New laws for 2023: Business

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Contributors

The 2022 legislative session focused on various forms of debt and income relief available to small and family-owned businesses. While all of these forms of relief may not apply to every business, they are worth your attention since the economic crunch may worsen and it would be helpful to be aware of these, or other new forms of relief.

SB 851—Small Business Relief Act

What the law currently requires

Existing law, the Small Business Relief Act, for taxable years beginning on or after January 1, 2021, and before January 1, 2026, authorizes a partnership or “S” corporation that meets certain other requirements to elect to pay an elective tax at a rate based on its net income, as specified, for the taxable year. The Personal Income Tax Law allows various credits against the taxes imposed by that law, including a credit against the personal income tax to a taxpayer, other than a partnership, that is a partner, shareholder, or member of an entity that elects to pay the elective tax authorized by the Small Business Relief Act, in an amount equal to a specified percentage of the partner’s, shareholder’s, or member’s pro rata share or distributive share, as applicable, of income subject to the elective tax paid by the entity.

How this bill changes the law

Clarifies the rules for computing the California other state tax credit (OSTC) when an entity elects to pay the Pass-Through Entity Tax (PTET) and obtains Pass-Through Entity Tax Credits (PTE Tax Credits). The bill ensures that when a pass-through entity elects to pay the PTET, individual members of the entity will not lose their individual OSTC’s as a result that election.

Action Items

Work with your tax professionals to ensure compliance with and benefit from this new law.

SB 113—California employer economic relief

What the law currently requires

  1. The Personal Income Tax Law and Corporation Tax Law generally authorize various credits against the taxes imposed by those laws. Existing law provides that, except as specified, the total credits allowable under those laws may not reduce the taxes imposed by those laws by more than $5,000,000, as provided, for taxable years beginning on or after January 1, 2020, and before January 1, 2023.
  2. Existing law, the Small Business Relief Act, authorizes specified partnerships and “S” corporations, for taxable years beginning on or after January 1, 2021, and before January 1, 2026, to elect to pay an elective tax at a rate based on its net income, as specified, for the taxable year. The act, for taxable years beginning on or after January 1, 2021, and before January 1, 2026, allows a credit against the personal income tax to a taxpayer, other than a partnership, that is a partner, shareholder, or member of an entity that elects to pay the elective tax, in an amount equal to a specified percentage of the partner’s, shareholder’s, or member’s pro rata share or distributive share, as applicable, of income subject to the elective tax paid by the entity. The act defines a qualified entity for these purposes as an entity that is taxed as a partnership or “S” corporation with partners, shareholders, or members that are corporations or taxpayers, but not partnerships. The act excludes a business entity that is disregarded for federal tax purposes from the definition of taxpayer, and defines qualified net income as the sum of the pro rata share or distributive share of income subject to tax under the Personal Income Tax Law, as specified.

How this bill changes the law

  1. This bill would reinstate the net operating loss deduction, and would remove the above-described temporary limitation on allowable credits, for taxable years beginning on or after January 1, 2022.
  2. This bill, for purposes of the Small Business Relief Act, would include a partnership as an eligible partner, shareholder, or member for purposes of a qualified entity, and would include a limited liability company that is disregarded for federal tax purposes and meets specified criteria in the definition of a qualified taxpayer. The bill would also include specified guaranteed payments as qualified net income for purposes of the act.

Action Items

Work with your tax professionals to ensure compliance with and benefit from this new law.

AB 1279—California Climate Crisis Act

What the law currently requires

The California Global Warming Solutions Act of 2006 designates the State Air Resources Board as the state agency charged with monitoring and regulating sources of emissions of greenhouse gases. The state board is required to approve a statewide greenhouse gas emissions limit equivalent to the statewide greenhouse gas emissions level in 1990 to be achieved by 2020 and to ensure that statewide greenhouse gas emissions are reduced to at least 40% below the 1990 level by 2030. The act requires the state board to prepare and approve a scoping plan for achieving the maximum technologically feasible and cost-effective reductions in greenhouse gas emissions and to update the scoping plan at least once every 5 years.

How this bill changes the law

This bill, the California Climate Crisis Act, would declare the policy of the state both to achieve net zero greenhouse gas emissions as soon as possible, but no later than 2045, and achieve and maintain net negative greenhouse gas emissions thereafter, and to ensure that by 2045, statewide anthropogenic greenhouse gas emissions are reduced to at least 85% below the 1990 levels. The bill would require the state board to work with relevant state agencies to ensure that updates to the scoping plan identify and recommend measures to achieve these policy goals and to identify and implement a variety of policies and strategies that enable carbon dioxide removal solutions and carbon capture, utilization, and storage technologies in California, as specified. The bill would require the state board to submit an annual report, as specified.

Action Items

No recommendations at this time.

AB 2766—Unfair competition law

Enforcement powers: investigatory subpoena

What the law currently requires

The Unfair Competition Law (UCL) establishes a statutory cause of action for unfair competition, including any unlawful, unfair, or fraudulent business act or practice and unfair, deceptive, untrue, or misleading advertising. Under this law, actions for relief are required to be prosecuted exclusively by the Attorney General, a district attorney, a county counsel authorized by agreement with the district attorney in actions involving violation of a county ordinance, a city attorney of a city having a population in excess of 750,000 or by a county counsel of any county within which a city has a population in excess of 750,000, or a city attorney in a city and county, or, with the consent of the district attorney, by a city prosecutor in a city having a full-time city prosecutor in the name of the people of the State of California, as specified, or by a person who has suffered injury in fact and has lost money or property as a result of the unfair competition.

Existing law authorizes a district attorney, upon reasonable belief that there has been a violation of the UCL or various other laws related to unfair business practices, to exercise all of the powers granted to the Attorney General as a head of a department to investigate the potential violation, including the authority to issue subpoenas.

How this bill changes the law

This bill would grant the investigatory power granted to the Attorney General as a head of a department to the city attorney of any city having a population in excess of 750,000, to the county counsel of any county within which a city has a population in excess of 750,000, or to a city attorney of a city and county, when the city attorney or county counsel reasonably believes that there may have been a violation of the UCL. The bill would require the recipient of a subpoena issued pursuant to those investigatory powers granted to a city attorney or to a county counsel who objects to the request, to serve their objection and to meet and confer with the issuer of the subpoena to attempt to address their objection. The bill would authorize the recipient of the subpoena to petition the superior court for an order quashing or modifying the subpoena, if, after meeting and conferring, the issuer and recipient cannot reach agreement.

Action Items

Immediately contact a litigation attorney if served with a subpoena in any type of action, particularly one involving the Unfair Competition Law.

AB 2164—Disability access

What the law currently requires

Existing Federal and State laws require properties to be accessible by persons with disabilities.

How this bill changes the law

This bill benefits small businesses and consumers by providing funding to small businesses to ensure their properties are accessible.

Action Items

Seek government funding if performing repairs on property to ensure accessibility.