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Tax breaks coming to Massachusetts businesses that received PPP loans after Beacon Hill leaders reach deal

MassLive.com logo MassLive.com 3/9/2021 Steph Solis, masslive.com
a group of people walking in front of Massachusetts State House © Steph Solis | ssolis@masslive.com/masslive.com/TNS Massachusetts State House

Legislative leaders have reached a deal on a bill that will free the unemployment insurance tax rate and extend tax relief on forgiven loans to small businesses in efforts to help Massachusetts businesses and their employees work through the COVID-19 pandemic.

House and Senate leaders said in a statement Monday they agreed to freeze the unemployment insurance tax rate for 2021 and 2022 and adjust the state tax code on income taxes to extend tax relief corporations have gotten on forgiven Paycheck Protection Program loans to small businesses in Massachusetts.

Senate President Karen Spilka and House Speaker Ron Mariano signed off on the statement, as well as Senate Ways and Means Chairman Michael Rodrigues and House Ways and Means Chair Aaron Michlewitz. They did not make available a copy of the bill they referenced.

Other provisions of the deal include tax relief to unemployed workers whose income falls below 200% of the poverty line, waived penalties for missed tax payments on 2020 unemployment benefits, mandated paid leave for employees testing positive for COVID-19 or who need time off to get the vaccine and reimbursements for employers providing paid time off.

“This agreement strikes a balance to ensure that businesses can continue to move forward while protecting those working hard to keep the economy going,” legislative leaders said in the statement. “Time is of the essence to bring this much needed relief to businesses and employees, and so we will act expeditiously to get this comprehensive bill to the governor’s desk.”

Hours earlier, Senate Minority Leader Bruce Tarr joined a call organized by conservative think tank MassFiscal to promote changes to the unemployment insurance rate and the tax code for forgiven PPP loans. The Gloucester Republican said the bipartisan coalition of lawmakers are still reviewing the specifics of the agreement, but “it signals the opening of a major window of opportunity to provide needed tools to confront these challenges.”

For months, business leaders have raised concerns about the expected rise in unemployment insurance. Employers are expected to see the rates increase from $539 per employee on average to $866 per employee. The bill would freeze the unemployment insurance rate schedule for 2021 and 2022 and and authorize state borrowing.

The state’s UI trust fund has been depleted since the start of the pandemic, falling to more than $2 billion in the red at the end of 2020. The Massachusetts Taxpayer Foundation said in a bulletin issued last week that borrowing would likely be unavoidable and that doing so now gives the state time to make a deal that is cost effective for the state trust fund and employers.

The Raise Up Massachusetts Coalition, a group of faith-based institutions, labor unions and community groups, praised the plan to push for paid leave protections for workers but has not yet seen the bill. The coalition plans to review the bill to see if it meets members’ demands for at least 5 days, or 40 hours, of paid sick leave time.

“Ensuring that frontline workers can afford to stay home if they have symptoms or have been exposed to COVID-19 will be critical to preventing additional surges and finally ending the pandemic,” said Peter MacKinnon, president of SEIU Local 509.

The proposed tax relief for small business owners with forgiven PPP loans has gained moment over the past week. Citing the pandemic’s impact on small businesses, legislators from Democratic Sen. Eric Lesser of Longmeadow to Republican Rep. Marc Lombardo of Billerica have backed passing a bill that would let small business owners avoid claiming forgiven PPP loans on their gross income tax.

The $900 billion stimulus bill Congress passed in December allows corporations with forgiven PPP loans to exclude those funds from their gross income, but they can still claim deductions on the expenses they paid for with PPP funds, tax experts say. The end result is a “double benefit” for businesses, at least in states that conform to the federal tax code.

“From a baseline where people don’t normally get to deduct expenses they don’t pay, this is a double tax benefit,” said Adam B. Thimmesch, a professor of at Nebraska College of Law who analyzes federal and state taxes across the U.S.

Massachusetts conforms to the federal tax code when it comes to corporations, but not when it comes to personal income taxes. Some companies, particularly small businesses, file business taxes through personal income taxes because they are “pass-through entities.”

But Massachusetts lawmakers can do one of two things: They can opt out of the federal corporate code, or they can pass a law conforming to the federal income tax code so both large and small businesses get the so-called double benefit, Thimmesch said.

The issues with conforming to the federal tax code in this case, he said, is the potential impact on struggling businesses that did not get a PPP loan.

“If you were a company that didn’t get PPP funds, you’re going to pay state income tax on all of your income,” Timmesch said. “You both didn’t get federal assistance and you have to pay state income tax on all of your income, whereas a PPP recipient is getting federal assistance and getting to take advantage of a deduction for an expense they didn’t pay.”

For weeks, business owners have called on lawmakers to help address the differences between the federal and state tax codes.

“I think they were just thinking, we’ve got to survive and take whatever opportunities we can get,” Michlewitz said during last week’s budget hearing as Administration & Finance Secretary Michael Heffernan testified.

Following Monday’s announcement, Michlewitz’s office did not respond to questions about the potential “double benefit” small and large businesses could be getting from forgiven PPP loans.

On Monday morning, Republican lawmakers on a call with MassFiscal called for swift passage of a bill that would freeze the unemployment insurance rate and offer relief to businesses with forgiven PPP loans.

“Our small businesses and workers across the commonwealth, they need us. They’re in a tough position because the government put them in a tough position,” Lombardo said, referring to the closure of non-essential businesses at the start of the pandemic and other restrictions the state has imposed since.

“I represent a lot of these small business owners who are watching much larger corporations receive these PPP loans that were designed to be tax free as tax free and in Massachusetts here the small businesses are getting hit,” said Sen. Ryan Fattman, a Sutton Republican. “Taking care of this now, as soon as possible, as expeditiously as possible, is really important.”

Peter D. Enrich, professor of law emeritus at Northeastern University School of Law, said changing the state tax code for personal income taxes to conform with the federal tax code means businesses would get a double benefit. Enrich, who serves on the board of left-leaning think tank MassBudget, said the state would lose out on more than $150 million as more businesses claim deductions for expenses they didn’t pay.

“It simply is not true that without legislation people are going to be taxed on their forgiven PPP loans,” Enrich said. “That is simply a confused narrative that has been exploited by lobbyists for the business community.”

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