Wednesday, 20 January 2021 21:13

Legislation to Tax Businesses' PPP Loans Advancing Through Virginia Legislature

Written by Tyler Arnold, The Center Square


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Members of the Virginia business community are voicing concern over legislation that would require small businesses to pay state income taxes on forgivable loans received by the federal government as they are trying to recover from the COVID-19 pandemic and subsequent economic restrictions.

Because Virginia is a state that does not automatically conform its state tax code to the federal tax code, it must introduce tax conformity legislation annually.


Although normally a routine matter, a House committee has advanced legislation that would conform conform parts of the code. One part that’s left out of the bill is an income tax exemption for Paycheck Protection Program (PPP) loans, which are tax exempt at the federal level.


Del. Vivian Watts, D-Annandale, the sponsor of House Bill 1935, said during a committee meeting that fully conforming to the federal income tax code would cause a $1 billion budget deficit for the state. Virginia, she noted, is required to pass a balanced budget every year, but the federal government is not.


Finance Secretary Aubrey Lane told lawmakers the state tried to conform to as much of the tax code as it could, but recent federal changes have made it difficult. In the proposed bill, the state would conform to most of the individual tax provisions, but it will deconform from many of the business tax provisions.


Some of the deconformity is from recent COVID-19-related changes to the tax code and others from the 2017 Tax Cuts and Jobs Act.


The possibility that the state will not fully conform to the federal tax code has caused concern for businesses that have lost revenue during the pandemic and have to face a gradual minimum wage hike beginning in May.


The Virginia state director for the National Federation of Independent Business, Nicole Riley, cautioned that not exempting PPP loans would...

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