Multistate: States Address PPP Loans

In the last couple weeks, several states have updated their treatment of Paycheck Protection Program (PPP) loans. In Rhode Island, for taxable years beginning on or after January 1, 2020, any PPP loan forgiveness amount that exceeds $250,000 is includable in the gross income of businesses and individuals. For any PPP loan forgiven during the 2020 tax year, interest and penalty will be waived on the portion of each PPP loan that is taxable under the corporate income tax, the bank excise tax, or the personal income tax, provided that the tax is paid in full on or before March 31, 2022.

Under the Minnesota omnibus tax bill, House File 9, forgiven PPP loans will be excluded from income and businesses that received PPP loan forgiveness may deduct their associated expenses.

The Hawaii Department of Taxation issued Tax Information Release (TIR) No. 2021-05, which revokes TIR No. 2021-03 and provides new guidance on the treatment of PPP loans and expenses paid with those loans. Under the new guidance, forgiven PPP loans are excluded from gross income. Taxpayers, however, cannot deduct expenses paid with PPP loans if the taxpayer has a reasonable expectation of PPP loan forgiveness (even if loan forgiveness is expected in a future taxable year). A taxpayer is considered to have a “reasonable expectation of forgiveness” if the expenses paid by the taxpayer entitle it to the PPP loan forgiveness and the taxpayer has applied for loan forgiveness.  As a consequence, for Hawaii income tax purposes, the federal rule preventing “double benefits” shall apply to amounts received from the PPP loan. Therefore, if the taxpayer is entitled to PPP loan forgiveness and the taxpayer has a reasonable expectation of forgiveness, the expenses paid with the PPP loan are not deductible. If a taxpayer has already filed its 2020 Hawaii tax return taking the “double benefit,” the return must be amended to remove any disallowed deduction. If the loan, however, is not ultimately forgiven, the deductions may be claimed, assuming the expenses paid were otherwise deductible. With respect to penalties and interest incurred from treating the PPP loan other than in accord with TIR No. 2021-05, taxpayers may submit a written waiver request which includes payment for the total tax due. Requests for waiver are due be October 20, 2021 for returns on extension and by December 31, 2021 for amended returns.

Finally, the California Franchise Tax Board has a new webpage addressing PPP loans. Recall, California adopted legislation earlier this year that allows forgiven loan amounts to be excluded from income and allows the deduction of expenses paid with forgiven loan amounts, as long as the business is not publicly-traded and meets the 25 percent or greater gross receipts reduction test set forth in section 311 of the Consolidated Appropriations Act. Please stay tuned to TWIST for additional updates on PPP loans.