The North Carolina House of Representatives voted 111-2 in favor of passing House Bill 334 – Temporary Adjustment of PPP Treatment to Federal Treatment, which aligns the state with the federal tax structure on business expense deductibility that comes with the Paycheck Protection Program (PPP) were paid. .
This will reduce the tax burden on small businesses that have used PPP loans to keep their employees on payroll by allowing them to deduct the cost paid by the loans. Currently, North Carolina is one of only three states where entrepreneurs are unable to deduct the costs paid on PPP loans.
“This is sensible bill to help businesses across the state that have been dealing with the significant economic impact of the COVID-19 pandemic,” said Rep. Ray Pickett (R-Ashe), a lead sponsor of the bill. “For this particular situation, we thought it best to simplify the process, align with the federal government’s handling of PPP loans, and save companies a little more money.”
The discussion about the draft law included statements from several state legislators.
“Our business community has not only kept the economy moving over the past year, but has kept countless North Carolina residents busy and able to support their families,” said Rep. Jason Saine (R-Lincoln), who is also a principal sponsor. “This bill will make life easier for our small businesses, job creators and tax professionals as they grapple with Fiscal 2020 and work to get our state going again in 2021.”
In 2020, the federal government passed the CARES law to relieve those affected by the COVID pandemic. The CARES Act created the Paycheck Protection Program, which allowed companies to obtain forgivable loans for payroll and basic operating expenses such as rent, utilities, and personal protective equipment. In the past, loans were treated as taxable income and are not deductible.
The Cares Act made PPP loans non-taxable and instructed the federal government to allow businesses to deduct expenses paid with 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 be sent to the Senate for further processing.