(The Center Square) – Members of the Virginia business community have expressed concern about laws requiring small businesses to pay state income taxes on forgivable loans received by the federal government in trying to escape the COVID-19 pandemic and its aftermath Economic crisis recover restrictions.
Because Virginia is a state that does not automatically align its state tax laws with federal tax laws, it must enact tax compliance laws annually. While this is usually a routine matter, a House Committee has passed laws that conform to compliant parts of the Code. Part of the bill doesn’t account for an income tax exemption for Paycheck Protection Program (PPP) loans that are federal tax-free.
Del. Vivian Watts, D-Annandale, the sponsor of House bill 1935, said during a committee meeting that full compliance with federal income tax would create a budget deficit of $ 1 billion for the state. Virginia has to pass a balanced budget every year, but the federal government doesn’t.
Treasury Secretary Aubrey Lane told lawmakers the state has tried to stick to tax law as much as possible, but recent federal changes have made it difficult. In the proposed bill, the state would comply with most of the individual tax rules, but it will break away from many business tax rules. Some of the deconformity is due to recent changes in tax legislation related to COVID-19, while others are due to the Tax Cuts and Jobs Act of 2017.
The possibility of the state not fully complying with federal tax laws has worried companies that lost revenue during the pandemic and will face a gradual increase in the minimum wage starting in May.
Virginia state director for the National Federation of Independent Business, Nicole Riley, warned that failure to exempt PPP loans would adversely affect the 113 companies that took out those loans.
“This is a money robbery from the pockets of ailing small businesses that lost so much revenue when the government shut them down and through no fault of their own,” said Riley. “The legislator just wants to spend more money, but with this bill, these costs fall on the backs of small business owners.
“Small businesses took out PPP loans when the government shut down the economy and the goal was to save employees’ jobs and keep them off the unemployed list,” Riley said. “The business owners have followed all the rules and reached the end of the business. Essentially, the state kicks them when they are down.”
Robert Melvin, the director of government affairs at Virginia Restaurant, Lodging & Travel Association, told The Center Square that his organization was disappointed with the legislation. He said any added burden will hurt small businesses and likely force some of them to lay off employees or cut working hours.
Melvin said government changes to federal law related to businesses will have collective effects that will harm small businesses. The minimum wage is set to rise from $ 7.75 an hour to $ 9.50 an hour in May, but Melvin said people will really see the negative impact on businesses in the following year if the minimum wage drops to $ 11 an hour in January Hour increases. The club is struggling to slow the rise.
“None of these should be considered individually,” said Melvin.
Stephen Haner, Senior Fellow on State and Local Tax Policy at the Thomas Jefferson Institute for Public Policy in the Open Market, told The Center Square the state shouldn’t tax the COVID-19 relief.
“This Northam administration says that in two years this could be nearly half a billion dollars in what I consider the state siphoning 6% off the top of the money that Congress has used and is using to save our economy,” said Haner. “It’s no different than if the state tried to tax the individual stimulus payments, but they don’t dare try. I think they were hoping the business community would just lie down and take this on. The state receives billions, billions of additional funds from federal taxpayers and shouldn’t tax this relief. “
The Republicans have asked the state to exempt these loans from taxation, but the Democrats have a majority in both houses of the General Assembly.