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EGACY Yesterday. Today. Tomorrow.
WEDNESDAYS • Feb. 24, 2021
Richmond & Hampton Roads
LEGACYNEWSPAPER.COM • FREE
How much of a tax break should businesses that received federal loans get? GRAHAM MOOMAW
VM - Because COVID-19 hasn’t hit Virginia’s economy as hard as officials thought it might, Gov. Ralph Northam says policymakers will have an extra $730 million to work with as they finalize the next state budget. Instead of building that revenue into a spending plan that includes raises for public employees and funding boosts for pandemic-rattled school systems, some business groups want the state to use its newfound flexibility to offer more tax relief to companies that took federal Paycheck Protection Program loans to get through the crisis. “When small businesses see in the news that the state has this money, I think they’re going to be very vocal to their elected officials that this is something the state can do,” said Nicole Riley, Virginia’s state director of the National Federation of Independent Business. About $12.6 billion in PPP loans flowed to thousands of Virginia businesses during the pandemic, with an average loan size of about $107,000. The goal was to give employers a cash infusion so they could keep paying workers even if business withered amid shutdowns and stay-at-home orders. As long as the money was spent on valid expenses like payroll, rent and utilities, the loans were forgiven. That’s where the tax issues come into play.
Even though the loans essentially turned into grants, Congress has decided the relief money shouldn’t count as taxable income and should be tax-deductible. Because Virginia and other states have to decide whether to conform their own tax policies to federal rules, state policymakers had to make their own decisions on how to treat PPP loans. Virginia, which can’t print money and has a constitutional obligation to balance its budget, isn’t treating PPP money as entirely tax-exempt. That means some businesses might get a state tax bill for taking funds
they thought were supposed to be a lifeline to keep people employed. Forgiven PPP loans won’t be treated as taxable income, but Gov. Ralph Northam’s administration has argued expenses Virginia businesses covered with federal money shouldn’t be deducted from business income. In other words, a company with $500,000 in profits that took a $100,000 PPP loan wouldn’t be able to count PPPcovered expenses against its income to lower its taxable net profit to $400,000. Making the PPP money
deductible, according to Finance Secretary Aubrey Layne, creates a double benefit for loan recipients, letting businesses that were able to get free federal money use it to get a tax break that won’t be available to businesses that missed out on the PPP funds. “These guys got a lot of help,” Layne said in an interview. “Other people got nothing.” Conforming Virginia’s tax policy on PPP loans to the federal rules, Layne said, could mean a revenue hit of up to $500 million over the
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