December 23, 2020
COVID Relief Package Could Have State and Local Tax Consequences
Posted by Alex Thacher
The new COVID relief package that has been passed by Congress – but is currently pending the president’s signature – has a provision allowing deductions of expenses funded by a PPP loan that is forgiven. Until state-specific guidance is issued, states will allow the expense deductions based on conformity to the Internal Revenue Code (IRC).
The latest COVID relief package includes a provision clarifying the treatment of otherwise allowable deductions of expenses funded by a PPP loan that is forgiven. Contrary to current IRS guidance, this new package is expected to treat such expenditures as fully deductible. As this package has not yet been signed by the president, no state has yet addressed this issue specifically. Therefore, taxpayers should rely on IRC conformity until any specific guidance is provided.
It is likely that rolling conformity states that automatically conform to the IRC, such as Colorado or Massachusetts, will conform to the updates of this COVID relief package and allow the deduction of expenses associated with any forgiven PPP loan amount.
States with fixed-date conformity, like Florida (with a conformity date of January 1, 2020), likely will not allow these deductions unless specifically addressed by the state. Therefore, it is likely there are many states where state taxable income will be higher than federal taxable income due to the disallowance of the deductions.
Until we have better guidance, the conformity date should be used as a guide for whether these deductions will be allowed for purposes of state provisions and extensions. We will track any updates to state guidance in our COVID-19 relief matrix .
If you have any additional questions, contact our experts.
Alex is the National Practice Leader of Armanino’s State & Local Tax (“SALT”) Practice and has over 18 years of deep technical experience in multi-state income/franchise tax, sales/use tax, local taxes, and credits and incentives. Alex has served clients across sectors including technology, retail, media and entertainment, utilities, pharmaceuticals, manufacturing, telecommunications, government contractors, e-commerce, software, construction, engineering and financial services.
Alex’s technical expertise includes unitary and consolidated filings; mergers and acquisitions consulting and due diligence; the development, evaluation and implementation of restructuring plans; apportionment reviews and planning; ASC 740 and ASC 740-10 reviews; audit representation; transaction analysis; residency audits; nonresident withholding; Wayfair nexus studies; and voluntary disclosure negotiations.
Alex earned his BA from Boston College and his JD from the University of Connecticut School of Law, where he served as the Administrative Editor of the Connecticut Journal of International Law. Alex is admitted to the New York State Bar, the District of Columbia Bar, the Connecticut Bar, and the United States Tax Court. Alex is a California Tax Education Council (CTEC) Registered Tax Preparer and a Registered Lobbyist with the City of Los Angeles.
Co Authors :
Stephanie is a Senior Manager within the State and Local Tax division, where she focuses on multi-state income tax planning and compliance. While her expertise is in income and franchise taxes, she also has experience in sales and use tax, state credits and incentives, mergers and acquisitions due diligence and state income tax refund return reviews. Her clients cover a range of industries, including technology, cryptocurrency, manufacturing, distribution, retail, healthcare and service providers.