State and Local Tax Alert: Governor Newsom Signs COVID-19 Relief Package to Aid Small Businesses in California

Douglas Andersen, State & Local Tax Partner, Brett Johnson, State & Local Tax Principal
February 26, 2021

As part of a COVID-19 relief package, Governor Gavin Newsom signed several pieces of legislation on February 23, 2021, that are designed to help small businesses and small non-profits, providing over $2 billion in funding to the Small Business Relief Grant Fund that has awarded close to $475 million in grants to small business since its creation in December 2020. The new legislation makes grant funds distributed under this program exempt from California income tax to the recipient. The legislative package also provides license fee relief to restaurants and bars as they have been disproportionately impacted by the pandemic. Fee relief was also given to individuals and businesses in cosmetology and barbering, and other businesses licensed through the Department of Consumer Affairs.

Overview

On November 30, 2020, Governor Gavin Newsom announced the creation of the California Small Business COVID-19 Relief Grant Program by Executive Order No. E20/21-182. The program was funded with $500 million to help California small businesses impacted by COVID-19. Two rounds of applications for these funds took place in January/February 2021, with the most recent group of awardees being notified in mid-February 2021. The recently signed Senate Bill 87 provides an additional $2.075 billion in funding for this program through December 2023, with $50 million in grant funding reserved for eligible small non-profit cultural institutions. The newly signed law also states that gross income in California does not include any grant allocations received by a taxpayer from the Small Business COVID-19 Relief Grant fund, including grants already distributed by the Fund in January and February 2021 as well as any new allocations from the $2.075 billion in funding recently established by the newly-signed law. 

To be eligible to apply, businesses and non-profits must be located in California, have begun operating prior to June 1, 2019, and be currently operating or have a clear plan to reopen when the state permits reopening. To be considered a small business or non-profit, they must have gross receipts of at least $1,000 and less than $2.5 million on the business or non-profit’s 2019 income tax return. Eligible small businesses may be organized as a sole proprietor, independent contractor, partnership, limited partnership, limited liability company, cooperative, C-corporation, or S-corporation. If part of a group of affiliated businesses, the qualified small business must be the entity, location, or franchise with the highest revenue in the group. Eligible non-profits must be a registered 501(c)(3), 501(c)(6), or 501(c)(19). These small businesses and non-profits may apply for grants of between $5,000 and $25,000, with annual gross revenue in 2019 determining the maximum potential grant award. 

Eligible Business or Non-Profit Gross Revenue Maximum Grant Award
Annual gross revenue $1,000 to $100,000 $5,000 grant
Annual gross revenue greater than $100,000 up to $1,000,000 $15,000 grant
Annual gross revenue greater than $1,000,000 up to $2,500,000 $25,000 grant


Eligible nonprofit cultural institutions that will be able to seek grant funding from the reserved pool of $50 million in funds are registered 501(c)(3) organizations that include the following: art dealers; theater companies; musical groups and artists; other performing arts companies; promoters of performing arts and sports, agents for artists, athletes, entertainers, and other public figures; independent artists, writers, and performers; museums; historical sites; zoos and botanical gardens; and nature parks. These eligible non-profits cultural institutions will not be subject to the $2.5 million maximum in gross receipts. Grants in this category will be prioritized on documented percentage revenue declines comparing Q2 and Q3 in 2020 to the same quarters in 2019. Gross revenue in 2019 will determine the maximum potential grant award.

Eligible Non-Profit Cultural Institution Gross Revenue Maximum Grant Award

Annual gross revenue $1,000 to $100,000

$5,000 grant

Annual gross revenue greater than $100,000 up to $1,000,000

$15,000 grant

Annual gross revenue greater than $1,000,000 $25,000 grant

Grant funding may be used for the following expenses in California –

  • Payroll costs, health care benefits, paid sick, medical or family leave, and insurance premiums
  • Working capital, overhead (including rent, utilities, current or past mortgage principal and interest, but excluding obligations incurred before March 1, 2020)
  • Costs associated with re-opening business operations after being fully or partially closed due to state-mandated COVID-19 health and safety restrictions
  • Costs associated with complying with COVID-19 guidelines for reopening with required safety protocols, including but not limited to equipment, plexiglass barriers, outdoor dining, PPE supplies, testing, and employee training expenses
  • Any other COVID-19 related expenses not already covered through grants, forgivable loans or other relief through federal, state, city or county programs

Application Process

The application process for these additional funds will be announced on the state’s California Small Business COVID-19 Relief Grant Program website at https://careliefgrant.com.

Waiver of License Fees for Retail Sales of Alcohol for Bars and Restaurants

The Governor signed Senate Bill 94 on February 23, 2021.  In order to provide economic relief, the law allows the Department of Alcoholic Beverage Control to waive license renewal fees for retail sales of alcoholic beverages that expire between March 1, 2021 and February 28, 2023. The waiver applies only to specified license types that were active between March 1, 2020, and December 31, 2020. In addition to bars and restaurants, the waiver applies to license categories held by caterers, theatres, certain museums, and veteran’s clubs. 

Waiver of License Fees for Barbers, Cosmetologists, and Persons Practicing Electrolysis

Also part of Senate Bill 94 is a waiver of license renewal fees for persons practicing barbering, cosmetology, and electrolysis for licenses that expire between January 1, 2021 and December 31, 2022. If an individual pays a renewal fee for a license expiring during this period, they will not be required to pay the renewal fee during the subsequent renewal period. 

Application to your business

The grant funding and fee waivers are meant to assist California small businesses, non-profits, non-profit cultural institutions, restaurants, bars, and licensed personal service businesses that have been most greatly impacted by COVID-19. If you believe that these opportunities may apply to your business, please contact one of the following HCVT state and local tax team members for assistance.

Douglas Andersen | Partner | 562.216.5512 | douglas.andersen@hcvt.com
Brett Johnson | Principal | 310.566.1971 | brett.johnson@hcvt.com
Nancy Chher | Principal | 562.216.1814 | nancy.chher@hcvt.com
Edvin Givargis | Principal  562.216.5501 | edvin.givargis@hcvt.com
Elisa Reyes | Senior Manager | 562.216.5500 | elisa.reyes@hcvt.com
Goran Jovicic | Senior Manager | 562.216.5539 | goran.jovicic@hcvt.com

             

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