Part 10.4.1Small Business Relief Act

Section § 19910

Explanation

This law allows certain businesses in California to choose to pay an optional tax on their net income from January 1, 2026, to January 1, 2031. This tax is calculated at 9.3% on their qualified net income, which includes income shares and guaranteed payments of partners, shareholders, or members. The election to pay this tax is additional to any other taxes they owe and must be decided through the proper filing. Once the business chooses to pay this tax, all business associates must agree to it, and the decision cannot be changed once made.

(a)Copy CA Revenue and Taxation Code § 19910(a)
(1)Copy CA Revenue and Taxation Code § 19910(a)(1) For taxable years beginning on or after January 1, 2026, and before January 1, 2031, a qualified entity doing business in this state, as defined in Section 23101, and that is required to file a return under Section 18633, 18633.5, or subdivision (a) of Section 18601, may elect to annually pay an elective tax according to or measured by its qualified net income, defined in paragraph (2), computed at the rate of 9.3 percent for the taxable year for which the election is made.
(2)CA Revenue and Taxation Code § 19910(a)(2) For purposes of this section, the “qualified net income” of a qualified entity means the sum of the pro rata share or distributive share of income, and any guaranteed payments, as described by Section 707(c) of the Internal Revenue Code, relating to guaranteed payments, subject to tax under Part 10 (commencing with Section 17001) for the taxable year of each qualified taxpayer, as defined in Section 17052.11.
(b)Copy CA Revenue and Taxation Code § 19910(b)
(1)Copy CA Revenue and Taxation Code § 19910(b)(1) The elective tax authorized by this part shall be in addition to, and not in place of, any other tax or fee required to be paid under Part 10 (commencing with Section 17001) or Part 11 (commencing with Section 23001).
(2)CA Revenue and Taxation Code § 19910(b)(2) The elective tax described in this part shall be assessed and collected under Part 10.2 (commencing with Section 18401).
(3)CA Revenue and Taxation Code § 19910(b)(3) Unless the context otherwise requires, the definitions set forth in this part and those in Part 10 (commencing with Section 17001), Part 10.2 (commencing with Section 18401), or Part 11 (commencing with Section 23001) shall apply.
(c)Copy CA Revenue and Taxation Code § 19910(c)
(1)Copy CA Revenue and Taxation Code § 19910(c)(1) The qualified entity may include in its qualified net income the pro rata share or distributive share of the income of any of its partners, shareholders, or members upon their consent. A partner, shareholder, or member that does not consent does not prevent the qualified entity from making an election to pay the elective tax.
(2)CA Revenue and Taxation Code § 19910(c)(2) All partners, shareholders, and members of the qualified entity shall be bound by the election made under this part for the taxable year.
(d)CA Revenue and Taxation Code § 19910(d) The election shall be irrevocable and shall be made on an original, timely filed return required under Part 10.2 (commencing with Section 18401) for the taxable year of the election in the form and manner as prescribed by the Franchise Tax Board.
elective tax qualified net income franchise tax board pro rata share distributive share guaranteed payments partners consent irrevocable election timely filed return business associates tax rate additional tax taxable years 2026-2031 income calculation California businesses
(Added by Stats. 2025, Ch. 17, Sec. 17. (SB 132) Effective June 27, 2025. Conditionally operative pursuant to Section 19916. Conditionally repealed pursuant to Section 19916.)

Section § 19912

Explanation

This law defines what a 'qualified entity' is for tax purposes. A qualified entity must operate as a partnership or an S corporation and have only corporations or specific types of taxpayers as its partners or shareholders. However, publicly traded partnerships and entities that must join a combined reporting group are explicitly not considered qualified entities.

(a)CA Revenue and Taxation Code § 19912(a) For purposes of this part, “qualified entity” means an entity that meets both of the following requirements for the taxable year:
(1)CA Revenue and Taxation Code § 19912(a)(1) The entity is taxed as a partnership or “S” corporation.
(2)CA Revenue and Taxation Code § 19912(a)(2) The entity’s partners, shareholders, or members in that taxable year are exclusively corporations, as defined in Section 23038, or taxpayers as defined in Section 17004.
(b)CA Revenue and Taxation Code § 19912(b) “Qualified entity” shall not include any of the following:
(1)CA Revenue and Taxation Code § 19912(b)(1) Publicly traded partnerships, as defined in Section 7704 of the Internal Revenue Code, as it read on January 1, 2021, as modified by Section 17008.5.
(2)CA Revenue and Taxation Code § 19912(b)(2) An entity that is permitted or required to be in a combined reporting group, as defined in paragraph (3) of subdivision (b) of Section 25106.5 of Title 18 of the California Code of Regulations.
qualified entity tax purposes partnership S corporation taxable year shareholders corporations publicly traded partnerships combined reporting group Section 23038 Section 17004 Internal Revenue Code California Code of Regulations tax entities entity requirements
(Added by Stats. 2025, Ch. 17, Sec. 17. (SB 132) Effective June 27, 2025. Conditionally operative pursuant to Section 19916. Conditionally repealed pursuant to Section 19916.)

Section § 19914

Explanation

This section explains how and when the elective tax for a qualified entity is due. First, by June 15 of the taxable year, the entity must pay either 50% of what they paid last year or $1,000, whichever is more. Then, they must pay the remaining amount by the deadline for their original tax return, relying on the guidelines without considering any extension.

If the entity fails to make these payments or pays less than required, they can still elect to pay the tax for that year. All payments need to be made as directed by the Franchise Tax Board. This section doesn't change other tax filing requirements. Lastly, the Franchise Tax Board can set rules for implementing this section, and those rules are not bound by the usual state procedures for adopting regulations.

(a)CA Revenue and Taxation Code § 19914(a) The elective tax authorized by this part shall be due and payable as follows:
(1)CA Revenue and Taxation Code § 19914(a)(1) On or before June 15 during the taxable year of the election, an amount equal to, or greater than, either 50 percent of the elective tax paid the prior taxable year or one thousand dollars ($1,000), whichever is greater.
(2)CA Revenue and Taxation Code § 19914(a)(2) On or before the due date of the original return that the qualified entity is required to file pursuant to Part 10.2 (commencing with Section 18401) without regard to any extension of time for filing the return for the taxable year of the election made pursuant to Section 19910, an amount equal to the amount of the elective tax under subdivision (a) of Section 19910, less the payment made on or before June 15 of the taxable year pursuant to paragraph (1).
(b)CA Revenue and Taxation Code § 19914(b) Notwithstanding subdivision (a), if no payment is made as required by paragraph (1) or (2) of subdivision (a), or if a payment is made that is less than the amount required by paragraph (1) or (2) of subdivision (a), a qualified entity may make the election under Section 19910 for that taxable year.
(c)CA Revenue and Taxation Code § 19914(c) All payments made pursuant to this section shall be made in the form and manner as prescribed by the Franchise Tax Board.
(d)CA Revenue and Taxation Code § 19914(d) This part shall not change any filing requirements under Part 10 (commencing with Section 17001), Part 10.2 (commencing with Section 18401), or Part 11 (commencing with Section 23001).
(e)Copy CA Revenue and Taxation Code § 19914(e)
(1)Copy CA Revenue and Taxation Code § 19914(e)(1) The Franchise Tax Board may adopt regulations that are necessary or appropriate to implement this part.
(2)CA Revenue and Taxation Code § 19914(e)(2) The Administrative Procedure Act (Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code) shall not apply to any regulation, rule, guideline, or procedure prescribed by the Franchise Tax Board pursuant to this part.
elective tax qualified entity payment deadline Franchise Tax Board taxable year original return payment guidelines tax election payment requirements regulations implementation Administrative Procedure Act tax filing requirements June 15 payment prior taxable year tax return deadline
(Added by Stats. 2025, Ch. 17, Sec. 17. (SB 132) Effective June 27, 2025. Conditionally operative pursuant to Section 19916. Conditionally repealed pursuant to Section 19916.)

Section § 19916

Explanation

This section will only start working if a specific tax rule (Section 164(b)(6) of the Internal Revenue Code) is extended. Normally, these rules will be in place until December 1, 2031, unless that tax rule is repealed first. If the tax rule is repealed before the end of 2031, these rules become inactive starting from the following January 1, and are officially ended on December 1 of that year.

(a)CA Revenue and Taxation Code § 19916(a) This part shall only become operative if the operation of Section 164(b)(6) of the Internal Revenue Code, relating to the limitation on individual deductions for taxable years 2018 through 2025, is extended.
(b)CA Revenue and Taxation Code § 19916(b) Except as provided in subdivision (c), this part shall remain in effect only until December 1, 2031, and as of that date is repealed.
(c)CA Revenue and Taxation Code § 19916(c) If before December 1, 2031, Section 164(b)(6) of the Internal Revenue Code, is repealed, this part would become inoperative for taxable years beginning on or after the January 1 after Section 164(b)(6) of the Internal Revenue Code is repealed, and this part shall be repealed as of December 1 of that year.
individual deductions taxable years Internal Revenue Code Section 164(b)(6) deduction limitation expiration date 2018-2025 tax rule tax rule extension repeal condition tax legislation timeline inoperative trigger
(Added by Stats. 2025, Ch. 17, Sec. 17. (SB 132) Effective June 27, 2025. Conditionally repealed by its own provisions. Note: Repeal affects Part 10.4.1, commencing with Section 19910.)