State Senators voted 36-14 to approve a bill that would cut corporate and individual taxes by more than $2 billion and create a $1 billion fund to award additional pandemic relief to North Carolina businesses.
As originally passed by the House, HB 334 would have allowed businesses to deduct expenses associated with forgiven Paycheck Protection Program loans and conformed to the federal tax exclusion for the first $10,200 of unemployment compensation in 2020. The Senate deleted those provisions and replaced it with new language.
The Job Opportunity and Business Saving Grant Program would automatically distribute grants to North Carolina businesses that previously received assistance from the COVID-19 Job Retention Program, EIDL Advance, Paycheck Protection Program, Restaurant Revitalization Fund, or Shuttered Venue Operators Grant Program. Grant amounts would be 7.5% of the first $250,000 of assistance received from each program.
Under the Senate’s tax plan, recipients of forgiven PPP loans and other federal assistance would still have to add back any federally deducted business expenses associated with those programs.
Major tax changes in the bill that would go into effect in 2022 include dropping the personal income tax rate to 4.99%, increasing the standard deduction and child deduction, and basing the franchise tax solely on a net income calculation. The bill also phases out the corporate income tax over five years, starting in 2024.
The Senate Finance Committee also added Internal Revenue Code conformity provisions and other tax law changes. These changes include two NCACPA legislative agenda priorities: creating a graduate late tax payment penalty and correcting an unintended consequence of decoupling from Section 163(j) provisions in the federal CARES Act.
The bill now goes back to the House, where recent action indicates that the House and Senate are still far from agreement on PPP tax treatment and related measures.
On June 3, the House adopted a rewrite of SB 116 that includes PPP expense deductibility and the unemployment exclusion, as well as provisions to withdraw the state from the Federal Pandemic Unemployment Compensation Agreement and allocate $250 million for subsidized child care for eligible families. Now titled as the Putting North Carolina Back to Work Act, SB 116 is currently parked in the Senate Rules Committee awaiting further action.
The most likely scenario is that the two chambers will work out their differences as part of the state budget negotiations.
If you have questions about this issue or other policy matters, please contact NCACPA Director of Advocacy Robert Broome, CAE.