COVID Reduction Act: Federal Tax Conformity Invoice lastly passes CA laws

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COVID Relief Act: Federal Tax Conformity Bill finally passes CA legislation

On April 26, the congregation voted 73-0 in favor of Bill 80 of the congregation, drafted by the chairman of the congregation’s Revenue and Taxation Committee, Autumn Burke. Forty-eight members of the congregation are co-authors of the bill. AB 80 generally provides state compliance with federal tax law for PPP grants. The bill was passed by the Senate 37-0 last week. 28 Senate Democrats are co-authors.

The title of the bill is “Coronavirus Aid, Relief and Economic Security Act: Federal Consolidated Appropriations Act, 2021”.

On February 17, the Assembly 80 Bill was gutted and amended as the Budget Trailer Bill as part of the Early Learning Package, and Rep. Autumn Burke was named draft bill. However, the language in the federal stimulus package raised concerns as to whether the passage of AB 80 would jeopardize federal funds. After the U.S. Treasury Department issued guidelines that state federal tax compliance laws would not result in the loss of federal stimulus programs, AB 80 was revived and quickly put through the process.

AB 80 would change sections 17131.8 and 24308.6 of the Revenue and Taxation Code. Additionally, the bill is an emergency measure and would require a 2/3 vote from each House of Legislature.

Section 1 of the bill would amend Section 17131.8 of the Revenue and Taxation Code, which is included in the Income Tax Act. For federal tax compliance purposes on gross income, the inclusion of the Federal Consolidated Funds Act of 2021 would be added for tax years on or after January 1, 2019 (note that applicable law provides for 2020). It would specify that gross income does not include an advance amount spent under Section 1110 (e) of the Coronavirus Aid, Relief, and Economic Security Act (Public Law 116-136) or under Section 331 of the Consolidated Appropriations Act 2021 (Public Law 116- 260). The bill would also create several exceptions to compliance with the CAA, 2021.

The bill would also stipulate that the definition of the term “covered credit” has the same meaning as in the relevant federal law of 2021 and that the “advance amount” is defined as an emergency grant under CARESA or as a targeted advance on a catastrophe loan for economic injuries below the CAA, 2021.

An addition to AB 80 from its earlier version would make certain taxpayers an “ineligible entity” and therefore not be subject to the benefits of federal tax law at the state level. An “Ineligible Company” is a taxpayer who is either a publicly traded company or who does not meet the gross income reduction requirements of federal law (i.e. 25% reduction).

Section 2 of the Bill would amend Section 24308.6 of the Revenue and Taxation Code, which contains the same provisions in the Corporate Income Tax Act as Section 1 of the Bill.

Section 3 of the bill sets out the objectives, purposes and objectives of these tax changes in order to comply with the provisions of the Revenue and Taxation Code, Section 41. Essentially, it provides that the purpose of these deductions, tax base, and other attributes are to provide assistance to small businesses in the state that have been economically damaged by the COVID-19 pandemic.

In addition, as part of the draft law, the Legislative Analyst’s Office would have to work with the Franchise Tax Board and review other publicly available data to analyze whether the PPP loans and the tax benefits of the deductions, tax base and other factors are present of the property damaged by the COVID-19 pandemic evenly distributed across industries, regions and companies and reported to the legislature by January 1, 2024.

Section 4 of the bill would contain legislative statements and declarations that the tax benefits in this bill would serve the public purpose of safeguarding the financial situation of companies that have been economically damaged by the COVID-19 pandemic and are not a gift of public funds.

Section 5 of the bill contains the urgency clause and states that the bill should go into effect immediately to provide much-needed tax break in line with the federal tax breaks due to the COVID-19 pandemic and to help California businesses, as soon as possible, who are struggling under the economic strain.

The bill is expected to be signed by Governor Gavin Newsom later this week and will come into effect on the day the bill is incorporated into law.