House effort to provide tax relief for Virginia small businesses garners bipartisan support

(The Center Square) – An effort to provide tax relief for small businesses amid the COVID-19 pandemic is receiving support from Virginia House Republicans and Democrats.

To provide relief for businesses during the pandemic, the federal government offered Paycheck Protection Program (PPP) loans, which were eligible to be fully forgiven if the businesses used the money for government-approved expenses.

Although initial federal legislation required businesses to pay taxes on the PPP loans, a second COVID-19 stimulus bill made the loans tax deductible to protect businesses from an unexpected tax increase. The tax deductibility applied to any past or future loans.

Because Virginia is one of several states that does not automatically conform its tax code to the federal government, state lawmakers will have to pass legislation to ensure the PPP loans are tax deductible on the state level. Such legislation has received backing from the Virginia business community, including the National Federation of Independent Business and the Virginia Restaurant, Lodging & Travel Association.

Del. Joe McNamara, R-Roanoke, has filed legislation, House Bill 1787, that would provide an income tax exclusion for PPP loan forgiveness for any loan received in the future or in 2020. He also introduced House Bill 1788, which generally would conform the state tax code to the federal tax code.

The Center Square reached out to McNamara’s office and a House Republican spokesperson for comment but did not receive a response.

House Democrats did not voice support for McNamara’s proposal, but Kunal Atit, the communications director for Virginia House Speaker Eileen Filler-Corn, D-Fairfax, told The Center Square the Democratic caucus will propose legislation to make forgiven PPP loans tax exempt.

“The House Democratic caucus will be submitting a number of bills in the coming days, including legislation from Finance Committee Chair Delegate Watts containing provisions to exempt forgiven PPP loans from taxation,” Atit said. “The Speaker looks forward to supporting Chair Watts’ proposal.”

Although Virginia’s tax code is not automatically conformed to the federal government, conformity usually is a routine practice. However, 2019 was an exception, when Gov. Ralph Northam initially sought to block tax conformity because it would have created an inadvertent $1 billion tax increase, which he would have used to spend on some of his budget priorities. The governor eventually backed down and signed tax conformity into law.

Many businesses have been forced to drastically scale back services over the past year because of the pandemic and subsequent economic restrictions. Although businesses are operating more normally, restrictions still are in place that prevent them from operating at their usual level.

Disclaimer: This content is distributed by The Center Square