With COVID-19 vaccines going into arms and heralding economic recovery from the pandemic, now is not the time for the Commonwealth to dampen business optimism by taxing Payroll Protection Program (PPP) loans.
In Massachusetts, 118,000 businesses received PPP loans through the federal Small Business Administration (SBA) in 2020. The loans were lifelines essential to keeping workers on the payroll even as the pandemic sent business revenue into a freefall.
Forgiveness of these loans is exempt from federal taxes but many are subject to be taxed at a 5 percent rate under Massachusetts law.
State Sen. Brendan Crighton and 70 legislative colleagues understand the cruel unfairness of taxing PPP and they have filed legislation to ensure the state tax is not levied. “It’s a common-sense fix,” said Crighton.
PPP loan terms were written to be extremely favorable to businesses decimated by COVID-19 social distancing and closure mandates. WIth their 1 percent interest and a repayment period of up to two years, the loans can be forgiven if more than 60 percent of the loan amount was used to keep workers employed.
Under Massachusetts’ tax code, the loan amount allowable for forgiveness can be taxed on businesses organized as individuals, limited liability corporations, and partnerships. These categories encompass a broad swath of Massachusetts corporations, which will have to pay state taxes on federal financial help provided to them, unless legislation striking down the Massachusetts taxation requirement is passed.
The light at the end of the pandemic tunnel is shining brighter, but the importance of PPP can’t be underestimated.
According to SBA data provided last December, 4,847 businesses in Lynn, Lynnfield, Marblehead, Nahant, Peabody, Revere, Salem, Saugus and Swampscott received $322 million in PPP loans provided through local banks in 2020. The loans saved an estimated 36,000 jobs and the average loan totaled $66,500. Essex Media Group was among the PPP recipients.
Taxing PPP loan forgiveness amounts undermines the intent of the federal CARES (Coronavirus Aid, Relief, and Economic Security) Act and its stated purpose of helping businesses survive COVID-19’s catastrophic economic blow.
PPP loan forgiveness amounts should not be treated as ordinary income for taxation purposes and state tax law, in regard to PPP loans, must be brought into conformity with federal law.
We support legislation ensuring this conformity.
