Part 10.4Small Business Relief Act

Section § 19900

Explanation

This law allows certain businesses in California to choose to pay a specific elective tax on their net income from January 1, 2021, to January 1, 2026. The rate is set at 9.3% for the year they make the election. Their "qualified net income" includes shared income portions and guaranteed payments during the taxable year. This elective tax is additional to any other taxes or fees they already owe.

Businesses can count the income shares of partners, shareholders, or members who agree, and one person’s refusal won't stop the election. Once made, the decision can't be changed and must be filed correctly and on time. The changes are effective for taxable years starting from January 1, 2021, until January 1, 2026.

(a)Copy CA Revenue and Taxation Code § 19900(a)
(1)Copy CA Revenue and Taxation Code § 19900(a)(1) For taxable years beginning on or after January 1, 2021, and before January 1, 2026, 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 § 19900(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 17052.10.
(b)Copy CA Revenue and Taxation Code § 19900(b)
(1)Copy CA Revenue and Taxation Code § 19900(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 § 19900(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 § 19900(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 § 19900(c)
(1)Copy CA Revenue and Taxation Code § 19900(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 § 19900(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 § 19900(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.
(e)CA Revenue and Taxation Code § 19900(e) The amendments made to this section by Section 14 of Chapter 3 of the Statutes of 2022 shall apply for taxable years beginning on or after January 1, 2021, and before January 1, 2026.
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(Amended by Stats. 2025, Ch. 231, Sec. 73. (SB 711) Effective October 1, 2025. Conditionally inoperative pursuant to Section 19906. Repealed on or before December 1, 2026, pursuant to Section 19906.)

Section § 19902

Explanation

This law defines what qualifies as a 'qualified entity' for tax purposes. A 'qualified entity' is a business taxed like a partnership or an 'S' corporation, with owners who are exclusively corporations or taxpayers as specified in California laws. However, publicly traded partnerships and entities in a combined reporting group are not considered 'qualified entities.' The rules apply from January 1, 2021, to the end of 2025.

(a)CA Revenue and Taxation Code § 19902(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 § 19902(a)(1) The entity is taxed as a partnership or “S” corporation.
(2)CA Revenue and Taxation Code § 19902(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 § 19902(b) “Qualified entity” shall not include any of the following:
(1)CA Revenue and Taxation Code § 19902(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 § 19902(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.
(c)CA Revenue and Taxation Code § 19902(c) The amendments made to this section by the act adding this subdivision shall apply for taxable years beginning on or after January 1, 2021, and before January 1, 2026.
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(Amended by Stats. 2022, Ch. 3, Sec. 15. (SB 113) Effective February 9, 2022. Conditionally inoperative pursuant to Section 19906. Repealed on or before December 1, 2026, pursuant to Section 19906.)

Section § 19904

Explanation

This law sets rules for when the elective tax is due for specific entities. For tax years starting in 2021, the tax must be paid by the original return due date. From 2022 to 2026, part of the tax is due by June 15, with the rest due by the return due date. If the initial payment isn't made by June 15, the entity can't choose to pay the elective tax for that year. This law doesn't change any existing filing requirements. The Franchise Tax Board can create regulations to support this law, and they are not bound by the usual rule-making process.

(a)CA Revenue and Taxation Code § 19904(a) The elective tax authorized by this part shall be due and payable as follows:
(1)CA Revenue and Taxation Code § 19904(a)(1) For taxable years beginning on or after January 1, 2021, and before January 1, 2022, 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 19900.
(2)CA Revenue and Taxation Code § 19904(a)(2) For each taxable year beginning on or after January 1, 2022, and before January 1, 2026, as follows:
(A)CA Revenue and Taxation Code § 19904(a)(2)(A) On or before June 15th 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.
(B)CA Revenue and Taxation Code § 19904(a)(2)(B) 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 19900, an amount equal to the amount of the elective tax under subdivision (a) of Section 19900, less the payment made on or before June 15th of the taxable year pursuant to subparagraph (A).
(b)CA Revenue and Taxation Code § 19904(b) For each taxable year beginning on or after January 1, 2022, and before January 1, 2026, if no payment is made as required in subparagraph (A) of paragraph (2) of subdivision (a) in the form and manner as prescribed by the Franchise Tax Board, the qualified entity may not make the election under Section 19900 for that taxable year.
(c)CA Revenue and Taxation Code § 19904(c) 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).
(d)Copy CA Revenue and Taxation Code § 19904(d)
(1)Copy CA Revenue and Taxation Code § 19904(d)(1) The Franchise Tax Board may adopt regulations that are necessary or appropriate to implement this part.
(2)CA Revenue and Taxation Code § 19904(d)(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 payment due date taxable years qualified entity Franchise Tax Board prior taxable year election under Section 19900 June 15 payment payment deadlines tax registration filing requirements tax compliance administrative rules
(Amended by Stats. 2022, Ch. 705, Sec. 2. (SB 851) Effective September 28, 2022. Conditionally inoperative pursuant to Section 19906. Repealed on or before December 1, 2026, pursuant to Section 19906.)

Section § 19906

Explanation

This law is set to expire on December 1, 2026, unless a specific federal tax code section is repealed before that date. If Section 164(b)(6) of the Internal Revenue Code, which limits individual tax deductions, is repealed before December 1, 2026, this law will end sooner. The law would then become inactive starting January 1 of the following year after that repeal and will be officially repealed on December 1 of that year.

(a)CA Revenue and Taxation Code § 19906(a) Except as provided in subdivision (b), this part shall remain in effect only until December 1, 2026, and as of that date is repealed.
(b)CA Revenue and Taxation Code § 19906(b) If before December 1, 2026, Section 164(b)(6) of the Internal Revenue Code, relating to the limitation on individual deductions for taxable years 2018 through 2025, as it read on January 1, 2021, 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, as it read on January 1, 2021, is repealed, and shall be repealed December 1 of that taxable year.
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(Added by Stats. 2021, Ch. 82, Sec. 15. (AB 150) Effective July 16, 2021. Repealed on or before December 1, 2026, by its own provisions. Note: Repeal affects Part 10.4, comprising sections 19900 to 19907.)

Section § 19907

Explanation

This section clarifies that when California tax law refers to the "Internal Revenue Code," it means Title 26 of the U.S. Code. It includes all its changes up to a certain date that matches the rules for a specific taxable year, as defined elsewhere in the law.

Unless otherwise specifically provided, the terms “Internal Revenue Code,” “Internal Revenue Code of 1954,” or “Internal Revenue Code of 1986,” for purposes of this part, mean Title 26 of the United States Code, including all amendments thereto, as enacted on the specified date for the applicable taxable year as defined in paragraph (1) of subdivision (a) of Section 17024.5.
Internal Revenue Code Title 26 U.S. Code amendments taxable year definition California tax reference federal tax alignment tax law interpretation Section 17024.5 tax code updates specified date for taxable year tax legislation integration
(Added by Stats. 2025, Ch. 231, Sec. 74. (SB 711) Effective October 1, 2025. Conditionally inoperative pursuant to Section 19906. Repealed on or before December 1, 2026, pursuant to Section 19906.)