Businesses in California Fight Against Tax Hikes: What Does This Mean for Small Businesses?

California business woman

Release Date

Saturday, August 26, 2023


Much turmoil and debate have risen from the continued tax hike proposal plaguing small businesses in California. The reform seeks to change how companies are taxed, a major change that would shift procedures that have been the same for over two decades. 

The state currently ranks 25th overall for best states for business in the United States. Its top-scoring categories include access to capital, technology, and innovation. Currently, its middling spot already exists due to the high cost of doing business and some of the strictest regulations for operations and taxation in the country. Currently, it also ranks second to the last in terms of cost of living. Should the amendment come to pass, this may push these scores further down. 

California Dems and Proposed Tax Changes

The aim of the proposal is to pause net operating loss dedication. In doing so, the tax rate imposed on businesses with a taxable corporate income of more than $1.5 million would increase by more than 2%. In order to minimize the impact on smaller businesses and help them in the long run, the first $1.5 million of taxable profits would see a lowered tax rate to the same degree. 

The Democrats have pushed this to the Senate but saw significant pushback from Gov. Gavin Newsom. Despite the adjustment aimed toward bigger corporate income, he has gone on record noting how this would shake up the business climate and put fiscal investments at risk. 

The dispute also stems from business groups that want to improve business interests in terms of approval or rejection of tax increases. This would reduce potential profits and increase compliance costs, making the barrier to entry more insurmountable. 

That said, Sen. Nancy Skinner has noted that this proposal would enable more allocation to school funding and programs aimed to aid residents dealing with homelessness and low-income statures. Much of the debate comes from whether or not the increased pool for funding other efforts would be enough to waylay the revenue stream of relevant districts. 

Under the amendment, the business coalition will need to have a two-thirds vote as a threshold. Whether one side or the other is fighting to maintain the status quo remains to be seen. While businesses aim to stifle certain taxes, Democratic bodies are aiming to prevent the exploitation of the system at the risk of hurting the economic recovery of certain counties. 

Challenges and Outlook for Businesses in 2023

While this does pose some concern for both new and existing small businesses, the bill has since been trimmed due to continued opposition from business parties. That said, this does come hot on the heels of other challenges and potential opportunities in 2023. It will be up to businesses to take active steps to get positive results out of the current climate. 

Even the best registered agent in California cannot legally help with this taxation, but making use of their services will be in the best interest of small businesses during this potentially tumultuous time. With so many changes being enacted, businesses will need to receive and respond to major tax notices swiftly, especially if they hope to remain compliant without sacrificing profit. It’s essentially one of the worst times to give legislators any more reason to put pressure on business, so having an RA handles tax law compliance, planning, and tax filing in terms of correspondence will be a smart move. 

Small businesses are also facing an increase in cybercrime, with data breaches costing businesses an average of $4.25 million in the last year. An effort to reduce the impact on vulnerable businesses has seen hundreds of new cybersecurity graduates from Africa, the Caribbean, and Canada deployed to companies globally. This includes remote workers with skillsets aimed toward catering to American businesses. 

On the more positive end of the spectrum, there is also the rise of opportunities for Black-allied businesses in hopes of empowering minorities. The goal is to provide a “democratized way for Black-owned businesses” to build their network, hire, establish their online presence, access capital, and reach a greater market share. This will be a notable avenue for small businesses that aim to launch despite the challenges being faced by the state. 



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