March 8, 2021

Some States Will Tax Businesses That Received Federal PPP Loans

As readers of Connecting the Dots are aware, the U.S. Small Business Administration has provided forgivable loans through the Paycheck Protection Program (PPP) since the COVID-19 pandemic began. Congress also has approved legislation that clarified that forgiven PPP loans would not be taxable and the Internal Revenue Service could not deny the tax deductibility of business expenses paid for with a forgiven PPP loan.

Despite that clear intent, some states are “decoupling” their state tax law from the federal provisions by treating forgiven PPP loans as taxable income and/or denying deductibility of expenses paid with forgiven PPP loans. The nonpartisan, nonprofit Tax Foundation has prepared an analysis of how each state is handling the issue of PPP taxability, which they are updating frequently. That report is here.

MSCI urges its members who received PPP loans to follow this matter and to engage with state lawmakers who are considering raising taxes by decoupling state tax codes from federal provisions.