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Virginia Governor Pushes for Expanded Business Tax Relief

Posted on Jan. 25, 2022

Virginia Gov. Glenn Youngkin (R) has unveiled a legislative agenda that includes a boost to the state’s deduction for Paycheck Protection Program loan expenses and an income tax credit for small businesses.

Tax Relief for COVID-19 Loan Recipients

Youngkin’s Day One Game Plan legislative agenda, released January 21, outlines a slew of proposed bills and budget amendments. Included is H.B. 971, which would update the state’s conformity to the IRC to December 31, 2021, and retroactively increase from $100,000 to $1 million the cap on the deduction for business expenses paid by forgiven PPP loans for tax year 2020.

H.B. 971 would continue decoupling from some provisions of the Coronavirus Aid, Relief, and Economic Security Act (P.L. 116-136) relating to net operating losses, excess business losses, and limitation on business interest expense deductions — a measure that was included in the 2021 conformity bill signed by then-Gov. Ralph Northam. The proposed bill would also generally conform the state to the American Rescue Plan Act (P.L. 117-2), according to a fiscal impact statement from the Department of Taxation.

The bill would also retroactively increase the Rebuild Virginia program tax subtraction from a maximum of $100,000 to $1 million for tax year 2020 and allow full deductibility for expenses paid with PPP or economic injury disaster loans for tax years 2021 and later.

H.B. 971, prefiled January 12 by House Finance Committee member Kathy J. Byron (R), has been referred to her committee. An identical version of the bill, S.B. 583, was prefiled the same day by Sen. Stephen D. Newman (R), who sits on his chamber's finance committee.

Emily Walker of the Virginia Society of CPAs told Tax Notes in a January 24 email that the society's members and their clients “were highly disappointed last year in the General Assembly’s decision to limit the tax subtraction for PPP and Rebuild Virginia grants to $100,000.” Increasing this to $1 million would “provide much-needed relief to many taxpayers who were hard-hit by the COVID-19 pandemic,” she said.

The increased deduction for business expenses paid by forgiven PPP loans would cost $64 million in fiscal 2022 and $46 million in fiscal 2023, according to the impact statement.

Walker noted that the society is “advocating for the General Assembly to adopt modified rolling tax conformity to help streamline and provide as much certainty as possible in the future,” since annual emergency legislation is retroactive and affects the current filing season.

Del. Joseph McNamara (R), a House Finance Committee member, has filed legislation (H.B. 106) that would allow the state to conform to federal changes to the IRC on a rolling basis starting with tax year 2022.

Small Business Tax Credit

H.B. 332, another bill on Youngkin’s agenda, would provide eligible small businesses with a tax credit equal to the income tax owed on up to $250,000 of personal income during tax year 2022.

The bill defines a qualified small business as one of the following: a passthrough entity that has fewer than 50 employees and has no more than $10 million in gross receipts for the tax year; a self-employed individual; or a corporation that is at least 51 percent independently owned by U.S. citizens or legal resident aliens, has no more than $10 million in gross receipts during the tax year, and has 50 or fewer employees.

For businesses, the credit equals the tax owed on up to $250,000 of the amount that isn’t deductible when calculating federal taxable income, according to the bill.

H.B. 332 would also cap the total amount of annual credits at $75 million.

The bill was prefiled by Del. Christopher T. Head (R) on January 11. Its identical Senate version, S.B. 540, was prefiled the same day by Sen. Mark J. Peake (R).

Youngkin’s agenda also reflects his previous calls to enact individual tax relief. Various bills included in the agenda would accomplish his goals of doubling the standard deduction, providing one-time tax rebates, eliminating the state and local sales tax on food, requiring voter approval for real property tax rate increases, providing an income tax for military benefits, and delaying an increase in the gas tax.

Clarification, January 25, 2022: This story was updated to specify that the Virginia Society of CPAs' members and their clients were disappointed with the General Assembly's decision in 2021 to limit the tax subtraction for PPP and Rebuild Virginia grants.

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