Image via flickr user Jernej Furman
Written by Breanna Hardy
California businesses have been down to the wire this tax season, up against paying state taxes on their Paycheck Protection Program loans. But yesterday, the Calfornia Senate approved AB 80, which would make forgiven PPP loans tax-deductible – and give businesses a breather.
The measure awaits the governor’s signature.
Making federal relief tax-deductible has been a bipartisan effort.
The bill was first introduced by Assemblymember Autumn Burke. Sen. Andreas Borgeas (R-Fresno) also introduced a tax conformity bill, SB 265, which includes making grants tax-deductible. But the bill hasn’t gained as much traction as AB 80.
The April 15 tax filing date had been extended to May 17 only for individual tax filers. Corporate tax filings were stuck to April 15. But some certified public accountants have advised businesses to extend their tax filings to temporarily avoid paying tens of thousands in tax dollars.
John Schultz, Chair of California Society of Certified Public Accountants (CalCPA) Committee on Taxation, said that the bill lacks clarity.
It would potentially benefit businesses, but many details are still unknown. For instance, it’s unclear if a business can still qualify for the 25% reduction if revenue loss only added up to 24.98%. And Schultz explained that it’s unclear how businesses will be vetted through the process, which mirrors the PPP qualifications.
It’s a matter of how the State of California will define gross receipts.
“We’re still looking for clarity on all this just so we can advise,” Schultz said.
Fresno Chamber of Commerce interim CEO Scott Miller said that most business owners he knows had filed for a tax extension with the expectation that AB 80 would pass.
“Obviously the chamber is in favor of tax forgiveness for the businesses,” Miller said.
The ramifications of paying taxes on, say, a $200,000 loan could have further hindered already-hard-hit businesses.
CA's businesses have helped us through the pandemic, and we must ensure they have the financial tools they need to rebound stronger than ever as we emerge on the other side. I’m proud to see the #CALeg deliver tax relief for businesses hit hardest by the pandemic with #AB80. pic.twitter.com/pmWhUwSjwo
— Senator Toni Atkins (@SenToniAtkins) April 19, 2021
Sen. Toni Atkins tweeted, “CA’s businesses have helped us through the pandemic, and we must ensure they have the financial tools they need to rebound stronger than ever as we emerge on the other side. I’m proud to see the #CALeg deliver tax relief for businesses hit hardest by the pandemic with #AB80.”
Borgeas voiced on Twitter that business owners who received financial relief need every dollar to stay afloat.
I appreciate legislative leaders including key provisions of SB 265 into AB 80 to help eligible businesses that received PPP loans.
Much work remains allow for full deductibility/tax conformity. Those who received pandemic relief funds need every dollar to stay afloat. pic.twitter.com/E1L7vtWi4O
— Andreas Borgeas (@SenatorBorgeas) April 19, 2021
AB 80 was first introduced in Dec. 7, 2020 after PPP loans were deemed tax exempt at the federal level. The bill has been postponed several times after its introduction.
Last week the bill was amended to remove its $150,000 limit on the amount of expenses eligible for deduction. To take the deductions on PPP loan taxes, businesses must demonstrate a 25% reduction in first, second and third respective quarters from 2019 to 2020. If the business took a PPP loan after Jan. 1, 2021, the business may include the fourth quarter of 2020 to compare revenue loss.
The bill does not include an employee limit.
Senate Republican Leader Scott Wilk tweeted yesterday in support of AB 80 passing through the Senate, “Good ideas should not have party lines.”
I’ve said it before & I’ll say it again:
good 👏 ideas 👏 should 👏 NOT 👏 have 👏 party 👏 lines.
Congratulations to the legislature for getting this done & passing #AB80 to ensure businesses are not penalized for receiving COVID-19 relief loans.
— Scott Wilk (@ScottWilkCA) April 20, 2021