Governor Dan McKee’s close association with small businesses could be examined by his plan to tax some of the larger loans companies received from the federal payroll protection program.
Earlier this month, nearly 100 business owners, many in the hospitality industry, urged lawmakers to reject plans in McKee’s budget to tax Payroll Protection Program loan proceeds of more than $ 150,000.
“If Rhode Island chooses to go flip flop and suddenly raise taxes on companies that barely survive, it would be a shame and devastating consequences, including layoffs and permanent business closures,” wrote Steven Filippi, president of Ballards Resort on Block Island in one of the letters to the House Finance Committee earlier this month.
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Along with dozens of individual business owners like Filippi, trade groups representing hotels, restaurants, banks, manufacturers, timber dealers, real estate agents and accountants have spoken out against the plan.
They point out that most other states do not tax wage protection loans at all.
However, McKee has argued that the vast majority of companies that have received PPP loans – around 90% – will not be affected by the tax proposal.
And those who received more than $ 150,000 from the federal government will only be taxed if they made money last year.
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“I think it’s fair that they pay their fair share if they actually succeeded in that period,” McKee said. “And if you didn’t make any money, it doesn’t matter how much the credit was, the forgivable credit, you don’t pay any taxes.”
At the height of the coronavirus pandemic last spring, loans to protect wages and salaries were set up under the CARES Act. They are tax-free and forgivable at the federal level as long as most of the money is used to pay workers.
In December, Congress passed another COVID Relief Act extending the program to this year and adding value to recipients. The December Act not only made the loans forgivable and tax-free, but also allowed companies to deduct anything bought with the federal money from their taxable income.
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By the end of March, 29,426 Rhode Island companies and nonprofits had received $ 2.8 billion in loans to protect payroll, according to the Small Business Administration.
Of those loans, only 2,242 were worth more than $ 150,000, but they accounted for $ 1.1 billion of proceeds, or 42%, according to an analysis by the House Treasury. Eight organizations received wage protection loans between $ 6 million and $ 10 million.
Rhode Island’s tax law on the Payroll Protection Loans mirrors federal law, and without a change like the one proposed in McKee’s budget, the state is expected to lose $ 113 million in tax revenue from the full loan exemption .
McKee’s proposal to tax $ 150,000 in wage protection income would get back an estimated $ 68 million of that $ 113 million this year and next.
According to the House of Representatives budget analysis, 33 states, including Connecticut, are completely exempting payroll protection loans, although this could change with pending proposals across the country. Nine states treat the loans as taxable income, while six do not allow wage protection expenses to be deductible, while two tax and prohibit deductions.
Massachusetts initially only exempted wages and salaries from corporation tax, but this month Governor Charlie Baker signed a law exempting personal income for transit businesses.
The left-wing Economic Progress Institute wrote on a testimonial that loans are tax-free and corporations are allowed to deduct expenses paid by the government for amounts that are double-paid.
“Despite good intentions, wrestling with the federal rule won’t help businesses the most,” the group wrote. “This is because in order for a company to benefit from it, it must do well enough … to have a tax liability against which the deductions can be claimed.”
On Twitter: @PatrickAnderso_