SBA Paycheck Protection Program (PPP) is a lifeline to keep small businesses open and their workers employed during the COVID-19 pandemic. Eligibility for forgiveness requires using the loan for qualifying purposes like payroll, mortgage payments, rent and utilities. Congress chose to exempt forgiven PPP loans from federal income taxation, but some states are planning on taxing it and Vermont is one of them.
In the final stages of H.315, the COVID-19 relief bill, the VT House Ways and Means and Senate Finance Committee changed language to tax PPP loans given in 2021 as business income and it passed. The VAB signed onto a letter with other business organizations sent to the Legislature 4/14/21 requesting they conform to federal treatment of forgiven PPP loans in the tax year 2021, as was the congressional intent of the forgivable loan program. After an outpouring of opposition from business leaders, the Senate Finance Committee has agreed to revisit this issue and will take testimony from representatives of the business and finance community starting Tuesday 4/20 at 1:30PM. Watch here
If you have a PPP loan being forgiven in tax year 2021 and don’t want to be taxed on it, we urge you reach out to members of the Senate Finance Committee and House Ways and Means Committee ASAP:
Senate Finance Committee member emails: firstname.lastname@example.org (chair), email@example.com, CPearson@leg.state.vt.us, firstname.lastname@example.org, email@example.com, firstname.lastname@example.org, email@example.com
House Ways & Means Committee member emails: firstname.lastname@example.org (chair), email@example.com, firstname.lastname@example.org, email@example.com, firstname.lastname@example.org, email@example.com, firstname.lastname@example.org, COde@leg.state.vt.us, email@example.com, firstname.lastname@example.org, email@example.com
The call to action is different for each committee:
Senate Finance Committee Call-To-Action (because they have agreed to revisit & take testimony): Change H.315 to conform to federal treatment of forgiven PPP loans in the tax year 2021.
House Ways and Means Call-to-Action (who could revisit but are choosing not to): Take H.315 back up and allow businesses to testify.
Below are some talking points you are welcome to use:
- Taxing PPP loans would negate the purpose of the program. When PPP was first created under the CARES Act, the legislative intention was that these loans would be non-taxable. Congress saw this as so important to the program’s desired impact that they took the extraordinary step of reaffirming this in the subsequent Consolidated Appropriations Act.
- Without PPP, the unemployment rates would have been much higher, more businesses would have closed their doors, and the economic fallout would have been more severe. As our state’s unemployment system was strained and crashing, PPP created a parallel unemployment system to spread the load, with many employers simply using PPP funds to pay their employees to “stay home, stay safe.” There is a trauma to losing one’s job, even with UI, PPP kept this trauma from occurring by keeping employees on the employer’s payroll. Furthermore, personal income tax revenue to the state was not decreased due to these loans.
- To tax these loans, which were always presented as a tax-free lifeline, would penalize employers who did the right thing and now do not have the funds. If these loans were to be taxable suddenly, most employers would be met with a surprise tax bill they have no way to pay after a year of being closed through no fault of their own. To have the loan forgiven, implies that the employer spent the loan in its entirety on payroll and eligible expenses, leaving them with nothing to show.
- Retroactively changing the circumstances around the assistance will be unfair, inequitable, and create turmoil. The money to pay tax on these loans is not there as most employers have done what the program told them to do – spend the money right away. Given the state is conforming to federal treatment in TY 2020, those least served by the program and who only gained access in 2021 will receive inequitable treatment. An unforeseen tax bill will prolong the economic impact of the pandemic. Many of the businesses that were late to access this program have been the hardest hit by the pandemic and the least served by the program in its earlier iterations. Finally, businesses had no control over when their loan is ultimately forgiven, as procedural hurdles prevented rapid forgiveness, dragging them into 2021.
- There is no double benefit. For example, if an employer has $100,000 of a PPP loan forgiven, they can and should deduct those expenses. Taxing what otherwise would have been deductible means that the employer is in a worse place than if they had laid off employees and sent them to the UI system. Furthermore, the state already collected revenue from PPP loans in the form of payroll taxes.