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What Is a Small Business Under California Law?

In looking at who is a business, there lacks the same definition across state law

By Chris Micheli, September 27, 2022 2:30 pm

One of the key principles in legislative drafting is consistency in language, including definitions. In looking at who is a business, there lacks the same definition across state law. In fact, California law provides over two dozen different definitions of “small business” throughout the Codes. Is this lack of a consistent definition problematic?

It could be, but it emphasizes the point that some terms are limited to their use in an individual Code (there are 29 of them in California), or even in a particular subset of a code (e.g., division, title, chapter, etc.). The following is a sampling of different definitions of “small business” found in different Codes:

Government Code Section 14837 – “Small business” means an independently owned and operated business that is not dominant in its field of operation, the principal office of which is located in California, the officers of which are domiciled in California, and which, together with affiliates, has 100 or fewer employees, and average annual gross receipts of ten million dollars ($10,000,000) or less over the previous three years, or is a manufacturer, as defined in subdivision (c), with 100 or fewer employees. Commencing January 1, 2019, the average annual gross receipts threshold shall be fifteen million dollars ($15,000,000).

Health & Safety Code Section 108855 – “Small business” means any manufacturer, importer, or distributor whose gross annual revenue for the sale of tableware is thirty thousand dollars ($30,000) or less.

Streets and Highways Code Section 227.1 – For purposes of this section, “small business” means a for-profit enterprise having a net worth of not more than six million dollars ($6,000,000) and after tax profits of not more than four million dollars ($4,000,000).

Health and Safety Code Section 131502 – “Small business” means an entity located in Santa Clara County that employs 50 or fewer persons, with at least 35 percent of the employees earning less than 350 percent of the federal poverty level for a family size of one, and that has not offered health care coverage to its employees for, at minimum, 12 consecutive months,

Government Code Section 13995.77 – “Small business” means a business location with less than one million dollars ($1,000,000) in total California gross annual revenue from all sources.

Health and Safety Code Section 40503 – “Small business” means a business that is independently owned and operated and meets all of the following criteria:

(A)  The number of employees is 10 or less.

(B)  The total gross annual receipts are five hundred thousand dollars ($500,000) or less.

Code of Civil Procedures Section 1028.5 – “Small business” means a business activity that is all of the following:

(1) Independently owned and operated.

(2) Not dominant in its field of operation.

(3) Not exceeding the following annual gross receipts or other criteria in the categories of:

(A) Agriculture, one million dollars ($1,000,000).

(B) General construction, nine million five hundred thousand dollars ($9,500,000).

(C) Special trade construction, five million dollars ($5,000,000).

(D) Retail trade, two million dollars ($2,000,000).

(E) Wholesale trade, nine million five hundred thousand dollars ($9,500,000).

(F) Services, two million dollars ($2,000,000).

(G) Transportation and warehousing, one million five hundred thousand dollars ($1,500,000).

(H) A manufacturing enterprise not exceeding 250 employees.

(I) A health care facility not exceeding 150 beds or one million five hundred thousand dollars ($1,500,000) in annual gross receipts.

(J) Generating and transmitting electric power not exceeding 4,500 megawatt hours annually.

Government Code Section 12100.82 – “Small business” means a business or nonprofit that meets all of the following criteria, as confirmed by the office or fiscal agent through review of revenue declines, other relief funds received, credit history, tax returns, and bank account validation:

(A) Is one of the following:

(i) A sole proprietor, independent contractor, 1099 employee, C-corporation, S-corporation, cooperative, limited liability company, partnership, or limited partnership, with an annual gross revenue of less than five million dollars ($5,000,000), but greater than one thousand dollars ($1,000), in the 2019 taxable year.

(ii) A registered 501(c)(3), 501(c)(6), or 501(c)(19) nonprofit entity that had an annual gross revenue of less than five million dollars ($5,000,000), but greater than one thousand dollars ($1,000), in the 2019 taxable year.

(iii) A division or department of a larger organization or entity, such as a tribal government, city, county, or city and county.

(iv) An organization that is fiscally sponsored by a nonprofit corporation.

(B) Began operating in the state prior to June 1, 2019.

(C) Is currently active and operating, or has a clear plan to reopen when the state permits reopening of the business.

(D) Has been impacted by COVID-19 and the related health and safety restrictions, such as business interruptions or business closures incurred as a result of the COVID-19 pandemic.

(E) Provides organizing documents, such as a 2019 tax return or Form 990, an affidavit from the board or authorizing official from the governing authority, detailing the governance structure; or a copy of an official filing with the Secretary of State or with the local municipality, as applicable, including, but not limited to, Articles of Incorporation, Certificate of Organization, Fictitious Name of Registration, or Government-Issued Business License.

(F) Provides an acceptable form of government-issued photo identification, where applicable.

Revenue and Taxation Code Section 17941 – “Small business” means a limited liability company with total income from all sources derived from, or attributable to, the state of two hundred fifty thousand dollars ($250,000) or less.

Government Code Section 53398. 52 – “Small business” means an independently owned and operated business that is not dominant in its field of operation, the principal office of which is located in California, the officers of which are domiciled in California, and which, together with affiliates, has 100 or fewer employees, and average annual gross receipts of fifteen million dollars ($15,000,000) or less over the previous three years, or is a manufacturer, as defined in subdivision (c) of Section 14837, with 100 or fewer employees.

Government Code Section 11346.3 – “Small business” means a business that is all of the following:

(i) Independently owned and operated.

(ii) Not dominant in its field of operation.

(iii) Has fewer than 100 employees.

Government Code Section 12100 – “Small business” means a business with less than 100 employees and with a gross revenue of less than five million dollars ($5,000,000)

Revenue and Taxation Code Section 23153 – “Small business” means a corporation with total income from all sources derived from, or attributable to, the state of two hundred fifty thousand dollars ($250,000) or less.

Health and Safety Code Section 23395.20 – “Small business” means an independently owned and operated business, that is not dominant in its field of operation, that, together with affiliates, has 100 or fewer employees, and that has average annual gross receipts of ten million dollars ($10,000,000) or less over the previous three years, or a business that is a manufacturer, as defined in Section 14837 of the Government Code, with 100 or fewer employees.

Revenue and Taxation Code Section 24416 – “Eligible small business” means any trade or business that has gross receipts, less returns and allowances, of less than one million dollars ($1,000,000) during the income year.

Revenue and Taxation Code Section 17053.73 – “Small business” means a trade or business that has aggregate gross receipts, less returns and allowances reportable to this state, of less than two million dollars ($2,000,000) during the previous taxable year.

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