Thousands of small business owners in North Carolina who receive paycheck protection money are being treated unfairly by the government.
It is the fault of the North Carolina General Assembly, which passes the tax law that enforces the North Carolina IRS.
In 2020, the federal government passed the CARES Act to help people financially cope with the COVID-19 pandemic. One of the provisions of the CARES Act was the Payroll Protection Program (PPP), which was designed to help businesses continue to pay employees, even when businesses had lower income than usual.
The final version of the federal law allowed businesses to deduct eligible PPP costs for tax purposes and eliminated taxes on PPP money. This combination really provided financial support for the business.
As of August 23, five states, including North Carolina, either tax income from the Payroll Protection Program or prohibit deduction of expenses. This means that in these states, the expected benefits of the program are greatly reduced. The other four states are Florida, Nevada, Hawaii and Utah.
Thirty-eight other states and the District of Columbia comply with federal law that benefits small businesses. Two states mostly follow it, and three others with modifications. The other two states do not have personal or corporate income taxes, so this is not a factor.
North Carolina announced at the end of fiscal 2020 that it had a revenue surplus of $ 6.5 billion, but the North Carolina legislature decided to tax every business that received a PPP forgiveness.
The General Assembly – both the North Carolina House of Representatives and the Senate – have tried repeatedly to remedy this dire outcome, but have yet to come to an agreement on a decision.
It shouldn’t even be a problem. It would be very easy to just follow federal law, as 43 states and the District of Columbia either fully or largely abide by it.
On June 30, 2020, the General Assembly passed a law that changed the taxation of PPP forgiveness. This means, for example, that about seven of my clients will pay a total of over $ 158,000 in tax to the state of North Carolina for PPP forgiveness. These customers, such as restaurants, were among those most affected financially by the pandemic. Others have been hit hard by retailers, doctors, dentists, and insurance agents.
The Small Business Administration recently released data showing that as of July 6, 2020, the SBA had approved 16,324 North Carolina PPP loans in excess of $ 150,000 for a loan totaling $ 5.8 billion.
Based on these numbers alone, the state of North Carolina will receive more than $ 304 million in additional taxes. Is it fair?
Paying costs will make it even more difficult for small businesses to recover from the pandemic. I doubt who is really benefiting from the state making such windfall profits at the present time.
The latest figures show that approximately 22,861 loans in excess of US $ 150,000 have been disbursed in North Carolina, as well as 242,523 loans of less than US $ 150,000. Among them were thousands of small business owners. I hope they each contact the General Assembly and convince North Carolina lawmakers to correct this unfair tax.
Stephen N. Greenberg is an accountant based in Chapel Hill. His practice is limited to taxation. He was previously a CPA for 40 years.