Bill to not tax small businesses for PPP loans passes unanimously in state Senate

Small business owners in New Jersey are one step closer to have the Paycheck Protection Program loans they received not count as taxable income Thursday, thanks to the passage of S3234 by a unanimous vote in the state Senate.

The Assembly version of the bill, A5149, has not yet been voted on. Should it pass the Assembly, it would then need a signature from Gov. Phil Murphy.

The bill ensures New Jersey businesses that received federal assistance under the PPP will not have to pay state income taxes on their loans, even if those loans are forgiven. It also clarifies that companies can deduct business expenses paid for with PPP funds — and would put New Jersey in line with the federal tax code.

The voted was praised by numerous business groups.

Eileen Kean. (File photo)

Eileen Kean, the New Jersey state director of the National Federation of Independent Business, praised the vote in the Senate.

“When small business owners took these loans last spring to survive when they were ordered to shut down, and the owners agreed to keep their employees on the job and off of unemployment to turn them into grants, they never imagined they would be taxed by the government,” she said.

“We are so grateful to the senators for going along with Congress, and not imposing taxes on the forgivable funds and allowing loan-related expenses to be deducted. We hope the Assembly will support New Jersey’s small businesses by doing the same.”

Ralph Thomas. (File photo)

Ralph Thomas, the CEO of the New Jersey Society of CPAs, said the bill makes sense.

“Taxing forgiven loans is a slap in the face to the most vulnerable businesses in New Jersey,” he said. “Their vulnerability is precisely why they received PPP loans in the first place. Taxing these loans for short-term revenue gains for the state is both counterproductive and unfair.”

Christopher Emigholz, vice president of government affairs for the New Jersey Business & Industry Association, also was pleased with the vote.

Chris Emigholz. (File photo)

“To be sure, the notion of New Jersey increasing state taxes off federal aid runs counter to the very purpose and benefit of that aid in the first place,” he said. “We have heard concern about this potential tax and expense issue from our members who received PPP, and we are very pleased that bill S3234 has taken another step to ensure there are no added state tax liabilities due to PPP.”

Emigholz also praised the passage of a second bill, S3305, which would allow businesses to take a gross income tax credit for COVID-19-related improvements designed to reduce the spread of the virus in nonresidential buildings.

“New Jersey businesses certainly need tax relief and assistance wherever they can get it right now,” he said. “Both of these bills will be a big benefit.”

More than 150,000 business received PPP loans last year. The majority of them (135,467) were for less than $150,000.