N.C. House Passes Bill to Exempt PPP Loan Expenses From State Taxes

Raleigh N.C. – The North Carolina House of Representatives has passed HB334 Temp Align PPP Treatment to Federal Treatment.

House Bill 334 would, for the 2020 tax year only, allow individual and corporate taxpayers an income tax deduction for expenses paid using a loan forgiven under the Paycheck Protection Program.

Generally, federal tax law treats the forgiveness of a loan as income and denies a tax deduction for expenses paid by tax-exempt income. NC uses the federal definition of income as a starting point to calculate NC taxable income which incorporates federal tax law into the NC tax calculation.

The federal CARES Act created the Paycheck Protection Program (PPP) that made forgivable loans for certain expenses during the pandemic. More than 120,000 companies in North Carolina received forgivable loans through the Paycheck Protection Program (PPP), which was designed to save jobs in the pandemic.

While many large corporations were able to secure these loans, the majority of businesses who were awarded with PPP funds had an average of 10 employees. The amounts received ranged from less than $100 to more than $5 million. Estimates from relevant data show that these loans helped retain more than 1.2 million jobs in North Carolina.

The Internal Revenue Service (IRS) ruled the expenses paid by the PPP loan were not deductible (Rev. Rul. 2020-27), meaning that companies would be required to pay taxes on the PPP funds they received. Congress made a technical correction to the law to make the expenses paid by the PPP loan deductible.

N.C. has not conformed to the federal law change making the expenses paid by a PPP loan deductible, meaning that companies would still be required to pay state taxes on any PPP loans they received. House Bill 334 would bring the North Carolina revenue code alongside the federal revenue code in regard to the deductibility of PPP loans.

“This tax change would be an immense benefit to N.C. small businesses, after so many of them are still reeling from the loss of business due to Governor Coopers shutdown and restrictions. Forty-seven other states have passed similar legislation. North Carolina should join her forty-seven sister states, and give our businesses the help they so desperately need”, said Representative Hall.

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