Bill by Pasadena’s State Senator to Modify Minimum Franchise Tax for Small Business Owners Meets With Mixed Response

‘It’s just a tax increase disguised as a fee decrease for certain small LLC owners,’ says local business advisor. But others say it’s a much-needed step in the right direction.

Published : Thursday, May 2, 2019 | 4:44 AM

Small businesses, a major engine driving today's economy, are subject not only to taxes but administering them. The National Small Business Association’s 2018 Small Business Taxation Survey reported administrative burdens of taxes on small business still outpaces those of finance as 63 percent said they spend more than $1,000 annually just to figure out tax laws and make sure they are in compliance. Image courtesy NSBA

A touted state bill to modify a minimum franchise tax for small businesses has met a mixed response from local business leaders.

SB 349, co-authored by Pasadena-area State Senator Anthony J. Portantino (D–La Cañada Flintridge) passed the Senate Governance & Finance Committee Wednesday and would modify the minimum franchise tax on small businesses, replacing the state’s $800 flat minimum tax mandate with a fee structure based on a small business’ annual gross receipts.

“Since my time in the Assembly,” said Senator Portantino, “I have tried to find ways to support small businesses in California and I am very happy that this bill is moving forward.

“By eliminating the minimum tax responsibility,” he continued, “California will send a strong message of support to small business owners. Small businesses are an ever-increasing important component of a successful economy and we need to encourage their success. California’s small businesses account for a significant portion of the state’s employers and about 45% of our state’s exports.”

Paul Little, President and CEO of the Pasadena Chamber of Commerce, commented, “I appreciate Senator Portantino’s bill. It is one step in helping small business in our state survive. I look forward to other initiatives that enhance competitiveness for our local business community.

Little added, “I would hope the end result would be a net benefit for all small businesses, not just some of them.”

Betty Jo Toccoli, president of the California Small Business Association, echoed Little’s praise, saying, “SB 349 will give fairness based on size and further incentives, which will encourage all small businesses to incorporate. This bill will help produce more revenue for the State of California and we are glad this bill is moving forward in the legislature.”

But Michael Anthony, managing principal of Private Trust Management Group, disagreed vehemently with Toccoli’s assessment, however, saying bluntly, “Betty, what is wrong with you?”

Anthony continued, “The more money that you’ve paid to the government, the more money you move from the private sector, which is productive, and to the unproductive public sector, the worse it is for California. And if Senator Portantino or anybody else wants to do better, all they have to do is to lower that $800, [to] have a sliding scale. They don’t need to replace it with a gross receipts tax, which will provide more revenue from the people who are currently registered. It’s just a tax increase disguised as a fee decrease for certain small LLC owners.”

Pasadena City Councilmember Andy Wilson was more circumspect in his response to the legislation.

“The minimum flat $800 LLC tax has been an annoyance and it’s certainly a plus to have it reduced or removed,” Wilson said. “That being said, the bigger challenge for small business is the larger regulatory burden and the overall high cost of labor in California. So this is indeed a move in the right direction but unfortunately just a few drops in the bucket.”

According to one Pasadena business leader, the new legislation may also staunch the flow of small businesses leaving California for other states, where the cost of doing business is lower.

”I’ve heard a lot of hubbub about a lot of people moving out because it’s just too expensive and is business unfriendly,” said Ishmael Trone, vice-chair of Workforce Development for the Pasadena Chamber of Commerce.

“I’ve had a lot of small business owners and startup entrepreneurs move out of the state to start their businesses because of the business incentives they receive out of the state,” said Trone, a Notary and tax preparer. “I’ve had a lot of clients ask me to form their corporations in the state of Nevada because it’s a $25 annual corporate fee.”

So Portantino’s effort is going in the right direction, Trone concluded.

“He’s creating an environment for startup companies to actually remain in the state of California and incorporate to protect their business assets.”

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