PROVIDENCE – Rhode Island’s Democratic leadership announced on Thursday that the threshold for taxation on businesses that profited while in receipt of Paycheck Protection Program loans would be raised from $150,000 to $250,000.
House Speaker K. Joseph Shekarchi, Senate President Dominick J. Ruggerio and Gov. Daniel J. McKee, all Democrats, announced that the fiscal 2022 budget approved by the House Committee on Finance Thursday night includes the higher threshold on the taxation of the forgiven PPP loans for recipients that showed profit in the year they received a loan.
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Under the governor’s budget proposal presented to the House in March, the companies that profited from loans in excess of $150,000 were subject to state taxation.
“PPP loans were a lifeline during the pandemic for many businesses,” said Shekarchi. “However, some recipients accepted PPP loans and then profited from them. Gov. McKee, Senate President Ruggiero and I agreed to amend the threshold for loans to be taxed to $250,000. Only businesses that profited from the loans will be taxed. Of the approximately 30,000 Rhode Island businesses receiving PPP loans, this may impact only 2,000 businesses.”
“I was pleased to work collaboratively with Governor McKee and Speaker Shekarchi to refine the PPP proposal, so that even fewer businesses are impacted,” said Ruggerio. “The taxpayer funded, forgivable PPP loan program helped many businesses stay afloat during very difficult times. The revised budget proposal would only apply to PPP awards over $250,000, and even then only when a business showed a profit.”
Due to conversations over the past few weeks with Rhode Island’s business leaders, including members of the R.I. Business Coalition, and lawmakers, McKee said he was considering the raising of the taxation threshold.
“The PPP program provided a lifeline to businesses large and small during the COVID-19 pandemic,” said McKee. “While my administration’s original proposal gave significant tax relief to thousands of Rhode Island small businesses that received these funds, I am pleased that, because of the projected budget surplus, we will be able to extend that tax relief to even more businesses across the state.”
Most of the state’s business leaders, who have been calling for no taxation of the forgiven PPP loans, still believe that a raising of the threshold is not the answer.
Melissa Travis, CEO and president of the R.I. Society of Certified Public Accountants, and a leading advocate for the R.I. Business Coalition, said, “It is incredibly disappointing to see they do not understand this was not profit, which is why Rhode Island will be one of the only states in the country to do this. Businesses used PPP funds to keep employees on the payroll, so unless this tax is calculated without including PPP funds, which we would support, many of these businesses will be making difficult choices in the months ahead. As reported in PBN just this week, small-business owners who received a second round of PPP funding will run out of funds by the end of July; only a quarter think they can cover payroll costs on their own after that. As I have said repeatedly, having a retroactive tax policy will collapse our economy – you don’t change the rules after the game is played. This is not the message our leaders should be sending to the business community.”
Dale J. Venturini, CEO and president of the R.I. Hospitality Association, said of the announcement Thursday, “The R.I. Hospitality Association is disappointed in the General Assembly’s decision to include the proposed tax on the Payroll Protection Program in the state budget. The RIHA is opposed to taxing the PPP, which was designed to keep employees on the payroll and businesses operational during a global pandemic. In December 2020, Congress took action to ensure that these funds were exempted from taxation. This surprise tax if pushed through, will force thousands of small businesses to re-file their tax returns. The PPP was designed to help small businesses, not penalize them for remaining operational.”
But the Rhode Island Small Business Coalition called the new $250,000 tax threshold “a smart compromise” between McKee and Democratic legislative leaders.
“While many in the business community and our members would always prefer to not be taxed, we understand including a taxpayer funded program as taxable income for those larger businesses that earned profits in 2020,” said coalition co-founder Christopher Parisi in a statement.
He noted that many of the coalition’s members “are smaller businesses that do not have $100,000-plus monthly payrolls and therefore this [PPP tax proposal] largely does not affect our group.”
(SUBS second paragraph with committee vote.)
Cassius Shuman is a PBN staff writer. Contact him at Shuman@PBN.com.
