A bipartisan bill that will help relieve businesses of tax liability on Paycheck Protection Program (PPP) loans has been signed by Gov. Gavin Newsom following near unanimous support in the Assembly and Senate.
AB 80 now allows California to conform to federal law passed under the CARES (Coronavirus Aid, Relief, and Economic Security) Act, which created the PPP, and provided the loans would be not taxed at the federal level. More than 520,000 California businesses have received PPP funding, totaling $32.3 billion, according to the most recent data from the Small Business Administration, which administers the program.
“AB 80 excludes income from #PPPLoans for state tax purposes, and allows almost everyone to deduct expenses paid for with forgiven funds,” the bill’s sponsor, Assemblywoman Autumn Burke, D-Inglewood, said on Facebook.
In the midst of tax season, the new statute provides welcome relief to taxpayers, David Ruff, chief consultant for the Assembly Revenue and Taxation Committee, told the Northern California Record.
“For every taxpayer that received a PPP loan that is forgiven, it is not considered taxable income,” Ruff said.
“The second thing it does, is the federal government actually decided to allow individuals who received these PPP amounts to use them for certain expenses like rent and employee payroll and deduct it as a normal business expense,” Ruff said. “We've also conformed to that treatment for the vast majority of taxpayers; there is an exception, however, for those who are either publicly traded or don't meet a gross receipts test – that's a 25% reduction year over year.”
Senate Republicans praised the measure but had pushed for SB 265, sponsored by Sen. Andreas Borgeas, R-Fresno, which would have applied to all businesses that received PPP loans.
“Frustrated small businesses have been waiting months for a solution,” Senate Republican Leader Scott Wilk, R-Santa Clarita, said in a news release. “I applaud Senator Borgeas for bringing this idea to the table and for the legislature for getting behind this bipartisan effort to help our struggling job creators.”
State budget constraints prevented AB 80 from covering all businesses, KCRA reported. It’s estimated roughly 75% of businesses will receive the benefit of the expense deduction.
Many states have passed legislation to conform with the intent of the federal law, according to the Tax Foundation.
“AB 80 is an important part of the state’s economic recovery, especially for small business owners,” Rob Lapsley, president of the California Business Roundtable, said in a news release. “We support the governor and Legislature’s ongoing focus on finding ways to help businesses recover, but there is still much work to be done.”