California’s business community has felt like a punching bag over the years, with rankings like CNBC’s showing the state placed last in the cost of doing business and business friendliness categories. So, it is refreshing that Governor Gavin Newsom recognizes the importance of small businesses to California’s economic well-being, which he does in his most recent budget proposal.
Taking a concrete step to advance small business in the state, Gov. Newsom’s 2020-2021 budget calls for elimination of the Minimum Franchise Tax for start-up businesses. That’s the $800 a small business must pay to the state for establishing a business even before one dollar comes into the cash register.
The governor’s budget notes that more businesses start in California than anywhere in the United States, including many green technology businesses. In an effort to promote opportunity for small business start-ups, Gov. Newsom is proposing a first-year exemption from the $800 minimum tax paid by limited liability companies, limited partnerships, and limited liability partnerships.
The budget document argues that this will put small business entities on equal footing with corporations, which already enjoy a first-year exemption from the minimum franchise tax. The exemption is expected to save new small businesses $100 million in tax relief per year.
In promoting the change to help new small businesses, the governor’s budget document points out that small businesses are a major engine of economic growth in California and are particularly impactful in rural and less populated areas of the state.
In other words, the governor is hoping to get a handle on income inequality by advancing the cause of business growth—a notion not heard enough in the Golden State.
Frankly, at NFIB/California, we think this is just a start. Our goal would be to expand the exemption on the Minimum Franchise Tax to all small businesses—new and old—on a permanent basis. Nevertheless, the governor’s proposal is a a good beginning.
The idea of offering entrepreneurs a hand comes in the shadow of continued threats to the small business community.
Many small businesses in particular are concerned about both the change in worker classification under AB 5, which limits small business reliance on outside contractors that could cripple how many small businesses operate, as well as the coming battle over property tax increases on commercial property, which is sure to hit the many small businesses that rent their facilities.
Let’s hope the legislature joins the governor in recognizing the importance of small business and approves the Minimum Franchise Tax relief idea…with more positive legislative changes for small businesses in the near future.