There are many underlying challenges in the American economy due to the prevalent Covid-19 virus. The pandemic’s major impact is mostly faced by small and medium businesses struggling due to a slow economy.
The Federal Laws Are Lifeline For Small And Medium Businesses
Due to this reason, it is essential that these businesses must be able to retain most of the income earned as much as possible. Recently, Congress helped in allowing businesses to deduct qualified business expenditures related to the Paycheck Protection Program (PPP) for loan forgiveness. Additionally, Virginia had confirmed that IRS and federal tax rules in limited circumstances generally. But in the previous few years, Virginia has not agreed to some of the federal tax code provisions.
Virginia’s tax law needs to be complied with federal laws along with all the previous provisions that were passed by Congress as it is critical to support Virginia’s business and economy of the same. Recently, Gov. Ralph Northam (House Bill 1935) has supported legislation changes and other pending reforms to be presented before the General Assembly to be proposed to comply with Virginia’s tax law to federal laws with certain exceptions. These exceptions are included to negate the effect of benefits of federal assistance.
Another noteworthy proposed exception for Virginia tax purposes and businesses is them receiving PPP grants, which will help them remain functional in their business. It will help them continue to pay employees during the Covid-19 period so that these expenses do not directly affect the business, and these grants will help them get more funds. Suppose these provisions do not comply with federal law. In that case, it will hurt business by putting a very high tax burden on the medium and small businesses in the taxable year 2020. It would result in very high tax compliance that will prove to be a nightmare for CPAs and taxpayers alike. This is why the General Assembly needs to adopt these federal law changes, but it must not be done through HB 1935 like it is currently drafted.
Not allowing the federal tax code in Virginia in relation to the business expense deduction will lead to medium and small businesses who receive PPP grants to an additional tax impounding of around $340 million to $500 million in taxes in the next two years. To put it in simple words, non-compliance of federal tax laws will make it difficult for businesses to survive the pandemic. Businesses that receive PPP grants are, in reality, those that are saving the jobs actively and reducing unemployment claims. On examining Virginia Employment Commission data, we can say that there is a direct correlation between the distribution PPP grants and a drop in claims by various financial institutes.
It means that more people can survive their business, pay the bills, and afford their family’s lifestyle. Is Virginia going to impose a penalty on such businesses that are keeping people employed? If so, these companies will not participate in such programs in the future.
The Paycheck Protection Program or PPP has stopped this deterioration and acted as a support for businesses, which prevented millions of Americans from filing for unemployment.
Due to these reasons, we must understand that penalizing business by conforming to the federal tax breaks that are related to PPP is beneficial to both the employer and the employee. The General Assembly needs to pass this legislation conforming to the Internal Revenue Code but without the exceptions offered in HB 1935.