On Thursday (April 15th) the North Carolina House of Representatives voted 111-2 to pass House Bill 334 – Temporarily Align PPP Treatment to Federal Treatment, which will conform the state to the federal tax structure on the deductibility of business expenses paid for with the Paycheck Protection Program (PPP).
This will reduce the tax burden on small businesses who utilized PPP loans to keep their employees on the payroll by allowing them to deduct expenses paid for by the loans. Currently, North Carolina is one of only three states that do not allow business owners to deduct expenses paid for by PPP loans.
“This is a commonsense bill to help businesses across the state who have been dealing with the significant economic impact of the COVID-19 pandemic,” said Rep. Ray Pickett (R-Ashe), a primary sponsor of the bill. “For this specific situation, we felt it was best to simplify the process, align with the Federal treatment of PPP loans, and save businesses a little more money towards the bottom line.”
“Not only did our business community keep the economy moving last year, they kept countless North Carolinians employed and able to support their families,” said Rep. Jason Saine (R-Lincoln), who is also a primary bill sponsor. “This bill will make life easier for our small businesses, job creators, and tax professionals as they deal with fiscal year 2020 and work to get our state back on track in 2021.”
In 2020, the federal government passed the CARES Act to provide relief to those affected by the COVID pandemic. The CARES Act created the Paycheck Protection Program (PPP), which allowed businesses to receive forgivable loans for payroll and basic operating expenses such as rent, utilities, and personal protection equipment. Historically, loans have been treated as taxable income and aren’t deductible.
The Cares Act allowed for PPP loans to be nontaxable and directed the federal government to allow businesses to deduct expenses paid by PPP funds. House Bill 334 would align North Carolina’s treatment of PPP loans with federal tax guidelines in the CARES Act. House Bill 334 will now be sent to the State Senate for further action.