Armanino Blog
Article

COVID Relief Package Could Have State and Local Tax Consequences

by Alex Thacher
December 23, 2020

The new COVID relief package that has been passed by Congress – but is currently pending the president's signature – has a provision allowing deductions of expenses funded by a PPP loan that is forgiven. Until state-specific guidance is issued, states will allow the expense deductions based on conformity to the Internal Revenue Code (IRC).

In Detail

The latest COVID relief package includes a provision clarifying the treatment of otherwise allowable deductions of expenses funded by a PPP loan that is forgiven. Contrary to current IRS guidance, this new package is expected to treat such expenditures as fully deductible. As this package has not yet been signed by the president, no state has yet addressed this issue specifically. Therefore, taxpayers should rely on IRC conformity until any specific guidance is provided.

It is likely that rolling conformity states that automatically conform to the IRC, such as Colorado or Massachusetts, will conform to the updates of this COVID relief package and allow the deduction of expenses associated with any forgiven PPP loan amount.

States with fixed-date conformity, like Florida (with a conformity date of January 1, 2020), likely will not allow these deductions unless specifically addressed by the state. Therefore, it is likely there are many states where state taxable income will be higher than federal taxable income due to the disallowance of the deductions.

Insights

Until we have better guidance, the conformity date should be used as a guide for whether these deductions will be allowed for purposes of state provisions and extensions. We will track any updates to state guidance in our COVID-19 relief matrix .

If you have any additional questions, contact our experts.

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Authors
Alex Thacher - Partner, Tax - San Jose, CA | Armanino
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