Multistate: More States Respond to COVID-19 and the CARES Act

Recently, a few additional states issued guidance addressing the state tax treatment of certain provisions in the federal CARES Act. In New Hampshire, the Department of Revenue Administration issued a press release addressing the Business Profits Tax (BPT) and Business Enterprise Tax (BET) consequences of COVID-19-related federal relief payments.  The release notes that because New Hampshire conforms to the Internal Revenue Code as in effect prior to the CARES Act for the 2019 and 2020 tax years, federal Paycheck Protection Program (PPP) loans that are ultimately forgiven should be included as income for BPT purposes. Similarly, deductible business expenses paid with PPP funds are deductible for BPT purposes. Any federal-level relief received by taxpayers required to file a BET return that is utilized to pay wages or other compensation to employees, interest, or dividends should be included in the enterprise value tax base of the business and subject to the BET.

The Montana Department of Revenue issued guidance addressing the taxability of certain CARES Act relief programs. Much of the guidance focuses on small business grants made by certain Montana agencies from funds received under the CARES Act. Under IRC section 118 as amended by the TCHA, grants received by corporations from government entities are required to be included in taxable income, including the Montana program grants at issue.  In contrast, forgiven PPP loans are not included in income because Montana conforms to the CARES Act.

In Ohio, the Department of Taxation issued FAQs addressing certain key tax issues, such as extensions of time and conformity to the CARES Act. The FAQs confirm that the amount of a Paycheck Protection Program (PPP) loan and any amount of the loan that is forgiven under the CARES Act is excluded from a taxpayer’s gross receipts for purposes of the Commercial Activity Tax or CAT. Although forgiven debt is generally included in the CAT base, the General Assembly adopted legislation providing an exclusion for amounts forgiven under section 1106(i) of the CARES Act. Employee retention tax credits authorized by the CARES Act are also excluded from CAT gross receipts, but there is no provision excluding economic injury disaster loan grants. Another FAQ provides that the Department will temporarily accept an electronic signature on certain types of documents, including settlement agreements and VDAs.

Further, in Hawaii, legislation (Senate Bill 2920) was enacted that updates the state’s connection to the Internal Revenue Code; for tax years beginning after December 31, 2019, Hawaii conforms to the Code as amended as of March 27, 2020. For the 2019 tax year, Hawaii confirms to the Code as of December 31, 2018.  Although Hawaii generally adopts the Internal Revenue Code, there are numerous sections that are not operative for Hawaii tax purposes. The bill specifically provides that Section 1106(i) of the CARES Act, which addresses PPP loan forgiveness, will be operative for Hawaii purposes. IRC sections 172 and 461 will be operative for Hawaii purposes in the form that they existed as of December 31, 2019.

Please stay tuned to TWIST for future CARES Act and conformity updates.