In 2020, the federal government gave businesses a bridge loan called the Paycheck Protection Program (PPP). The purpose was to keep employees on the payroll during the COVID-19 pandemic.
Companies had to submit an application with the formula for the number of employees and payroll per week, plus itemized expenses such as electricity to determine the amount of the loan. The amount was set up as loan from lending institutions, and the business signed the note and was given the money.
This loan enabled small businesses to stay viable and pay their employees. The loan worked as a bridge to keep businesses afloat during the pandemic. Personally, my family lost more money in the first five months of 2020 than in any other time I’ve worked here over the past 40 years.
Since we were considered a vital manufacturing business, we were lucky we could keep working, but other businesses were not so lucky. Those businesses had to close, work less hours, etc., but fortunately the PPP program saved many from failing.
At the end of 2020, the PPP loans were forgiven by the federal government, and given to the companies that participated as a federal grant. Therefore, businesses did not have to pay federal income tax on the money, and they were allowed to write the loan money off of their books as an expense.
This program has done what the federal government intended it to do. Companies were able to pay their employees. Therefore, state and federal withholding payroll taxes were paid. The employees could spend that money to help the state get more sales tax. This also enabled employers to keep people employed, therefore lowering the unemployment burden on the state.
The state got its tax money, plus millions of dollars from the CARES Act, but this is not enough for our governor and many in our legislative branch — mostly members of the House of Delegates.
They say that businesses do not have to pay state income tax on the income from the PPP money, but that the businesses cannot deduct the PPP money as an expense on state income taxes, even though it was used for business expenses.
In layman’s terms, for example, if my business broke even on the state return and I had a total payroll expense of $30,000, and I got $20,000 in PPP money to help pay my payroll, the state is saying that I cannot deduct that $20,000 as an expense.
Therefore, that goes as income on my state taxes. Now I have to pay taxes on $20,000, which is a burden no business needs in this pandemic. This money is not the state’s to begin with; therefore, it should not be taxed. It came to the business via a federal grant. Legally, I don’t think the state can tax a federal grant. But I am not a lawyer.
I would hope that our governor and legislature would not pass any legislation to tax this money. Many Virginians have been working hard through this pandemic to stay open and to run their businesses.
The state indirectly got its share of state withholding taxes from the federal PPP money. The companies were able to pay their employees, keeping them off of unemployment and saving the state millions.
The money businesses paid to employees gave them money to spend, which helped Virginia get millions in tax revenue. This proposed legislation is wrong.
It is not the state’s money to tax, and it is just another burden the state is putting on the backs of small businesses that are struggling through this pandemic.
Kennon Morris is vice president of Northern Neck Lumber in Warsaw. Contact him at: email@example.com