to the Dynamex decision, in addition to stopping unfair retroactive application. More information is available at this story on the NFIB California website, which will be updated periodically.

Stopping a Sales Tax on Services

Sitting offshore waiting to be filled in with detail is Senate Bill 522, a proposal by Sen. Bob Hertzberg that would expand California’s sales and use tax to include business services such as those provided by lawyers, accountants, and consultants. Proponents of extending the sales tax to service claim it’s needed to stabilize state budget volatility. But exhaustive research by the California Tax & Budget Research Project shows a sales tax on services could exacerbate budget volatility. “Many professional services are cyclical: they drop during downtimes, and are up during good times,” according to the CTBRP. Further, “The cost of sales taxes on services get passed on by businesses to their customers, whether they are consumers, other businesses or government/taxpayers. In a process known as ‘pyramiding,’ the costs of these taxes themselves are later taxed and passed on to later purchasers of products and services, adding to the tax and cost burden. The effective tax rate of a 5% sales tax on business services can range from 6.1% (in construction) to 8.13% (in finance), due to pyramiding.” NFIB will fight to stop a sales tax on services.

Protecting Proposition 13 from Legislative and Ballot Box Assaults

For 40 years, Proposition 13 has provided small-business owners with the one protection they have in a state that is the most highly taxed in the nation. According to an NFIB Research Foundation Poll, only 22 percent of small-business owners own the facility from which they operate their enterprises out of. In addition to an expected ballot initiative aimed at chipping away the small-business protections in Proposition 13, legislative efforts to do the same are expected to resurface in 2020. NFIB will continue to remind legislators that mom-and-pop businesses will pay higher rents if Prop. 13 is allowed to become a split-roll tax.

Reforming the California Consumer Privacy Act

Although the problematic California Consumer Privacy Act (CCPA) goes into effect Jan. 1, 2020, there have been a number of legislative efforts to curb the burdens on small businesses and reduce the threat of litigation by trial lawyers. Unfortunately, nearly all these hopeful reforms died in the Senate Judiciary Committee in 2019. NFIB is part of a larger voice that will re-double its efforts to have the Legislature to address these small business concerns.

Curbing Lawsuit Abuse from the Private Attorney Generals Act

One reason California ranks high on the American Tort Reform Association’s list of “Judicial Hellholes” is the Private Attorney General Act, which allows private parties to act for the state in enforcing labor laws. As warned by opponents of PAGA before its 2003 enactment, this sue-your-boss law would only lead to the often needless harassment of employers by allowing private parties to sue for the civil penalties previously only recoverable by a state agency.

Eliminating the Minimum Franchise Tax

California businesses pay a tax just for the privilege of doing business in California, even if a business made no money. NFIB will continue its fight to have this ridiculous tax abolished.

Pushing for Passage of a Flexible Workweek

NFIB will continue to support legislation allowing an employee to opt for a four 10-hour day work week rather than a five 8-hour workweek, which is a win-win for the diverse needs of California’s workforce

Click here to read the 2019 small-business victories from the California State Legislature.

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NFIB’s top priority in 2020 will be to work for a business-to-business exemption to the Dynamex decision, in addition to stopping unfair retroactive application.

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