The New Jersey Assembly Appropriations Committee has advanced legislation to exempt Paycheck Protection Program (PPP) loans forgiven by the federal government from New Jersey’s gross income and corporate business taxes.
Under A-5149, businesses could also deduct expenses paid for by such a loan.
Congress included the loans in the Coronavirus Aid, Relief, and Economic Security (CARES) Act to help small businesses pay employees during the COVID-19 pandemic. The federal government may forgive part or all of a loan for recipients that meet certain conditions.
“Small businesses throughout our state have been hit hard by COVID-19, which means many of their employees have also felt the impact of the pandemic,” Assembly members Louis Greenwald, D-Camden/Burlington; Daniel Benson, D-Mercer/Middlesex; and Gordon Johnson, D-Bergen, said in a joint statement.
“The Paycheck Protection Program helped companies keep workers on the payroll when they may have otherwise needed to implement layoffs during the worst of the economic crisis,” they added. “Loans that were awarded and later forgiven to help businesses and their employees get through challenging circumstances outside their control should not be subject to income taxation or tax deduction-related restrictions.”
The measure, which has drawn support from the New Jersey Business & Industry Association (NJBIA), would bring state policy in line with federal policy, proponents say. Last month, the state Senate voted 33-0 to pass their version of the bill, S-3234.
“New Jersey PPP recipients have been contacting NJBIA because they are worried about this tax issue,” NJBIA Vice President of Government Affairs Christopher Emigholz said in a statement. “This legislation will provide businesses with peace of mind knowing that PPP loans forgiven … will not be treated as taxable income by the state.”
Gov. Phil Murphy previously said the state would not tax PPP loans and allow recipients to deduct business expenses they paid using tax-exempt loans. State officials said they could take action “under existing authority” and did not need legislation, but the measure would codify the approach. The Office of Legislative Services could not determine how much revenue the state might lose if the legislation becomes law.
The Small Business Administration (SBA) approved approximately $17.3 billion worth of PPP loans for small businesses in New Jersey. Last year, more than 155,000 New Jersey businesses received PPP loans, according to one estimate, and of those, more than 133,000 were for less than $150,000.
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