Bill To Allow Some Businesses To Deduct PPP Loan Assistance Passes in Assembly

The California Assembly unanimously passed a small business tax break bill on Monday that would have the state give up on over $1 billion a year in tax revenue over the next 6 years.

Assembly Bill 80, authored by Assemblywoman Autumn Burke (D-Marina del Rey), would give non-publicly traded businesses that received Paycheck Protection Program (PPP) loan assistance that had also lost at least 25% in gross receipts last year a 100% tax deductibility for all business expenses paid by using PPP loans. The bill, which also includes deductibility for all Emergency Injury Disaster Loan (EIDL) forgivable loans, would have the state lose up to $6.8 billion in revenue in the next 6 years.

AB 80 has been under tense negotiations since December. Many lawmakers have argued that more businesses should be covered under the bill due to AB 80 missing out on giving tax breaks to roughly 20% of all business in California. Despite bipartisan support for giving the tax break to all businesses that received PPP assistance, Assemblywoman Burke indicated that Governor Gavin Newsom would veto a universal bill due to a projected 6-year tax loss being over $8 billion a year rather than the $6.8 billion under it’s currently projected for losing.

“We put as much pressure as anyone could put on Newsom for the tax break to apply to everyone, but sometimes you just can’t quite get there,” said Assemblywoman Burke on Monday. “The reality is at some point you run out of money.”

The negotiations also included adopting several provisions from the similar SB 265, a bill authored by Senator Andreas Borgeas (R-Fresno) that would give full deductibility to all businesses that received PPP loans in favor of a $150,000 deductibility cap. Through parts of SB 265 and compromising with what Governor Newsom wanted in a non-universal tax break, lawmakers compromised on the 25% reduction in gross receipts minimum and non-publicly traded company eligibility requirements earlier this year.

AB 80 passes unanimously with bipartisan support

Last week, the bipartisan nature of the bill showed through following a unanimous Senate vote in favor of AB 80 and a 9-0 Assembly Revenue and Taxation Committee vote. The support continued Monday with the 75-0 Assembly passage.

“Today, the California Legislature passed my bill AB 80, which is one of the largest tax cuts in state history” tweeted Burke on Monday. “AB 80 excludes income from PPP loans for state tax purposes, and allows almost everyone to deduct expenses paid for with forgiven funds.”

Today, the #CALeg passed my bill AB 80, which is one of the largest tax cuts in state history.

AB 80 excludes income from #PPPLoans for state tax purposes, and allows almost everyone to deduct expenses paid for with forgiven funds. pic.twitter.com/yo1U8TIDyH

— Autumn R. Burke (@AsmAutumnBurke) April 26, 2021

Assembly Republicans noted similar messages of support for the bill, specifically how businesses needed AB 80 to continue following the pandemic.

“We wanted all businesses to benefit, the bill was too important to vote against,” explained Assemblyman Kelly Seyarto (R-Murrieta) on Monday. “There’s a lot more businesses that are going to be helped by this than are going to be hurt.”

Many experts noted on Tuesday that it now falls to Governor Newsom to pass, and if the compromises both parties made with AB 80 were enough.

“Newsom was very adamant against not giving all businesses the tax break,” explained LA-based small business advisor Karl Hockney on Tuesday to the Globe. “He still wants revenue coming into the state, so the bill had to be scaled back. Why do you think the bill, which deals with something so time sensitive like giving businesses tax breaks, has been heavily amended and fought over since December?

“They talked with the Governor’s people when writing this bill, so I think the the number of businesses being covered and the $6.8 billion being forgiven was from a figure that all sides said they could live with. ‘If businesses that got PPP last year are doing well, why should they get the break’ is in that line of thinking.

“It’s up to Newsom now. Thousands of businesses are literally waiting on this bill to make important financial decisions.”

The Governor is expected to either sign or veto AB 80 soon.