He signed into law while visiting Los Angeles County.
It's a move to help get small businesses across the state back on their feet and work toward economic recovery across California.
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The PPP loans that businesses received from the federal government during the pandemic will not be counted as taxable income under the new legislation.
These businesses can also deduct the cost of expenses that those loans funded.
After signing the bill, Newsom then visited shops in Southern California with actor and restaurateur Danny Trejo.