The North Carolina House of Representatives approved legislation this week that would align the state tax code with two recent federal tax changes. As the May 17 filing deadline looms, it is unclear whether the Senate will go along with the proposal.
The House was expected to adopt HB 334 on third reading on Tuesday. As previously reported, the bill would allow businesses to deduct expenses associated with forgiven Paycheck Protection Program (PPP) loans received in 2020 and reinstate the expense addback for PPP loan recipients effective January 1, 2021.
Instead, House members adopted an amendment to the bill that would do two things:
- Expand deductibility for business expenses associated with forgiven PPP loans to include loans issued in 2020 and 2021.
- Add a North Carolina taxpayer AGI deduction for the first $10,200 of unemployment compensation to conform with the federal tax exclusion contained in Section 9042 of the American Rescue Plan Act.
On Thursday, HB 334 passed the House on third and final reading by a vote of 112-1. The sole dissenting vote was Rep. Julia Howard (R-Davie), who was removed from her position as Senior Chair of the House Finance Committee earlier in the week after an intra-caucus dispute over the issue.
The changes approved by the House made HB 334 much more expensive. Although the official fiscal note has not yet been released, legislators say that the estimated revenue reduction will swell from $400 million to roughly $1.2 billion.
The measure now heads to the Senate, where legislative leaders have cast doubts publicly and privately about the bill’s chance of passage. The Senate has its own $1.86 billion tax relief bill (SB 337) still under consideration, and neither of the provisions in HB 334 are contemplated in the Senate plan.
If you have questions about this issue or other policy matters, please contact NCACPA Director of Advocacy Robert Broome, CAE.