Assembly Democrats Call for Tax Relief in Budget to Help Small Businesses Transition Under Assembly Bill 5

Thursday, February 20, 2020

Gonzalez, Smith Request One-Year Exemption for Limited Liability Company Taxes

SACRAMENTO – (Thursday, Feb. 20, 2020) – More than a dozen California Assembly Democrats are joining Assemblymembers Lorena Gonzalez (D-San Diego) and Christy Smith (D-Santa Clarita) in calling for one-time tax relief in the state budget to help small businesses comply with Assembly Bill 5, the transformational worker rights law to stop the misclassification and wage theft of more than a million Californians.

“We know many of California’s independent contractors who operate as actual small businesses are making a good faith effort to comply with AB 5 and formalize themselves and their business licenses,” Assemblywoman Gonzalez said. “This one-time relief will help these business owners with the transition to becoming LLCs.”

Under AB 5, some independent contractors who operate as bona fide small businesses can maintain contractual relationships with other businesses. This has resulted in a number of independent contractors forming single member limited liability companies (LLCs) to maintain their prior business relationships.

To form an LLC, a business pays an annual tax of $800, also called the Minimum Franchise Tax (MFT). To assist these independent contractors with the transition to formalizing their small businesses, this budget request proposes a one-year exemption of the $800 annual tax for the contractors who formed their businesses from September 2019 through December 2020.

“I am pleased to join Assemblywoman Lorena Gonzalez in taking this next critical step in easing AB 5 implementation for our state’s independent contractors," Assemblywoman Smith said. “The tax relief provided by our request is vital to ensuring we support California’s workers who are independent contractors taking the steps to protect their rights.”

The Governor’s Budget Proposal includes resources to support AB 5 enforcement efforts. Assemblymembers Gonzalez and Smith, along with their colleagues, are taking extra steps to request additional funding to assist organizations in transition and help them through the first year of AB 5’s implementation – including a call for a $20 million budget allocation to help small community non-profit arts groups comply with the law.

For questions or to schedule an interview, contact: 

Assemblywoman Gonzalez: Samantha.Gallegos@asm.ca.gov

Assemblywoman Smith: Danni.Wang@asm.ca.gov