As in many state capitals, lawmakers in North Carolina are currently debating whether or not to fully conform with all of the tax relieving and liquidity enhancing provisions in the Coronavirus Aid, Relief, and Economic Security (CARES) Act relief package approved by Congress last April.
North Carolina legislators have already conformed to the CARES Act’s tax exemption for forgiven PPP loans, approving that state level tax exemption last Spring. This conformity, which most other states have followed suit in enacting, or are in the process of passing, ensures that businesses who have been able to remain open with the help of a PPP lifeline will not be hit with a surprise state income tax bill. Right now, 29 states, including neighboring South Carolina, will not tax forgiven PPP loans.
While North Carolina lawmakers have exempted forgiven PPP loans from state taxation, they have not permitted the same payroll deduction authorized federally, nor have they permitted the code to conform with the other liquidity enhancing provisions of the CARES Act. Americans for Tax Reform recently sent a letter to legislators in North Carolina urging them to pass legislation doing just that.
Legislation to accomplish this goal, Senate Bill 104, was introduced on February 27 by Senators Jim Perry, Chuck Edwards and David Craven. It’s ATR’s position that North Carolina legislators should not tax employers’ pandemic relief aid, nor do they even need to, as the state has a reported $4 billion budget surplus.
In addition to the PPP loans, the CARES Act increased business liquidity in a time of crisis by reducing existing limitations on business interest expenses subject to deduction in tax years 2019 and 2020; eliminating loss limitations for noncorporate taxpayers that were enacted as part of the 2017 Tax Cuts & Jobs Act (TCJA) for tax years 2018, 2019, and 2020; and relaxing the TCJA’s limitation of NOL deductions, permitting a five-year carryback of NOLs generated in tax years 2018, 2019, and 2020.
The last thing struggling small businesses need right now is a surprise tax bill brought on by acceptance of pandemic aid. Enactment of SB 104 will prevent that from happening in North Carolina. By passing SB 104, which would have North Carolina’s tax code conform to the other liquidity-increasing provisions of the CARES Act, North Carolina lawmakers will boost the job-creating and sustaining capacity of employers at a critical time for many businesses.