A Virginia Republican has prefiled legislation to provide tax relief to businesses, including by exempting loan forgiveness under the federal Paycheck Protection Program (PPP) from state income tax.
H.B. 5002 was prefiled July 30 by Rep. Joseph McNamara (R) for introduction in the special session scheduled to begin August 18.
The bill would create an income tax subtraction for PPP loan forgiveness under the federal Coronavirus Aid, Recovery, and Economic Security (CARES) Act (P.L. 116-136), signed into law March 27. Approximately $350 billion in loans was disbursed through the program to encourage employers to keep paying workers amid the COVID-19 public health crisis. The loans will be forgiven by the Small Business Administration if requirements are met.
The bill would add the following language to the portion of Virginia’s code that lists income tax subtractions: ”for taxable years beginning on and after January 1, 2020, any forgiveness of indebtedness on a covered loan received pursuant to section 1106(b) of P.L. 116-136 (the Coronavirus Aid, Relief, and Economic Security Act).”
North Carolina, Georgia, Wisconsin, and Iowa have adopted legislation to prevent loans forgiven under the PPP from being taxed, according to Katherine Loughead, senior policy analyst with the Tax Foundation.
Loughead said that because states usually bring in the Treasury guidance from the years of the IRC to which they conform, and since they often rely on the current calculation of federal adjusted gross income even if they don’t specifically conform to all the provisions in federal law that inform that calculation, she is “fairly confident most states will not end up taxing PPP loan forgiveness as income.”
“However, until a state declares its intentions explicitly, taxpayers won’t know for sure how their state will treat this loan forgiveness, so even states that use rolling conformity should clarify their intentions on this,” Loughead said.
In an August 7 statement to Tax Notes, the Virginia Department of Taxation said the General Assembly would “need to enact legislation advancing Virginia’s date of conformity in order for Virginia to adopt the Paycheck Protection Program loan forgiveness provision set forth in the CARES Act.”
McNamara prefiled another bill July 30 (H.B. 5003) that would require the state tax department to waive late-filing penalties for litter taxes due from June 1, 2019, to May 31, 2020.
Virginia levies the tax on manufacturers, wholesalers, distributors, and retailers of products related to food for human or pet consumption, groceries, cigarettes and tobacco products, etc., according to the Department of Taxation's website.
Starting July 1, the tax rate doubled from $10 per business location (plus $15 for each location that manufactures, sells, or distributes groceries, soft drinks, or beer) to $20 per location (plus $30 for each of the above locations).
The bill says that “the department shall issue a refund in the amount of any penalties assessed by and paid to the department to any taxpayer who paid such penalties on or before December 31, 2020, and pays his full tax liability on or before December 31, 2020.”
It would require the department to identify taxpayers who are eligible for refunds by January 15, 2021. The refunds would have to be issued between February 1, 2021, and February 15, 2021.
Refunds would be “subject to collection under the provisions of the Setoff Debt Collection Act (section 58.1-520 et seq. of the Code of Virginia),” according to the bill.
McNamara did not respond to a request for comment by press time.