California Legislature Passes Tax Relief Bill for Paycheck Protection Program Recipients
The California Legislature sent to the Governor today AB 80, which seeks to “provide assistance to small businesses operating in the state that have been harmed economically by the COVID-19 pandemic.” Specifically, the bill will:
- Allow eligible entities to deduct business expenses that were paid for using forgiven Paycheck Protection Program (PPP) or Economic Injury Disaster Loan (EIDL) funds.
- Allow loans forgiven as an “advance grant amount” under the EIDL program to be excluded from income for California taxpayers.
- Not require eligible entities to adjust their tax attributes as a result of forgiven PPP or EIDL funds
AB 80 defines an “ineligible entity” as a taxpayer that either:
- Is a publicly-traded company, as described in the Federal Consolidated Appropriations Act, 2021 (Public Law 116-260).
- Does not meet the reduction in gross receipts of 25 percent or more in 2020 as compared to the same time period in 2019, as defined in the Federal Consolidated Appropriations Act of 2021 (Public Law 116-260).
The 25 percent reduction in gross receipts was an eligibility requirement for the second round of PPP loans. Unfortunately, the Legislature and Governor extended this requirement to all businesses that received a PPP loan for purposes of business deduction which means many essential sectors will not be eligible because they have been operating throughout the pandemic.
According to the bill’s Senate Floor Analysis, AB 80 is estimated to cost between $4.4 billion and $6.8 billion over a six-year period, depending on the percentage of PPP loans that are forgiven. Due to its urgency statute, AB 80 will take effect immediately once signed by Governor Newsom.