For the legislative and political week April 5-9
Welcome to the April 5 edition of the NFIB California Main Street Minute from your NFIB small-business advocacy team in Sacramento.
- The California State Legislature returns for business today after taking last week off.
State and Local Tax (SALT) Conformity
- In last week’s Main Street Minute, we complimented NFIB California’s chief legislative advocate, Kevin Pedrotti, for providing the lead testimony in support of Senate Bill 104, dealing with state and local tax conformity.
- Today, April 5, NFIB is a signatory on a coalition letter to be sent to the Senate Appropriations Committee asking it to pass SB 104. It passed out of policy committee on March 25 on a 5-to-0 vote and was referred to this fiscal committee as the next step in the legislative process.
- “The 2017 Tax Cuts and Jobs Act (TCJA) imposed a $10,000 cap on the amount of state and local taxes (SALT) California taxpayers can deduct on their federal returns,” according to the letter. “In addition to individuals, this cap also applies to the income earned by California pass-through businesses organized as S corporations, partnerships, and LLCs. As a result, California’s one million partnerships and S corporations are subject to tax rates 2.8 to 3.4 percentage points higher than if they were allowed to fully deduct those taxes. These higher rates put many California Main Street businesses at a disadvantage to pass-through businesses operating in states with no income taxes or those operating in states that have already adopted SALT parity reforms. To address this disparity, SB 104 … Provides an election for these businesses to pay their SALT at the entity level” and “Provides California business owners with credit for business taxes paid to other states that have adopted similar SALT Parity reforms.”
Supplemental Paid Sick Leave Law in Effect
- The supplemental paid sick leave for COVID cases, created by Senate Bill 95, took effect last Monday, March 29, and will last until September 10. The Department of Industrial Relations has this FAQ webpage with more details.
- It’s retroactive to January 1 and affects businesses with 25 or more employees—for now. Independent contractors are not covered under the law.
- But what about employees in firms with fewer than 25 employees? NFIB California found this comment by labor attorney Katherine Wutchiett in a Los Angeles Times article worth highlighting, and one of the reasons NFIB lobbied against SB 95. “There’s a web of different protections that could be used to fill in those gaps. For example, workers who become exposed to COVID-19 may be able to get emergency temporary standard exclusion pay.”
- And for those NFIB California-member businesses with 25 or more employees, the other big reason NFIB opposed passage of SB 95 was the immense paperwork headache that was nicely summarized, also in the LA Times article, by our old friend attorney Benjamin Ebbink, who has participated in a past NFIB California podcast. “If you haven’t been subject to some type of paid sick leave like this, and you’re starting from zero and trying to come up to speed, it’s just not a lot of time. Employers, going back in time, may or may not have done a very good job of documenting the reasons why the employee was out. And trying to reconstruct that to see whether it meets one of the qualified reasons is going to be a challenge.”
On other matters …
- Are you in one of the cities, counties, or districts where sales and use tax rates went up April 1? The California Department of Tax and Fee Administration has a list of them here.
- What lies ahead for the California restaurant industry? NFIB California State Director John Kabateck teams up with his brother, Brian Kabateck, a leading consumer attorney, for a lively, 22-minute interview with Jot Condie, president and CEO of the California Restaurant Association, in Episode 1, Season 1 of their KabaTalks podcast series. Click here to listen.
- We’ll end the state section of the Main Street Minute on a high note from Michael Hendrix, director of state and local policy studies at the Manhattan Institute. “As it stands, roughly half of all dollars the state currently spends on infrastructure go to debt service rather than to construction costs. All the while, California’s actual water and transportation infrastructure is decaying — or being dismantled and rationed to save a fish while attempts are made to preserve laundromats as historic buildings so that new housing cannot be built. California figured out how to build, but never how to maintain. Some say money is the problem, but have you seen the state’s bloated budget? No, it’s more that institutional sclerosis has set in and taken the shine off the Golden State.”
- Last Tuesday, March 30, President Biden signed HR 1799 into law extending the Paycheck Protection Program loan application deadline to May 31. NFIB supported passage of HR 1799.
- According to NFIB’s last survey, 72% of its members received a PPP loan in 2020, 44 percent have already applied or are planning to apply for a second loan, and 29 percent who did not apply in the first round have already or are planning to apply for their first loan this round, the opportunity for which was to have expired March 31. Small-business owners will now have two months more to apply.
- The Small Business Administration has more on the loan extension period, including a ‘Get matched with a lender link’ here.
- Not so supportive is NFIB of the president’s infrastructure proposal, which it will monitor when legislative details emerge. You can read NFIB President and CEO Brad Close’s comments here.
- Really worrisome is how the infrastructure plan will be financed. Will it mean scaling back on the Small Business Deduction (section 199A) NFIB led the fight for – and won! – in the 2017 Tax Cuts and Jobs Act? By the way, even if Congress and the president leave the 20% Small Business Tax Deduction alone, it still expires Jan. 1, 2026, which is why NFIB is calling on its members to get in touch with Congress now at this link.
- NFIB released its monthly Jobs Report on Thursday, April 1, showing “42% (seasonally adjusted) of small business owners reported job openings they could not fill in the current period, a record reading. The March reading is 20 points higher than the 48-year historical average of 22%.
- No webinar this week. The next one, Employee Retention Tax Credit Essentials with Jamie Trull, will be on April 14.
Next Main Street Minute, April 12.