WASHINGTON, D.C. – Representative Mike Garcia (CA-25) sent a letter along with House Republican Leader Kevin McCarthy, and eight other California Republican lawmakers to California Governor Gavin Newsom urging him to do right by California’s small business owners and swiftly provide comprehensive relief legislation that would provide full state tax deductibility for business owners that used the Paycheck Protection Program (PPP) loan funding to cover business expenses. The letter comes as there are currently incompatibilities between California’s AB-80 and the American Rescue Plan Act (ARPA), which have left small businesses in California in limbo waiting for promised tax relief.

“As payroll and other business expenses that are considered forgivable under the PPP would typically be deductible on state taxes in prior tax years, it is reasonable to conclude that many small businesses receiving PPP loan funding expected expenses covered with this funding to be tax deductible, planned accordingly, and acted as they would have prior to the coronavirus pandemic,” the lawmakers wrote.

The lawmakers stressed the importance of allowing small businesses to deduct all PPP business-related expenses with no deduction cap.

“It is our hope that this situation is not compounded by further efforts to delay relief to California’s small businesses and workers. Rather than limiting state tax conformity laws to a cap on business expense deductions, we believe your leadership is necessary to ensure the State Legislature passes tax relief allowing business owners in California to deduct all business-related expenses paid for with forgiven PPP loan funding on their stat taxes, with no deduction cap, in conformity with the provisions established in Public Law 116-260 with regard to federal taxes,” the lawmakers wrote.

In the letter, the lawmakers urged Governor Gavin Newsom to oppose partial relief, and instead act swiftly and provide comprehensive relief legislation that would provide full tax deductibility for business owners who used the PPP loan funding for business expenses.

“Our small businesses need straightforward solutions to a problem borne of California’s inaction, without imposing arbitrary caps.”

In March, Garcia joined Republican lawmakers in sending a letter to Speaker Nancy Pelosi on the need to pass the Let States Cut Taxes Act,  which would repeal the provisions with the ARPA that created the current contradictory tax issues. Garcia cosponsored the Let States Cut Taxes Act.

Click here to read the letter to Governor Newsom.

Click here to read the letter to Speaker Pelosi.

Click here to learn more about the Let States Cut Taxes Act.