(The Center Square) – The N.C. General Assembly is trying to take the step to fully conform with federal tax code as it relates to Paycheck Protection Program loans for small businesses.

PPP loans, which originated in March 2020 from the federal Coronavirus Aid, Relief and Economic Security Act and have continued in the year since, were meant to help businesses keep their workers on payroll during the COVID-19 pandemic and subsequent government-imposed shutdowns. The loans were forgivable if the money was spent on eligible expenses.

The state already had taken the step to make forgivable PPP loans tax exempt, conforming with the federal tax code, but Congress took the step in December of making expenses paid by PPP loans tax deductible.

House Bill 334, sponsored by Reps. Jason Saine, R-Lincoln, and Ray Pickett, R-Ashe, would allow individual and corporate taxpayers in North Carolina an income tax deduction for expenses paid using a forgiven PPP loan in tax year 2020.

“These small business owners, and even big business owners, the mom and pops, everybody, did their best to make sure their employees had a place to work even when productivity was cut sometimes to zero,” Saine said April 15 during a news conference to discuss the bill.

The North Carolina Research Fiscal Division estimated the deduction would amount to a collective tax cut of about $400 million for North Carolina businesses, but House Speaker Tim Moore, R-Cleveland, said the tax cut would amount to $600 million to $700 million.

“A year ago at this time we had closed our restaurant, but we made the personal investment and decision to use our own funds to continue paying our staff,” said Sammy Hobgood, the kitchen manager at Big Ed's City Market Restaurant in Raleigh. "When we received the Paycheck Protection funding, that was a literal lifeline. The state of North Carolina will continue to thrive and survive without collecting this tax revenue, but the many small businesses like ours that stand to lose $30,000 out the door could fold.

“There are a lot of businesses in North Carolina that run a really high risk of not making it through these next few months if they take this tax hit,” Hobgood said.

More than 202,000 PPP loans have been awarded in North Carolina, totaling more than $16 billion. The average loan size in the state is about $81,600.

HB 334 passed, 111-2, on its second reading in the House on April 15 and is scheduled for a third reading next week before being sent to the Senate.

“One of the things that you always question is whether or not government is getting it right and whether or not we understand what the struggles are of small businesses,” said House Democratic Leader Robert Reives, D-Chatham. “... What we wanted to do was to make sure that we took advantage of all opportunities that we could to help North Carolinians in this particular situation.”

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