By Frances Ellington (Principal, GHJ) and Arun Dubey (Manager, GHJ)
Governor Newsom signed the California State Budget 2021-2022 (the Budget) on July 12 with total funding of $262.6 billion. The key economic and tax highlights of the state Budget are as follows:
SALT DEDUCTION WORKAROUND AND ENTITY-LEVEL TAX FOR PASS-THROUGHS
The Budget includes the SALT workaround of the $10,000 federal cap on individuals’ deductions for state and local taxes, available to S corporations, partnerships and limited liability companies. The pass-through entities may elect to pay a 9.3-percent income tax and the owners of the entities who pay personal income tax may claim a credit equal to the tax the entities pay. Such election can be made for tax year 2021 on or before March 15, 2022.
TAX CREDITS FOR THE FILM AND TELEVISION INDUSTRY
The Budget provides a one-time expansion of the film credit of $330 million. The Budget expands the film credit by $90 million in each of 2021-22 and 2022-23 or the sum of $75 million for recurring television series and $15 million for television series that relocate from other jurisdictions.
In addition, the Budget includes $150 million in film credits for studios that build new sound stage infrastructure in the state.
CALIFORNIA TAX CREDITS AND GRANTS FOR OTHER ELIGIBLE BUSINESSES
- The Budget increases funding for the California Competes Tax Credit (CCTC) by $110 million. The CCTC is an income tax credit available to businesses that want to locate in California or stay and grow in California and create quality, full-time jobs in California. The businesses of any size are eligible to apply for the CCTC. Learn more about the CCTC here.
- The Budget includes $120 million to establish a California Competes Grant Program focused on businesses that, due to insufficient tax liability, are unable to benefit from the CCTC.
- Reenactment and expansion of the Main Street Hiring Credit II against income, franchise or sales and use taxes for the 2021 taxable year. It allows employers with 500 or fewer employees and a 20-percent decline in gross receipts from 2019 to 2020 to claim a credit of up to $1,000 per net increase in full-time equivalent employees.
- A new income and franchise Homeless Person Hiring Credit of between $2,500 per $10,000 per homeless person hired, depending on the amount of hours worked. The credit is available for the 2022 through 2027 taxable years.
GOLDEN STATE STIMULUS II
In the Budget, $8.1 billion has been allocated to Golden State Stimulus program. This stimulus is targeted to low- and moderate-income households. The Budget authorizes the Stimulus payments of up to $1,100 to taxpayers with California Adjusted Gross Income (AGI) of $75,000 or less. The stimulus check is dependent on the taxpayer’s income and immigration status and whether the taxpayer has dependents.
FUNDING FOR SMALL BUSINESSES
- In the Budget, $2.5 billion has been allocated to provide immediate relief to small businesses affected by the pandemic. Eligible small businesses and nonprofit cultural institutions can receive grants ranging from $5,000 to $25,000, depending on their annual gross revenue.
- The Budget includes $50 million grants for eligible nonprofit cultural institutions until the full $50 million has been awarded.
- The Budget also includes $50 million in funding to assist qualified micro-businesses that have been negatively affected by the COVID-19 pandemic. Eligible microbusiness will receive grants of $2,500 each.
- The California Dream Fund: The Budget includes $35 million general fund for the micro-grants of up to $10,000 to seed entrepreneurship and small business creation.
Taxpayers should review their eligibility in order to take the benefit of California tax credits and grants under the new and expanded programs. Should you need assistance in understanding the eligibility criteria or need assistance in understanding the credit and grants program, reach out to GHJ tax advisors.