‘Double dipping’ on PPP loans OK’d
Va. to allow up to $100K in business expense deductions for recipients of some COVID relief
After more than a month of back-and-forth debate, the Virginia General Assembly voted last weekend to allow businesses whose Paycheck Protection Program loans were forgiven last year, or who received one of the state’s Rebuild Virginia grants, to deduct up to $100,000 on their 2020 tax returns for eligible expenses paid for by the loans and grants.
The standstill had risked holding up Virginian’s state tax returns and making it more difficult for tax preparers, who didn’t know what the law would be, to assist clients.
The tax change, for just the 2020 filing year, was part of a normally uncontroversial annual tax conformity bill that lays out how the state will follow or depart from IRS federal tax filing rules. Virginia is among several states that doesn’t automatically conform to federal tax policy.
The dispute this year arose after Congress approved COVID19 relief legislation in late December that extended relief, including the Paycheck Protection Program that offered businesses loans, which could be forgiven, to keep employees on payroll and cover specific expenses. Before that legislation, recipients of PPP loans had been promised that if the loans were indeed forgiven, the amounts wouldn’t count toward the business’ income for tax purposes. Virginia had agreed. The December legislation, though, also allowed the expenses paid for with that forgiven loan to be fully deducted.
In effect, it created a tax break on top of a tax break.
That didn’t sit well with Virginia Secretary of Finance Aubrey Layne, a certified public accountant, and lawmakers concerned with tax policy who saw it as double-dipping and a potential high cost to the state’s
budget.
After first proposing no expense deductions for state filers who received PPP loans — and receiving criticism from business groups calling that unfair — the House and Senate offered divergent plans.
Del. Vivian Watts, chair of the House Finance Committee, had proposed allowing up to $25,000 in expense deductions for individual filers, saying it would target the relief to small businesses most. The Senate version first allowed up to $50,000 and then was amended to up to $100,000. Both added Rebuild Virginia grant recipients to their bills, too.
Watts said the impasse became moot after Feb. 15, when the state’s regular review of its budget projections showed stronger than anticipated tax revenue. That new forecast showed that an additional $410 million in revenue could be added to the state’s fiscal year 2021 budget.
Watts said the expense deduction break is expected to cost the state’s budget about $100 million. She said it made all the difference to learn that there would still be money to benefit nursing homes and schools. She called it a balance of equity that made the higher deduction threshold appropriate.
“In tax policy, nothing’s perfect,” she said.
Watts was the patron of the original House bill that allowed for up to $25,000 but not for the substitute that matched the Senate by increasing the amount to $100,000. She was still among 92 delegates to vote for the bill’s ultimate passage and the $100,000 deduction threshold.
“Just looking at it as tax policy, it breaks that precedent. It is double-dipping,” she said. While she agrees the deduction will help businesses in need, she maintains it may also benefit those that ultimately didn’t financially suffer and were sophisticated enough to have sought one of the loans from a bank in the first place. She said the Rebuild Virginia grants had been more targeted to need.
The National Federation of Independent Business, which had pushed state lawmakers to replicate what Congress allowed, lauded the result.
“While small-business owners wanted to receive the full federal tax benefit afforded by Congress, they appreciate the efforts the General Assembly made to reach this agreement on the state level. The $100,000 deduction will provide significant and immediate relief to over 80% of PPP and Rebuild Virginia recipients,” said NFIB’s Virginia director Nicole Riley.