(The Center Square) – The New Jersey state Senate Budget and Appropriations Committee voted 12-0 in favor of a bill to exempt Paycheck Protection Program (PPP) loans that are forgiven by the federal government from New Jersey’s gross income tax.
Under the bill, S-3234, businesses could also deduct expenses paid for by such a loan.
While federal law “generally considers forgiven loans to be taxable income,” according to the Office of Legislative Services, the CARES Act exempted forgiven PPP loans from federal income taxes. Additionally, according to a bill statement, the IRS issued a notice “denying tax deductions for expenses paid” with a forgiven PPP loan.
“As we all know, the COVID-19 pandemic has severely impacted small businesses in New Jersey,” state Sen. Anthony Bucco, R-Boonton, said in a news release. “I can name dozens of family restaurants, small retail stores, and other establishments that have either closed their doors forever or are struggling (every day) to stay open.
“During this incredibly difficult time, small business owners should not have to worry about additional taxes,” Bucco added. This “legislation will eliminate the State tax and keep the State from profiting off the backs of businesses that continue to struggle during the pandemic.”
Congress created the loans for small businesses to keep employees on their payroll during the pandemic as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The federal government may forgive some or all of the loan if the recipient meets certain conditions.
“Our small businesses have been pummeled over the past year, many of our favorite family establishments have already closed, and numerous others are at risk of shutting down,” state Sen. Troy Singleton, D-Burlington, chair of the Senate Community and Urban Affairs Committee, said in a news release.
“For many, the federal PPP loans were a godsend that helped them stay open,” Singleton added. “New Jersey should follow the federal government’s lead and allow businesses to deduct forgiven loans from state taxes. This would provide further relief to businesses around the Garden State.”
The Small Business Administration (SBA) approved approximately $17.3 billion worth of PPP loans for small businesses in New Jersey. The Office of Legislative Services could not determine how much revenue the state might lose if the proposed legislation becomes law.
“New Jersey is one of the highest taxed states in the nation,” Bucco said. “During this pandemic, when the small business community is struggling to survive, the last thing it needs is yet another tax.”