Current through Register 2024 Notice Reg. No. 38, September 20, 2024
(a) To be eligible for certification as a
small business, a business must meet all of the following qualifying criteria:
(1) It is independently owned and operated;
and
(2) Its principal office is
located in California; and
(3) The
officers of the business (in the case of a corporation); officers and/or
managers, or in the absence of officers and/or managers, all members in the
case of a limited liability company; partners in the case of a partnership; or
the owner(s) in all other cases, are domiciled in California; and
(4) It is not dominant in its field of
operation(s), and
(5) It is either:
(A) A business that, together with all
affiliates, has one hundred (100) or fewer employees, and annual gross receipts
of fifteen million dollars ($15,000,000) or less as averaged for the previous
three (3) tax years, as biennially adjusted by the Department in accordance
with Government Code section
14837,
subdivision (d)(3) (If the business or its affiliate(s) has been in existence
for less than three (3) tax years, then the GAR will be based upon the number
of years in existence); or
(B) A
manufacturer as defined herein that, together with all affiliates, has one
hundred (100) or fewer employees.
(b) To be eligible for designation as a
microbusiness, a business must meet all the qualifying criteria in subparagraph
(a)(1) - (4), and in addition, must be either:
(1) A business that, together with all
affiliates, has annual gross receipts of five million, dollars ($5,000,000) or
less as averaged for the previous three (3) tax years, as biennially adjusted
by the Department in accordance with Government Code section
14837,
subdivision (d)(3) (If the business or its affiliate(s) has been in existence
for less than three (3) tax years, then the GAR will be based upon the number
of years in existence); or
(2) A
manufacturer as defined herein that, together with all affiliates, has
twenty-five (25) or fewer employees.
(c) Joint ventures may be certified as a
small business or microbusiness when each individual business of the joint
venture is a certified small business. The joint venture is established by
written agreement to engage in and carry out a business venture for joint
profit, for which purpose they combine their efforts, property, money, skills
and/or knowledge. The joint venture shall not be subject to the average annual
gross receipts and employee limits imposed by this subchapter.
(d) Criteria for Certification
Determination(s):
(1) In determining if a
business is eligible for certification, OSDS may consider the applicant's
organizational structure, operations and business relationships during the
previous three (3) tax years (or years the business has been in existence if
fewer than three (3) tax years). OSDS may request the applicant provide copies
of income tax returns as filed with the State of California or other
jurisdictions in addition to the required federal income tax returns and
schedules, as filed with the Internal Revenue Service, and/or other
documentation deemed necessary for the OSDS to make a final certification
determination.
(2) The OSDS may
require the owner(s) or the certified firm to complete and submit an Internal
Revenue Service Form 4506-T pursuant to Government Code section
14840,
subdivision (b), for the purpose of requesting a tax return transcript for
certification eligibility review.
(3) Government Code section
14837,
subdivision (c) defines manufacturer for purposes of this subchapter. OSDS's
determination of whether a business is a manufacturer may include the
consideration of:
(A) Whether the business,
with its own facilities, performs the primary activities in transforming
inorganic or organic substances into the end item being acquired, and is not a
packager or, in the case of kits, a final assembler. The end item must possess
characteristics that did not exist, before the original substances, parts, or
components were assembled or transformed, as a result of mechanical, chemical,
or human action. The end item may be finished and ready for utilization or
consumption, or it may be semi-finished as a raw material to be used in further
manufacturing, and
(B) Whether more
than fifty percent (50%) of its annual gross receipts, as determined by the
Department, result from the manufacture and sale of products manufactured by
the business.
(4) OSDS's
determination of whether the officers, owners and/or partners, managers or
members of a business, as applicable, are domiciled in California may be based
on factors including, but not limited to, a review of:
(A) Voter registration records;
(B) Homeowner's property tax
filings;
(C) Driver's
licenses;
(D) Utility
billings;
(E) Individual state tax
returns; and
(F) Other
documentation indicating presence in California is more than temporary or
transient.
(5) OSDS's
determination of whether the principal office of a small business is located in
California, under the location requirements of Government Code section
14837,
subdivision (d)(1), shall be based on factors including, but not limited to, a
review of the address or physical location where management, direction, and
control of operations originate.
(6) OSDS's determination of business
affiliations, with respect to the requirements under Government Code section
14837,
subdivision (d), shall be based on factors including, but not limited to,
historical and current ownership, management, financial and/or business
relationships or ties with another business, such as familial relationships,
contractual relationships, assignments, passage of title to goods or
merchandise, and other related matters as reflected in tax returns and other
documentation.
(A) OSDS shall additionally
consider the following factors in determining affiliation:
1.The applicant business assigns a contract,
in whole or in part, to another business;
2.There exists common ownership and/or
management with the applicant business and another business;
3.The applicant business and another business
share facilities, equipment, systems, or employees;
4.There is a familial relationship with the
applicant business and another business and both businesses are in the same
industry; and
5.A person or
business has assisted the applicant business with activity to meet
bond/security requirements.
(B) The following types of business
relationships shall not be considered affiliations:
1.A franchise and/or license agreement
provided that the franchisee or licensee has the right to profit from its
efforts and bears the risk of loss commensurate with ownership.
2.A manufacturer's or service provider's
representative provided that a written agreement exists between the
manufacturer(s) or service provider(s) and the representative that
substantiates the independent nature of the individual businesses.
3.A nonprofit public benefit corporation as
described in section
1896.12, subdivision
(h).
(C) A joint venture
shall be deemed an affiliate for the purposes of this subchapter.
(7) A business entity whose
ownership interests, management and operation are not subject to control,
restriction, modification, or limitation by one or more individual(s) and/or
business entities, other than those involved in the day-to-day operations of
the business is considered independently owned and operated. OSDS shall presume
an applicant business not to be independently owned and operated if evidence
exists of any of the following:
(A) One or
more individual(s) and/or business entities not involved in the day-to-day
operations, owns, or controls, or has the power to control, fifty percent (50%)
or more of the voting stock of the applicant business, or
(B) One or more individuals, or business
owners, general partners, directors, officers, or members of another business
entity not involved in the day-to-day operations, controls, or has the power to
control, or influence the day-to-day operations of the applicant business,
management and/or owner(s) of the applicant business.
(8) An applicant that exercises or has the
ability to exercise a controlling or major influence, on a statewide basis, in
a business activity or field of operation, may be determined to be dominant in
its field of operation, and thereby statutorily ineligible for small business
certification in accordance with Government Code section
14837,
subdivision (d)(1). The following criteria, among others, may be considered by
the OSDS in determining if the applicant business is dominant in its field of
operation:
(A) Volume of business;
(B) Financial resources;
(C) Competitive status or position;
(D) Ownership or control of materials,
processes, licenses agreements and facilities; and
(E) Sales territory and nature of business
activity.
(e)
Except as limited by law, and only in order to determine the eligibility of a
business for certification, OSDS may consider information provided to it from
multiple sources, including but not limited to those seeking certification,
information provided by another applicant, any previously submitted, provided,
or collected documentation contained within the OSDS certification database,
and records gathered or held by any California state or local agency, any
governmental agency of another state, or the federal government.
(f) Small businesses are required to comply
with all applicable statutory and regulatory requirements of any state or local
agency, or the federal government, in order to be certified.
(g) To facilitate and promote a core
statewide small business certification process, the Department shall provide
local agencies and the general public web access to a small business statewide
directory maintained by the OSDS for the purpose of searching and confirming
small business certifications.
(h)
Nonprofit veteran service agencies are eligible for certification as a small
business if all of the conditions set forth in Military and Veterans Code
section
999.51
are met. Nonprofit public benefit corporations are registered with the
Department solely for the purpose of compliance with the provisions of the
California Prompt Payment Act (Government Code §
927 et
seq.).
(i) Small business
applicants must meet the applicant responsibilities as set forth in section
1896.14.
1.
Renumbering and amendment of former Section 1896.12 to Section
1896.18, and new Section 1896.12
filed 6-6-88, as an emergency; operative 6-6-88 (Register 88, No. 25). A
Certificate of Compliance must be transmitted to OAL within 120 days or
emergency language will be repealed on 10-4-88. For history of former section
1896.12, see Register 82, No. 50.
2. Certificate of Compliance
transmitted to OAL 10-4-88 and filed 11-2-88 (Register 88, No.
46).
3. Change without regulatory effect amending section filed
3-30-99 pursuant to section 100, title 1, California Code of Regulations
(Register 99, No. 14).
4. New article 3 heading and repealer and new
section filed 8-10-2004; operative 9-9-2004 (Register 2004, No.
33).
5. Amendment of subsections (a)(5)(A), (b)(1) and (d)(2)-(3)
filed 1-11-2007; operative 1-11-2007 pursuant to Government Code section
11343.4
(Register 2007, No. 2).
6. Amendment of subsections (a)(5)(A),
(b)(1) and (d)(2)-(3) and amendment of NOTE filed 12-21-2009; operative
1-20-2010 (Register 2009, No. 52).
7. Amendment of article heading,
section and NOTE filed 1-23-2017; operative 1-23-2017 pursuant to Government
Code section
11343.4(b)(3)
(Register 2017, No. 4).
8. Amendment of subsection (b)(1) filed
11-8-2018; operative 1-1-2019 (Register 2018, No. 45).
9. Amendment
filed 6-29-2023; operative 6-29-2023 pursuant to Government Code section
11343.4(b)(3)
(Register 2023, No. 26).
Note: Authority cited: Sections
14837,
14839 and
14843,
Government Code. Reference: Sections
927.2,
14615,
14837,
14838,
14839,
14839.1
and 14340, Government Code; Section
999.51,
Military and Veterans Code; and Title 13, Code of Federal Regulations (CFR),
Chapter I, §121.406.
