How Each State Stands on Taxes for PPP Loan Forgiveness and Related Expense Deductions

Note: As part of the CARES Act, Congress mandated that any Paycheck Protection Program (PPP) loan forgiveness amounts should not be considered taxable income for federal income tax purposes. Additionally, with the enactment of the Consolidated Appropriations Act (CAA) on December 27, 2020, Congress made clear its intent to also provide a deduction for expenses paid with PPP loans, whether or not the loans were forgiven. The following is an update to a previous post on this topic. 

The decision about whether to conform to federal treatment of PPP loans for tax purposes has varied from state to state. As of the date of publication:

These states have issued conformity guidance in line with the federal treatment of excluding forgiven PPP loans from qualifying as taxable income as well as allowing deductions for expenses paid with forgiven loan proceeds:

Alabama, Arizona, Arkansas, Colorado, Connecticut, District of Columbia, Florida, Georgia, Idaho, Illinois, Indiana, Iowa, Kentucky, Maine, Maryland, Massachusetts, Minnesota, Mississippi, Montana, Nebraska, New Jersey, New Hampshire, New Mexico, New York, North Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, South Carolina, Tennessee, Texas (business expenses paid with loan proceeds can be included in the Texas Cost of Goods Sold or Compensation deduction if they qualify under the applicable Franchise Tax laws), Vermont, Virginia (limited expense deductibility), West Virginia and Wisconsin.

These states have provided guidance that they will conform to the federal treatment of the forgiven PPP loans not being taxable income, but have provided guidance that expenses paid with forgiven PPP loans are not deductible:

California (expense deduction is disallowed for publicly traded companies and businesses that did not experience a 25 percent decline in gross receipts between 2019 and 2020), and Hawaii.  

Louisiana has provided specific guidance that forgiven PPP loans are not included in taxable income but have not come out with specific guidance on whether expenses paid with forgiven PPP loans are deductible.  Louisiana conforms to the current version of the Internal Revenue Code. 

These states have provided guidance that they will not conform to the federal treatment and will include the forgiven PPP loans in taxable income:

Utah (expenses deductible).

These states conform to the current version of Internal Revenue Code but have not provided specific guidance on whether or not forgiven PPP loans would be included in taxable income or if deductions for expenses paid with forgiven PPP loans would be allowed:

Alaska, Delaware, Kansas, Missouri, North Dakota, and Rhode Island. 

In the absence of specific guidance from a state, to determine whether a state will likely conform to the federal treatment of PPP loan forgiveness and expense deductibility, a taxpayer may reasonably rely on whether or not a state currently conforms to the most recent version of the IRC. Since the states listed above conform to the current version of the IRC, it would be reasonable to take the positon that they will conform to the federal treatment of the forgiven PPP loan funds and the deductibility of expenses paid with those funds. 

For more information about state tax conformity of PPP loan forgiveness, contact us. We are here to help.