PROVIDENCE – Members of the Rhode Island business community are up in arms over a state budget proposal in the House from Gov. Daniel J. McKee to allow for the taxation of forgivable Paycheck Protection Program loans greater than $150,000.
All forgivable PPP loans were originally not going to be taxed at the state level, mirroring federal tax policy created under the Coronavirus Aid, Relief, and Economic Security Act.
But McKee in his fiscal 2022 budget plan has proposed “decoupling” the state from federal tax policy as it relates to forgivable PPP loans. That’s related to a 2021 supplemental budget proposal introduced on behalf of McKee that Rhode Island’s House Committee on Finance on Wednesday will hear testimony on. The proposal allows for taxation on PPP loans greater than $150,000 at the applicable tax rate. Under the proposal, there would still be no taxation on forgiven PPP loans that are less than $150,000.
House Finance Chairman Marvin L. Abney, D-Middletown, declined to comment on Tuesday, noting that he does not “make comments on legislation that we haven’t had a hearing on yet.”
McKee’s office did not immediately respond to requests for comment.
Sarah Bratko, senior vice president of advocacy and general counsel for the R.I. Hospitality Association, said, “Over 100 hospitality businesses oppose the tax. It has caused absolute chaos in the small-business community.”
Bratko said businesses are facing uncertainty with filing their tax returns “with the understanding that hundreds of businesses may need to go back and amend their tax return.
“There is a sincere sense of frustration that the PPP money was given to businesses to help them keep people employed after the state shut them down,” she said. “And the state is now reversing longstanding tax policy to have rolling conformity with federal tax law to pick our pockets to balance their budget.”
The PPP funding was provided as a lifeline to businesses across the country as part of the federal CARES Act stimulus program in March 2020. The state also received $1.25 billion in federal stimulus funds per the CARES Act and is scheduled to receive $1.1 billion in stimulus from the American Rescue Plan.
Bratko said the state has had “rolling conformity with federal tax law for 10 or 15 years. We copy what the feds do, for better or worse, when it comes to tax policy, so businesses and individuals have some consistency. So, that’s why we say it is not currently taxable.”
Bratko noted that under the House bill, “the tax administrator has the discretion to not invoke this proposal. But that is problematic – because the General Assembly is the one, Constitutionally, who sets taxes. It’s a dangerous thing for the executive branch to write into law that they have the discretion to grant or discard tax law.
“Even if the state gets a giant bailout for the budget, they’re still planning on implementing a tax policy to tax small businesses,” she said. “This is showing a seismic shift in Rhode Island’s tax policy at the same time that other states are going the other way.”
The R.I. Hospitality Association has received more than 100 signatures on a letter it has been circulating that opposes the legislation, she said.
The Northern Rhode Island Chamber of Commerce sent out a newsletter to its members urging opposition to the legislation.
Liz Catucci, CEO and president of the Chamber, said the legislation is raising questions and concerns for the business community. One of the problems, she said, is that some businesses received more than one PPP loan.
“Businesses are feeling overwhelmed,” she said. “It has been a tumultuous year – a constant rollercoaster for them. Every week it is something else. And our business owners are trying to do the right thing. So, this is like kicking them when they are down.”
Catucci said the state budget proposal was drafted “with good intentions. But it was written before the state was going to receive” federal stimulus funding in the American Rescue Plan.
The biggest issue right now, she said, is that businesses might have to pay more to have their accountants file their taxes “retroactively” due to needed amendments. “It’s definitely an issue.”
Catucci said the business community is banding together to let its collective voice be heard during Wednesday’s testimony.
“The more people involved, and the more people who come out and speak the better. It drives the point across,” she said. “The bigger voice you have, the better.”
Cassius Shuman is a PBN staff writer. Email him at Shuman@PBN.com.
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