Bill to Exempt Small Businesses From Paying $800 Minimum Franchise Tax Introduced In Senate

A bill that would exempt most small businesses in the state from paying the state’s $800 annual franchise tax was officially introduced in the Senate on Wednesday.

Senate Bill 816, authored by Senator Suzette Valladares (R-Santa Clarita), would specifically exempt all small businesses with 25 or fewer employees and maximum gross receipts of $5 million from paying the state’s $800 minimum annual franchise tax. If passed, SB 816 would begin the exemption immediately, with taxable years beginning on or after January 1, 2025.

Senator Valladares wrote the bill because of the franchise tax being a $800 fixed financial obligation for small businesses that operate on tight budgets. In her introduction letter, the Senator said that the tax has become a significant burden to small businesses in recent years, with larger businesses having to pay the tax being able to easily afford it. And with growing business costs and prices inflating, SB 816 would serve as cost relief for small businesses, reduce financial barriers for them, encourage new startups and stimulate economic growth in the state.

“Small businesses have long been the backbone of California’s economy, driving innovation, job creation and contributing vibrancy to our local economies,” remarked Senator Valladares on Wednesday. “But California’s excessive taxes and fees make the dream of owning a small business out of reach for too many Californians.  We must do more to expand opportunity and encourage innovation, not deter it. This needed tax relief for small businesses will reduce a major financial hurdle and allow more Californians to pursue their entrepreneurial dreams.

“If passed, this bill will expand opportunity for millions of Californians who have a dream to start or expand a small business. We must do more to make the American Dream a reality for more Californians.”

The bill, first authored late last month before it’s introduction on Wednesday, has already won the support of many small business owners across the state.

“We have been really struggling the past five years,” said Jared Halliday, a restaurant owner in the Eagle Rock neighborhood of Los Angeles, to the Globe on Wednesday. “Covid, lockdowns, inflation, customers having less to spend. And right now, look at where egg prices are. It’s hard to keep up with.

“Getting rid of the franchise tax for businesses like mine can really help out, because every year, you know it is coming. Imagine that you didn’t have to make a mortgage or rent payment for one month every year. That’s a lot of money you can easily put someplace else. That’s what this relief would be like for us. There are so many places where that money can towards. I used to always think that tax cuts went only to rich people, but this is real proof that it isn’t the case.”

“With its high taxes and fees, California is a difficult place to run a small business,” added Andres Kabrera, a restaurant owner in Lancaster. “Eliminating the franchise tax would give us the breathing room we need to invest, hire more employees and improve our services. Every dollar saved is a dollar reinvested into building a stronger, more sustainable business.”