SACRAMENTO – Senator Andreas Borgeas (R-Fresno) introduced Senate Bill 265 to give small businesses and nonprofits relief from any tax liability they may incur associated with pandemic related state and federal grants or loans. Currently, grants provided by Governor Newsom’s Small Business COVID-19 Relief Grant program are considered taxable income.
Assembly Bill 1577 (2020), signed by Governor Newsom in September, brought state tax law, related to COVID-19 relief funds, into conformity with federal tax law. However, recent legislation passed by the federal government has affected tax provisions related to Paycheck Protection Program (PPP) loans requiring legislative action to bring state law into conformity.
Local businesses, frustrated by the confusion around tax implications tied to relief dollars, reached out to Senator Borgeas in December asking for clarification on this issue. Senator Borgeas included a provision in SB 74, the Keep California Working Act, introduced on December 10th, 2020, to ensure that grants for small businesses and nonprofits that have sustained financial losses due to the impacts of COVID-19 would also be tax-free.
“People, businesses and entities that have received assistance during the pandemic should not be penalized by the state,” said Senator Borgeas. “SB 265 would assist struggling businesses that received COVID-19 relief funds by assuring that these grants and/or forgivable loans are tax-free.”
Efforts are underway in both houses of the Legislature to clarify and bring California tax laws into conformity with recently passed federal measures.
In December of 2020, Congress passed the Coronavirus Response and Relief Supplemental Appropriations Act of 2020 (CRRSAA) making clear that Paycheck Protection Program loan recipients are able to deduct business-related expenses. SB 265 would apply to federal and state coronavirus related relief grants and loans.