An important piece of Governor Reynolds’s tax bill is ensuring that Iowa does not tax dollars that saved jobs through the Payroll Protection Program. The Iowa House and Senate have introduced stand-alone bills with the same goal.
What is the Payroll Protection Program (PPP)?
As ITR wrote for the Cedar Rapids Gazette when this issue was being considered before Congress in December, the PPP was passed last spring as part of the CARES Act to give businesses a lifeline.
The primary goal of the PPP was to keep employees on the payroll rather than in the unemployment line. As its name implies, PPP was designed to help prevent the unemployment rate from skyrocketing, as businesses could no longer afford to pay their employees.
Congress’s intent was to temporarily replace the revenue that had suddenly disappeared for so many businesses. Those businesses would not have to pay back the loans if used for qualifying expenditures, specifically payroll costs and standard building expenses such as rent and utilities.
No federal income tax on forgiven PPP loans.
Considering the circumstances to be extraordinary, Congress guaranteed these forgivable loans remained 100% tax-free by passing legislation at the end of 2020 to update our federal tax code. That legislation had broad bipartisan support, including “yes” votes from Representative Axne and Senators Grassley and Ernst.
What about state income tax?
Even though Iowa’s Department of Revenue has indicated it will mirror federal tax treatment of these proceeds and keep them tax-free, enacting legislation to cement that position and clarify its application across multiple fiscal years is a good idea. Some businesses have fiscal years that don’t follow the calendar, and as it stands right now, businesses who began a fiscal year prior to January 1, 2020, would be subject to taxes on the PPP money they received.
Too many states are on the hunt for every tax dollar they can find. In Virginia, for instance, Democrat Governor Ralph Northam continues to push proposals that would in fact tax PPP proceeds at the state level as a way to fund his spending priorities.
Iowans should appreciate that our Governor and legislature want to ensure the state doesn’t tax the rescue money that even Congress believes should be tax-free.
It's not done yet, contact your legislators!
Use the button below to contact your legislators and tell them that small business relief dollars should not be taxed.
Capitol Update: Legislative Issue Status
Read about ITR's solutions to these problems in our 2021 Issue Guide
New or Updated Bills This Week:
Deductibility of Federal PPP Loan Forgiveness SSB 1175 - Passed Ways and Means committee 15-0 HSB 195 - Assigned to a subcommittee SF 196 - Assigned to a subcommittee
City & County Local Entertainment Surcharge- ITR Opposes HF 213 - Subcommittee recommends indefinite postponement
Public Assistance Program Eligibility Verification SSB 1125 - Subcommittee scheduled for next week
No Change This Week:
Governor's Tax Reform Bill HSB 174 - Introduced; Assigned to a subcommittee SSB 1145 - Introduced; Assigned to a subcommittee
Donor Privacy SSB 1036 - Passed Senate subcommittee HF 309 (HSB 28) - Passed out of House Judiciary Committee Fiscal Note
Eliminate Iowa's Inheritance Tax SSB 1026(formerly SF110/HF48) Passed Senate subcommittee / Assigned to House subcommittee SF 16 Assigned to a subcommittee; Fiscal Note
Occupational Licensing Reform SSB 1046 (Review and sunset of professional licenses) Passed out of subcommittee HF 132 (Remote continuing education credits) Passed out of subcommittee SF 163 (Continuing education requirement deadline) Passed out of subcommittee
Open Records Request Costs SF 218 - Introduced; Assigned to a subcommittee
Additional Property Tax and Income Surtax- ITR Opposes SF 258 (SF 117) - Passed full committee
Links of Interest
The Spending Addiction: "$1 trillion from last year's bills hasn't been spent, including $59 billion for schools, $239 billion for health care and $452 billion in small business loans. State and local governments added 67,000 jobs in January. They don't need more federal cash."
- Cal Thomas/Townhall
Our friends at NFIB Iowa gave a shout out to Rep. Ashley Hinson when she tweeted: "I will not support legislation that includes a $15-dollar federal minimum wage mandate. This would decimate our Iowa economy and hurt rural communities. - Rep. Ashley Hinson
Terrible use of property tax dollars by the Des Moines Public Schools. The Kirkwood Institute and TEF Iowa found confidential documents on the DMPS website showing the school district denied open-enrollment requests to victims of alleged assault, bullying, and rape victims.
- We Are Iowa
