RI Enterprises Increase Resistance to Taxes on Written-off PPP Loans

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According to one proposal, the state will tax loans under the Payroll Protection Program over $ 150,000. Governor Dan McKee included it in the budget he submitted shortly after taking office, and although he initially distanced himself from it, he later defended it as fair.

It will raise about $ 67 million from businesses that received PPP loans that were part of the federal government’s first pandemic bailout package last year. About 1% of businesses with PPP loans will be affected by the proposal in tax year 2020, although the state predicts that this will rise to 15% in tax year 2021.

State legislators, while not openly endorsing it, implicitly defended the proposal as early as Monday.

“The issue of taxation of PPPs will be considered in the framework of the budget discussion,” – said in a joint statement by representatives of the House of Representatives and leaders of the Senate. “The state duty applies only to a very small number of companies that have received bad loans in excess of US $ 150,000 and have taken profits. Those companies that have not recorded profits will not be taxed. “

Separately, state legislators have discussed raising the maximum income tax rate for people with high incomes. However, unlike the PPP proposal, McKee is skeptical about raising taxes on profits.

On Monday, business owners in Rhode Island and some state legislators took turns to criticize any effort to raise taxes, especially when Rhode Island has a budget surplus of hundreds of millions of dollars in two fiscal years, not to mention more than $ 1 billion in the form of federal aid.

“With all this additional income, why would we need to raise income taxes or any taxes?” Michael DiBiase, executive director of Rhode Island’s nonprofit government spending board, asked the crowd, which responded with a nod of their heads.

The federal government and most other states, including the neighbors of Rhode Island, do not tax PPP loans. They also allow taxpayers to deduct expenses paid for with PPP money. Some progressive groups say this is an unreasonable tax policy and that the government should use the proceeds to invest in things like infrastructure.

More than 100 people, mostly business owners and employees, as well as representatives of the Chamber of Commerce and legislative critics of tax proposals, took to the event on Monday at a warehouse on Plainfield Pike in Cranston. The event was hosted by the Rhode Island Business Coalition, a group that has been around for several years but has recently officially become a business advocacy organization.

Critics of the PPP proposal made statements, convened virtual press conferences and testified at legislative hearings. Monday’s event was an escalation in their attempt to end the tax proposals before the budget was passed.

Speakers included Karl Wadensten, owner of VIBCO, a Wyoming, Rhode Island-based company that manufactures vibrators that are used in a variety of industrial processes. They employ 100 people and in the first round they received a loan of US $ 1 million.

Opposing the proposal, Wadensten led the group, chanting, “We love Rhode Island” – loving him is enough, he said, to help him improve his business climate and not burden him with land.

In a subsequent interview, Wadensten said he was not yet sure what the tax implications would be for VIBCO. Of course, it will be more difficult for him to grow. According to him, he spent his money under PPP on his employees, who received bonuses for participating in a severe pandemic.

The company is an S corporation, which means that the company’s taxes pass through Wadensten’s own taxes. Like VIBCO, most businesses will have to worry about taxes when filing next year because the actual loans were written off in 2021. Norm LeBlanc, Wadensten’s CPA, said it could easily be in the form of five or six figures in taxes owed to Rhode Island.

Even if they don’t make a profit in a particular year, taxing PPP loans will negate some of their losses that they cannot carry over to future years, LeBlanc said. Like all taxes, it’s a little tricky, but for LeBlanc it’s pretty simple: it will affect everyone.

“It’s a big domino,” LeBlanc said.


With Brian Amaral, you can get to the address: brian.amaral@globe.com… Follow him on Twitter @ bamaral44



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