State legislators have filed a pair of bills that would allow business expenses associated with forgiven Paycheck Protection Program (PPP) loans to be deductible at the state level.
NCACPA has not taken a position on either bill, except to advise lawmakers that swift action on the measures would eliminate the uncertainty faced by tax professionals and taxpayers ahead of the March 15 filing deadline.
SB 104 is sponsored by Sen. Chuck Edwards (R-Henderson), Sen. Jim Perry (R-Lenoir), and Sen. David Craven (R-Randolph) and would permanently repeal the expense addback requirement adopted last year in S.L. 2020-58.
A second bill, SB 112 by Sen. Jim Burgin (R-Harnett), Sen. Kevin Corbin (R-Macon), and Sen. Don Davis (D-Pitt), would repeal the provision for the 2020 tax year only and reinstate the addback effective January 1, 2021.
The bills were referred to the Senate Rules Committee following introduction, and neither have been scheduled for a vote.
The most significant barrier to either of these bills becoming law is the projected fiscal impact to state revenues. At the NCACPA State and Local Tax Conference in December, House Finance Committee Senior Chair Julia Howard (R-Davie) stated her firm opposition to PPP expense deductibility and referred to it as “double-dipping.” The General Assembly’s Fiscal Research Division has not yet scored these bills, but several legislators have estimated the fiscal imparct of PPP expense deductibility a $400–$600 million in lost revenue.
Under current state law, PPP loan forgiveness is excluded from taxable income for corporate and individual taxpayers. However, those taxpayers must add to their adjusted gross income the amount of any expense deducted under the Internal Revenue Code to the extent that payment of the expense results in forgiveness of a PPP loan.
Interest in this issue intensified after Congress adopted the Consolidated Approprations Act, 2021, in December (read more). A key provision in the Act clarified that qualifying expenses associated with a forgiven PPP loan are deductible for federal tax purposes.
If you have questions about this issue or other policy matters, please contact NCACPA Director of Advocacy Robert Broome, CAE.