Section 1896.12 - Eligibility for Certification as a Small Business(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;(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; and5.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: (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.Cal. Code Regs. Tit. 2, § 1896.12
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.
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).