But California has not done so, and the stimulus law's language says states are prohibited from "using the . What AB 80 means for California businesses. 287 0 obj Headquarters 730 3rd Avenue 11th Floor New York, NY 10017, Special Purpose Acquisition Companies (SPAC), Interim Controllership and Financial Leadership, System Organization Controls SOC 1, SOC 2 and SOC 3, Investigations, Forensic Accounting & Integrity Services. Conformity only applies to PPP loans and EIDL advance grants. Do not include Social Security numbers or any personal or confidential information. As a result, most states now find they are in one of three positions. AB 1577, AB 80, SB 113, and AB 194 provide gross income exclusions for covered loan amounts forgiven pursuant to the CARES Act, the Paycheck Protection Program and Health Care Enhancement Act, the Paycheck Protection Program Flexibility Act of 2020, the CAA, PPPEA, EIDL grants under the CARES Act, targeted EIDL advances, SVO grants under the CAA, and RRF grants under the ARPA. California will follow the rationale of related federal guidance relating to this code section. The amounts you've entered on the Income screen as expenses related to a PPP loan and EIDL and other assistance will no longer flow to the California return as other income. Review the site's security and confidentiality statements before using the site. Note: The map and table below show state tax treatment of PPP loans forgiven in 2020, not necessarily those forgiven in 2021. The California fix for that problem, Assembly Bill 80, is now on Gov. California does not conform to some of the other changes made by the CARES Act . Governor Gavin Newsom has signed Assembly Bill 80, to amend the law. 2 Cheers Reply. Friday, June 18th, 2021. It all has to do with how states conform to the federal tax code. Services from India provided by Moss Adams (India) LLP. tk3o*TK:zQT4k]&mi;.a}#Sj=p7hy+MR. 2020-27, which may allow for some limited deductions. A.B. However, Congress chose to exempt forgiven PPP loans from federal income taxation. Exceptions to this federal conformity for PPP treatment include publicly traded companies and . States that use rolling conformity sometimes adopt legislation to decouple from certain federal changes after they occur. For a complete listing of the FTBs official Spanish pages, visit La esta pagina en Espanol (Spanish home page). We cannot guarantee the accuracy of this translation and shall not be liable for any inaccurate information or changes in the page layout resulting from the translation application tool. 21st Supplemental Emergency Proclamation Taxpayers should follow the federal guidance related to this code section to determine if they meet the gross receipts test. This type of error does not generally constitute reasonable cause for penalties that can be abated due to reasonable cause. California conforms to the federal tax treatment of forgiven PPP loans for some but not all businesses; the state excludes forgiven PPP loans from taxation, but the expense deduction is disallowed for publicly traded companies and businesses that did not experience a 25 percent year-over-year decline in gross receipts between 2019 and 2020. Last month, Governor Gavin Newsom signed Assembly Bill 1577 into law, which amends California's tax code as it relates to loan forgiveness under the Paycheck Protection Program. Will California conform to the Paycheck Protection Program. "Rather than limiting state tax conformity laws to a cap on business . States that use static conformity link to the federal tax code as it stood on a certain date and must proactively adopt legislation to accept more recent changes. PPP Loan Expense Deduction Conformity. AB 276 by Assemblywoman Laura Friedman (D-Glendale), conforms state tax law to the federal CARES Act to increase the maximum loan amount permitted from an employee's retirement . With AB 80s passage, California allows taxpayers to deduct otherwise nondeductible business expenses, such as wages, even if those expenses were paid with forgiven funds from PPP, with certain exceptions. Acting Governor Eleni Kounalakis Signs Legislation to Support States COVID-19 Preparedness, PHOTOS: Governor Newsom Visits Diablo Canyon Power Plant, More Time to File State Taxes for Californians Impacted by December and January Winter Storms, Governor Newsom on Read Across America Day: While Other States Ban Books, Were Helping Students Read, Governor Newsom Proclaims State of Emergency in 13 Counties Due to Winter Storms, Activates California Guard. The bill signed last week by President Biden, which included $26 billion in direct aid for California, prohibited states from using the money to subsidize tax cuts for the next three years. State conformity and PPP forgiveness. California adopted Section 311 of Division N of the CAA. As such, the GSS doesn't need to be reported anywhere on the CA tax return. Any differences created in the translation are not binding on the FTB and have no legal effect for compliance or enforcement purposes. covered loan amounts that are forgiven under California's current conformity to certain federal provisions, which includes the PPP established by the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) (Public Law (PL) 116-136), modified by the Paycheck Protection Program and Health Care Enhancement Act (PL 116139), - The web pages currently in English on the FTB website are the official and accurate source for tax information and services we provide. Newsom and legislative leaders released the following statement updating the status of PPP conformity . All businesses that took out loans of $150,000 or less would be able to maximize their deduction for state purposes. . 80, deductions for expenses paid using PPP loan proceeds are allowed even when the loan is forgiven provided the taxpayer is not an "ineligible . In September 2020, California enacted AB 1577, which conformed to the CARES Act exclusion from gross income for PPP loan forgiveness. Under AB 80 and SB 113, California adopted Section 311 of Division N of the CAA. Others use so-called static conformity, so that they match the federal rules as of a given date. Kev Kurdoghlian April 21, 2021 9:01 pm Mike Garcia. The law provides partial conformity to the Small Business Administration's (SBA) federal Paycheck Protection Program (PPP) as it relates to loan forgiveness and expense deductibility, with some exceptions. By Chris Micheli, April 26, 2021 2:07 pm. Forms, publications, and all applications, such as your MyFTB account, cannot be translated using this Google translation application tool. /`\pI.,d+YGcoy|3#3#3#3#G# 2020-27. California has yet to make a final determination on whether to conform state tax code to current federal tax rules related to the treatment of expenses associated with forgiven Paycheck Protection Program (PPP) loans. In many states that currently tax forgiven PPP loans, including Arizona, Arkansas, Hawaii, Maine, Minnesota, New Hampshire, and Virginia, bills have been introduced to prevent such taxation, and Wisconsin recently acted to do the same. .01 PPP Prior to Enactment of the Appropriations Act. Many states already implemented tax revisions to exempt PPP money from state taxes. 2BPL2,v$WCwz$d%RI;q^?U~_VR^UZiVCiI5I;WV(9$eR$2Z' N}vd5CS3pU1Qc=2dG However, we wanted to provide some preliminary information regarding conformity to the CARES Act in response to questions we have received. We are receiving questions about whether or not California will conform to federal rules with respect to the Paycheck Protection Program or PPP that was passed under the CARES Act. 2023 .desktopBBB {margin-top: -55px;margin-right: 70px;}@media only screen and (max-width: 767.5px) {.mobileBBB {margin-top: 15px;margin-right: 250px;margin-bottom: 15px;}}California Society of CPAs 1710 Gilbreth Road Burlingame, CA 94010 (800) 922-5272. These federal changes pulled California out of conformity with a major portion of the federal law. These pages do not include the Google translation application. Here are some of the significant highlights of the bill's provisions: Limitation Removed, with a Few Exceptions. Gavin Newsom's desk. Consult with a translator for official business. Ask questions, get answers, and join our large community of Intuit Accountants users. Stay informed with our COVID-19 resource center, updated weekly with leading research and analysis. He was joined by actor, restaurateur and Los Angeles native Danny Trejo. Lacerte doesn't have an input for the Golden State Stimulus. On April 29, 2021 Governor Newsom signed California A.B. When the CARES Act was enacted on March 27, 2020, Congress intent was that forgiven PPP loans be tax-free at the federal level, which is a departure from usual practice. California businesses have been down to the wire this tax season, up against paying state taxes on their Paycheck Protection Program loans. Further, AB 1577 applied only to tax years beginning on or after January 1, 2020. We are adding the PPP loan amount as an M-1 adjustment for federal and as other addition on Screen 44. Any differences created in the translation are not binding on the FTB and have no legal effect for compliance or enforcement purposes. This Google translation feature, provided on the Franchise Tax Board (FTB) website, is for general information only. California law conforms to this extension and allows an exclusion from gross income for PPP loans made during the extended covered period after March 31, 2021 through June 30, 2021. 80 ("AB 80"). The state is awaiting additional guidance . California: The Franchise Tax Board provided a new webpage addressing the treatment of PPP loans. When static conformity states do update their conformity dates, they sometimes decouple from specific changes on an ad hoc basis. Unlike a sales tax, a gross receipts taxis assessed on businesses and apply to business-to-business transactions in addition to final consumer purchases, leading to tax pyramiding. Ohio imposes an individual income tax and a GRT. On April 29, 2021, AB 80 (Consolidated Appropriations Act (CAA) Conformity) was enacted which allowed the . March 15, 2021. California is not adding additional supporting documentation requirements. Enter the grant as income on the activity it belongs to. Ordinarily, a forgiven loan qualifies as income. On April 26, the Assembly gave final passage by a vote of 73-0 to Assembly Bill 80, authored by Assembly Revenue and Taxation Committee Chair Autumn Burke. All Rights Reserved. "We remain committed to an equitable and broad-based recovery and acting expeditiously to provide additional relief to businesses in the stateespecially those that have been hardest hit by COVID-19, such as bars, restaurants, barbers, nail and hair salons and performing arts venues, among others.". California enacted legislation earlier this year that allows forgiven PPP loan amounts to be excluded from income and allows the deduction of expenses paid with forgiven PPP loan amounts, as long as the business is not publicly traded and meets the 25% or greater gross receipts reduction test set . KCoe Isom has changed its name to Pinion. Paycheck Protection Program, 85 FR 20811 (April 15, 2020). Exceptions to this federal conformity for PPP treatment include publicly traded companies and ineligible entities. California will allow deductions for amounts paid with forgiven PPP debt. 1 A.B. This does not apply to EIDL advance grants, so taxpayers may fully deduct expenses paid with those funds without meeting the 25% reduction in gross receipts test. Forgiven PPP loans are not income for tax purposes and they don't affect deductions. If you look at most state income tax returns, one of the first lines is usually, "Enter your federal adjusted gross income" or "federal taxable income." The remainder of the form then consists of adding back into income those federal deductions that the state doesn't allow and deducting state . There, PPP loans are fully tax-free . The bill excludes from gross income all forgiven PPP loans for taxable years beginning on or after January 1, 2019. The law provides partial conformity to the Small Business Administrations (SBA) federal Paycheck Protection Program (PPP) as it relates to loan forgiveness and expense deductibility, with some exceptions. As a 501(c)(3) nonprofit, we depend on the generosity of individuals like you. Many states, however, remain on track to tax them by either treating forgiven loans as taxable income, denying the deduction for expenses paid for using forgiven loans, or both. SBA subsidies, Shuttered Venue Operator Grants, and Restaurant Revitalization Grants are still subject to California tax . If your forgiven loan was an EIDL grant or Targeted EIDL advance, you are not required to meet these qualifications to deduct expenses. Gavin Newsom signed legislation Thursday that allows most California business owners, small businesses and corporations that got Paycheck Protection Program loans . Some businesses also received grants from the state that can be excluded from state income, but are taxable on the federal return. However, AB 1577 did not allow taxpayers to deduct PPP covered expenses. News. Conform to Federal Tax Treatment of Federal Economic Relief. However, if a taxpayer makes an election under Rev. A recent survey from Marcum LLP and Hofstra Universitys Frank G. Zarb School of Business found that nine in 10 mid-market CEOs are concerned about a recession. California generally conforms to the pension-related items such as early withdrawal penalty, minimum distribution rule changes, etc. The bill also . California: A regulatory project to revise California's market-based sourcing regulation continues. California Proposition 30 was rejected by voters 59.06% to 40.94%. 27, 2020), established the PPP as a loan program administered by the U.S. Small Business An amount is present on the Schedule C screen for Expenses nondeductible to state related to a forgiven Paycheck Protection Program loan. (1) Sections 1102 and 1106 of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), Public Law 116-136, 134 Stat. 1325 G St NW Do not include Social Security numbers or any personal or confidential information. Coe tax advisor with questions regarding AB 80s full applicability for your business. 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