PPP Expense Deductibility Tax Proposal
On Tuesday, May 25th, the Senate Finance Committee co-chairs unveiled a sweeping tax proposal. The 41-page amendment rewrites HB 334. There has not been a vote on the proposal yet.
Instead of allowing a state tax deduction for expenses associated with forgiven PPP loans, the bill would create the Job Opportunity and Business Saving (JOBS) Grant Program. The program would provide grants to North Carolina businesses that were approved for an award amount on or before June 30, 2021, from the:
COVID-19 Job Retention Program
EIDL Advance
Paycheck Protection Program
Restaurant Revitalization Fund
Shuttered Venue Operators Grant Program
The maximum JOBS grant a qualifying business may receive is 7.5% of either the award amount or $250,000, whichever is less. (i.e., the maximum grant per business would be $18,750).
The bill would appropriate up to $1 billion of federal funds from the American Rescue Plan Act for the JOBS Grant Program. Grants would be awarded automatically by the Department of Commerce based on available data from the department, the SBA, or other sources. Any qualifying business that does not automatically receive a grant by September 30, 2021, may apply for a grant. The bill includes a provision that would allow for a state corporate and personal income tax deduction from federal taxable income for the amount received under the JOBS Grant Program.
Other provisions of the proposal would:
Lower the personal income tax rate from 5.25% to 4.99%.
Increase the personal income tax standard deduction to match the 2022 federal standard deduction.
Increase the personal income tax child deduction by $500 and expands eligibility for the deduction.
Phase-out the corporate income tax over five years, beginning with TY 2024.
Simplify the franchise tax by eliminating the two property tax calculation requirements by relying solely on the net income calculation.
Extend the sunset on the mill rehabilitation tax credits for two years, modify the gross premiums tax and the tax on cigars, impose a sales tax on peer-to-peer vehicle rentals, and exempt vaccines and cemetery property from the local property tax base.
The bill also contains the IRC conformity provisions and other tax law changes that we saw in SB 322, including NC Association of CPA’s legislative priorities of creating a graduated late tax payment penalty.
Senator Rabon said that the bill could be voted out of the Finance Committee next week. From there it will be referred to Appropriations, then to Rules and the floor. If the bill stalls in the House or is vetoed by the governor, the Senate will put these provisions into its budget proposal.
Continued Investigation
We asked Robert Broome, CAE of the North Carolina Association of CPAs,
If the Senate adds the provisions to its budget bill, is that similar to the votes required in the US Congress for the budget reconciliation process?
His short answer was…not really. This is what Broome had to say:
Budget reconciliation in the U.S. Congress is a rarely used procedural method of fast-tracking certain tax, spending, and debt-limit bills. It’s been getting a lot of buzz in the news lately because, in the Senate, reconciliation bills aren’t subject to filibuster, and the Senate majority doesn’t need 60 votes to invoke cloture. The Congressional Budget Act of 1974 sets time limits on debate for reconciliation bills and requires that amendments to reconciliation bills be germane to the bill (thereby keeping the process from getting sidetracked with unrelated amendments).
Back in North Carolina, adding the provisions to the Senate budget bill is mostly about creating tactical advantage because:
The Senate goes first in the budget-writing process this year.
If the Senate and House pass different versions of the budget bill (which is very likely, considering they are more than two months behind on agreeing on a spending cap), the conference committee is limited in what it can include in the compromise proposal to only those matters that were in either of the bills when they originally passed in each chamber.
The budget bill the only must-pass piece of legislation, thereby putting at least some pressure on the House to conform and on the governor to sign it into law.
Stay Tuned!
As soon as we receive legislative language or more details, we will share that information with you. Subscribe to our blog for email updates and never miss another article by clicking here.
Holden Moss CPAs is dedicated to aiding businesses during this difficult time. If you would like more information about your tax returns or other aspects of new legislation, give us a call at (919) 556-6216. Contact us via email at admin@holdenmoss.com. We look forward to working with you.
*Updates and guidance are issued daily. The information above may change.