Bill Text: NH SB3 | 2021 | Regular Session | Introduced
Bill Title: Clarifying the tax treatment of federal Paycheck Protection Program loans.
Spectrum: Partisan Bill (Republican 1-0)
Status: (Passed) 2021-06-15 - Signed by the Governor on 06/10/2021; Chapter 0074; Effective 06/10/2021 [SB3 Detail]
Download: New_Hampshire-2021-SB3-Introduced.html
SB 3-FN - AS INTRODUCED
2021 SESSION
21-1081
10/05
SENATE BILL 3-FN
AN ACT clarifying the tax treatment of federal Paycheck Protection Program loans.
SPONSORS: Sen. Bradley, Dist 3
COMMITTEE: Ways and Means
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ANALYSIS
This bill excludes under the business profits tax the business income of a taxpayer received by reason of forgiveness of indebtedness issued or created under the federal Paycheck Protection Program (PPP).
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Explanation: Matter added to current law appears in bold italics.
Matter removed from current law appears [in brackets and struckthrough.]
Matter which is either (a) all new or (b) repealed and reenacted appears in regular type.
21-1081
10/
STATE OF NEW HAMPSHIRE
In the Year of Our Lord Two Thousand Twenty One
AN ACT clarifying the tax treatment of federal Paycheck Protection Program loans.
Be it Enacted by the Senate and House of Representatives in General Court convened:
1 New Section; Business Profits Tax; Clarification of PPP Loans. Amend RSA 77-A by inserting after section 3-b the following new section:
77-A:3-c Clarification of Tax Treatment of Paycheck Protection Program (PPP) Loans. In determining gross business profits for any period, before net operating loss and special deductions, notwithstanding any other provision of law, a business organization shall apply the provisions of the United States Internal Revenue Code consistent with the following adjustments:
I. No amount shall be included in the gross business income of the eligible recipient by reason of forgiveness of indebtedness issued or created under the federal Paycheck Protection Program (PPP) which was first established under the federal Coronavirus Aid, Relief, and Economic Security Act (P.L. 116-136, enacted March 3, 2020) or issued or created under the federal PPP Second Draw Loan Program established under the federal Consolidated Appropriations Act, 2021 (P.L. 116-260, enacted December 27, 2020).
II. No deduction shall be denied, no tax attribute shall be reduced, and no basis increase shall be denied, by reason of the exclusion from gross business income provided by paragraph I.
III. This section shall apply to taxable years ending after March 3, 2020, corresponding with the date of the enactment of the federal Coronavirus Aid, Relief, and Economic Security Act.
2 Effective Date. This act shall take effect upon its passage.
21-1081
Revised 2/5/21
SB 3-FN- FISCAL NOTE
AS INTRODUCED
AN ACT clarifying the tax treatment of federal Paycheck Protection Program loans.
FISCAL IMPACT: [ X ] State [ ] County [ ] Local [ ] None
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STATE: | FY 2021 | FY 2022 | FY 2023 | FY 2024 |
Appropriation | $0 | $0 | $0 | $0 |
Revenue | $0 | Indeterminable Decrease | Indeterminable Decrease | Indeterminable Decrease |
Expenditures | $0 | $0 | $0 | $0 |
Funding Source: | [ X ] General [ X ] Education [ ] Highway [ ] Other | |||
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METHODOLOGY:
Federal law allows for loan amounts received by taxpayers from the Paycheck Protection Program (PPP) that are forgiven to not be included in taxable income federally and business expenses paid for with forgiven PPP loans can be deducted. Under the current New Hampshire Business Profits Tax (BPT) statute, loan amounts received by NH taxpayers from the PPP that are forgiven will be included in taxable income for BPT purposes and business expenses paid for with forgiven PPP loans can be deducted. The NH treatment under current law mirrors the normal treatment of forgiven loans for federal tax purposes; the federal government has, however made a policy decision to modify this treatment for forgiven PPP loans. This bill amends the BPT statute to that New Hampshire's treatment of forgiven PPP loan amounts mirror the federal treatment effective upon passage for the taxable periods ending after March 3, 2020.
The Department of Revenue Administration (DRA) is unable to calculate the exact fiscal impact of this bill. Though the list of PPP loan recipients is public, the list cannot be used to reliably calculate the fiscal impact of this bill due to the following limitations:
- The list of PPP loan recipients does not include recipient federal employer identification numbers (FEINs) and therefore there is no reliable way to match the loan recipients on the list to DRA filers. The names on the list may vary significantly with how the taxpayer files with the DRA due to the use of trade names, abbreviations, etc. as well as because many of our largest filers file combined returns reporting the activity of numerous related entities who may have received PPP loans.
- Under current law, only forgiven PPP loans will be included in the BPT tax base. To be forgiven, certain PPP criteria must be met. As of the date of this fiscal note, the US Small Business Administration (SBA) has not published data related to amounts of PPP loans forgiven.
- Under current law, the taxpayer will include forgiven PPP loans in the tax base, but will deduct any business expenses paid for with forgiven PPP loans. Therefore, in order to calculate the revenue attributable to forgiven PPP loans currently, the DRA would need data on the amount of expenses each taxpayer will first deduct. The DRA does not have this data.
- Under the proposed law, forgiven PPP loans will not be included in the BPT tax base, however business expenses paid for with forgiven PPP loan amounts will remain deductible. Because these deductions for business expenses will not be offset by the forgiven PPP loan proceeds, these business deductions will offset other taxable income from the taxpayer. Therefore, in order to calculate the revenue loss attributable to allowing these business deductions, the DRA would need data on the amount of expenses each taxpayer will deduct that were paid for with forgiven PPP loan proceeds. The DRA does not have this data.
Though the DRA is not able to determine an exact fiscal impact, the DRA believes the eliminating forgiven PPP loans from the BPT tax base by making them not taxable and continuing to allow the deduction of business expenses paid for with forgiven PPP loan proceeds would reduce revenue beginning in FY 2022. This revenue reduction would take the form of reduced estimate payments, reduced return and extension payments, and increased refund requests for taxpayers who will have already filed their tax returns reporting forgiven PPP loan amounts and taxpayers who made estimated tax payments in accordance with the law at that time.
The DRA is able to provide a broad range of the potential impact of this bill based upon publicly available data and making a number of assumptions about the available data that include:
- Of the $525 billion in PPP loans that went to 5,212,128 recipients nationwide, it is assumed 0.4% or $2.1 billion of the total amount being apportioned to New Hampshire. The 0.4% apportionment percentage represents the typical amount of taxable business income to NH compared to total national taxable business income.
- From the $2.1B in PPP loans apportioned to NH, NH recipients with a non-profit status were removed (Those recipients labeled as non-profit include hospitals, nursing homes, churches, and private educational institutions), as well as those recipients with one employee and less than $75k in PPP loans. These taxpayers were excluded because they mostly likely would not have a Business Enterprise Tax (BET) or BPT liability in NH, due to the BPT $75k safe harbor compensation deduction as well as being below the BET thresholds. This results in $1.8 billion in estimated potentially taxable aid to NH depending on forgiveness and use of funds.
- The PPP requires that certain program criteria be met for the loan to be forgiven. For purposes of our analysis the DRA has assumed that all PPP loans issued will meet program criteria and therefore be forgiven because the SBA has not yet published loan forgiveness data.
- The PPP is designed to provide a direct incentive for businesses to keep their workers on the payroll. Borrowers may be eligible for loan forgiveness if the funds were used for eligible payroll costs, payments on business mortgage interest payments, rent, or utilities during either the 8- or 24-week period after disbursement. Because the PPP requires that recipients spend 60% of the loan proceeds on eligible expenses, the DRA analysis has assumed that 60% of loan proceeds are spent on NH wages to calculate an estimated BET impact.
- In addition to assuming that 60% of PPP loan proceeds are spent on wages, the DRA assumed that an additional 0%, 20%, and 40% were spent on other deductible business expenses in order to calculate a range of the possible fiscal impact of the proposed legislation.
- Assuming 60% of the forgivable loans are spent on wages, $1.08B would be subject to the current BET rate of 0.60% equating to $6.5M of BET revenue under each scenario.
- For the high range, we assumed 43.4% of BET taxpayers would have a BET credit against the BPT return, based on TY2018 data. Applying the 43.4% to the $1.08B and then multiplying it by the current 0.6% BET rate results in an estimated BET credit of $2.8M to offset any BPT liability. We also assumed 40% was spent on other (non-wage related) deductible business expenses. As wages are a deductible business expense, we applied the total loan amount or 100% (60% + 40%) of $1.8B to the current BPT rate of 7.7%, resulting in ($138.6M). Therefore, the high range impact would be $6.5M BET tax, less ($2.8M) BET Credit, less ($138.6M) deductible expense against the BPT, resulting in an estimated ($134.9M) reduction in revenue.
- For the mid-range, we assumed 43.4% of BET taxpayers would have a BET credit against the BPT return, based on TY2018 data. Applying the 43.4% to the $1.08B and then multiplying it by the current 0.6% BET rate results in an estimated BET credit of $2.8M to offset any BPT liability. We also assumed 20% were spent on other (non-wage related) deductible business expenses. As wages are a deductible business expense, we applied 80% (60%+20%) or $1.44B of the total $1.8B loan amount. We then multiplied it by the current BPT rate of 7.7%, resulting in ($110.9M). Therefore, the mid-range impact would be $6.5M BET tax, less ($2.8M) BET credit, less ($110.9M) deductible expense against the BPT, resulting in an estimated ($107.2M) reduction in revenue.
- For the low-range, we assumed 43.4% of BET taxpayers would have a BET credit against the BPT return, based on TY2018 data. Applying the 43.4% to the $1.08B and then multiplying it by the current BET rate of 0.6% results in an estimated BET credit of $2.8M to offset any BPT liability. In this scenario, we also assumed 0% was spent on other (non-wage related) deductible business expenses. As wages are a deductible business expense, we applied 60% (60%+0%) or $1.08B of the total $1.8B loan amount. We then multiplied it by the current BPT rate of 7.7%, resulting in ($83.2M). Therefore, the low-range impact would be $6.5M BET tax, less ($2.8M) BET Credit, less ($83.2M) deductible expense against the BPT, resulting in an estimated ($79.5M) reduction in revenue.
- The analysis only includes the possible fiscal impact of the PPP loan issuance through August 8, 2020 and does not estimate the impact of follow-on programs.
Based on the assumptions above, the DRA has provided the possible decreases in revenue as a high of $134.9 million, middle of $110.9 million and a low of $79.5 million.
AGENCIES CONTACTED:
Department of Revenue Administration
