GOVERNOR Chris Sununu has signed Law SB 3, a law that both houses of the Legislature passed with overwhelming bipartisan support, giving companies a double tax benefit on loan lending through the state paycheck protection program.
Specifically, it excludes waived PPP loans from taxable income under government corporate income tax (BPT), but still allows a BPT deduction for otherwise deductible business expenses paid with waived PPP loans. New Hampshire complies with the state tax treatment of PPP loans with SB 3 becoming law, providing additional financial assistance to the small businesses hardest hit by the COVID-19 pandemic.
This is a marked departure from the usual government treatment of waived loans for BPT purposes. With PPP, without SB 3, the granted loans would have been included in the taxable income, but with the deductibility of business expenses. So, in general, this additional income would have been offset by deducting business expenses paid for with issued PPP loans.
However, with SB 3, the dual benefit of both excluding issued PPP loans from income and allowing the same reimbursable business expenses to be deducted provides additional support for New Hampshire small businesses by ensuring more liquidity now and in the future.
SB 3 is retroactive and applies to tax years ending after March 3, 2020. The Department of Revenue Administration (DRA) estimates this benefit at approximately $ 100 million.
For taxpayers who have already filed their 2020 BPT returns showing PPP loans granted as taxable income, SB 3 will reduce their income and thus any BPT due or may cancel their BPT due altogether. When these taxpayers have paid BPT (as opposed to pure business tax or no business tax), they are refunded or they can treat such overpayment as a credit to be carried forward.
A credit of the overpayment can be used as payment in a future year. It is worth mentioning, however, that the budget proposal contains new loan carryforward limits from 2022.
Alternatively, or in addition to refunds and / or credits for overpayments, some of these taxpayers could save available legal credits for a subsequent year regardless of whether they actually paid BPT (provided the saved credits can be carried over). One such example is the Business Tax Paid (BET) credit on BPT, which can be carried forward for 10 years.
Likewise, if these taxpayers use net operating losses as a deduction to reduce their income, they could instead save all or part of it until later – also for up to 10 years.
To receive these benefits, taxpayers who have already filed their 2020 BPT returns reporting PPP loan granted as taxable income must submit amended returns.
Taxpayers who have not filed BPT returns for 2020 (e.g. calendar year taxpayers filing the renewal) will include the effects of this change in their original returns. These taxpayers will get the same benefits as those who have already filed their 2020 BPT returns. SB 3 could lead to a reimbursement or crediting of overpayments or increase them and / or save net operating losses and credits no longer required by law, which can be carried forward in 2020 and used in a subsequent year.
Taxpayers who are waived a PPP loan should consult a tax advisor to learn how this law applies to their specific circumstances. For further information, the DRA has issued guidelines in Technical Information Release TIR 2021-003.
SB 3 is a big win for small New Hampshire businesses that seemed a little unsafe in April and May. During that time, the House Ways and Means Committee held a series of working meetings to delve deeply into the cost of providing this double taxation benefit.
In retrospect, the adoption of SB 3 was never really called into question. In my previous role as DRA tax advisor, I had the good opportunity to work closely with the House Ways and Means Committee. I can tell you that the committee did not want to miss an opportunity to hear from the business community as the impact on New Hampshire businesses weighed heavily on its decisions.
In the case of SB 3, the governor, the Senate and the House of Representatives heard the message loud and clear – it delivers the intended benefits of PPP while avoiding further financial burdens on businesses. SB 3 passed essentially unanimously, 23: 0 in the Senate, and after a vote in the House of Representatives after the 23: 0 favorable recommendation of the Committee on Ways and Means.
SB 3 is a fine example of the state's ongoing bipartisan efforts to take the pressure off small businesses in New Hampshire, this time by ensuring the maximum benefit from PPP loans. As we turn the corner of the pandemic and our economy continues to open, this should help fuel the engine of the recovery. Hats off to the legislature.
Shaun Thomas is the director of legal and tax law at Demers & Prasol. He lives in Eppingen.