Minimum franchise tax: small business fees.
The aim of AB 632 is to alleviate the financial burden on small businesses, particularly in light of the economic challenges posed by the COVID-19 pandemic. The bill also states the intent to waive certain licensing fees imposed by local jurisdictions to further support small businesses. Notably, the legislation mandates the California Franchise Tax Board to provide annual reporting on the effects of this tax reduction on small businesses, which may assist in evaluating its effectiveness over time.
Assembly Bill 632, introduced by Assembly Member Ramos, addresses the annual minimum franchise tax imposed on corporations and limited liability entities in California. Currently, this tax amounts to $800 per year for corporations operating within the state. AB 632 proposes to reduce this minimum franchise tax based on gross receipts for the taxable years starting from January 1, 2022, through January 1, 2027, offering relief specifically to smaller entities that do not exceed gross receipts of $15 million. For those exceeding this threshold, the existing tax rate will continue to apply.
While proponents see the bill as a crucial step toward fostering economic recovery for small businesses and preventing the stifling of growth due to high taxes, opponents may argue that significant tax reductions could impact state revenue negatively. Moreover, there could be discussions regarding the adequacy of the definitions of 'small business' and the appropriate thresholds for tax relief, as these parameters can notably influence which entities benefit from the proposed changes.