As many of you know, the federal government established the Paycheck Protection Program to help businesses with payroll and other operating expenses during the COVID-19 pandemic. The PPP loan was designed to be forgiven, but what legislators did not take into consideration, was that the New Hampshire tax liability of the loan or grant.
PPP loans are not subject to federal taxes, and most states have not made the loan taxable, either—except for New Hampshire. New Hampshire is one of seven states that does not conform to the federal tax code automatically—therefore, a federal provision negating the tax on the PPP loans will not apply to New Hampshire businesses.
To fix …
When the New Hampshire Department of Revenue Administration notified lawmakers of this issue, state Senate Majority Leader Jeb Bradley, D-3, drafted a late-filed bill—S.B.3. The main objective of the bill was to ensure that PPP loans given to New Hampshire businesses would not be subject to the 7.7% business profits tax. The bill had broad bipartisan support in the state Senate, in which it passed with a 23-0 vote.
… or not to fix?
However, just when senators and business owners thought this issue was going to be resolved with the passage of S.B.3, the New Hampshire House of Representatives Ways and Means Committee pumped the brakes on the bill. According to the committee, the issue with the bill is a projected loss of revenue to the state, estimated to be about $100 million over the next two to four years.
Additionally, some House committee members felt that the bill provided a double benefit for some companies and did not help the businesses struggling to survive. Opponents of the bill stated that, if a company meets the criteria to convert the loan into a grant by paying to keep employees on the payroll and other business expenses, then the business would not be able to use the same business deductions to offset gross income under the business profits tax. S.B.3 would allow the business to use the same deductions to meet the federal requirement to convert the loan to a grant, and for normal business expenses to offset business profits tax liability—which some legislators see as a double-dip.
Members of both parties are concerned about not passing S.B.3, and how it would affect the business community. It doesn’t make sense to policymakers in Concord to give a grant to struggling businesses from the federal government, and then require the businesses to pay taxes on that grant.
What happens now?
The Ways and Means Committee voted that S.B.3 ought to pass the state House. Watch your PIA Northeast publications for updates on this legislation.
Business organizations are urging the state House to pass it
Gov. Chris Sununu and Senate leadership support the bill, so—as with many bills this year—it will come down to Speaker of the House Sherman Packard, R-5’s ability to get his party in line to support and pass it.
Based on their recent conversations with the speaker, representatives of the business community are optimistic that this bill will be passed out of the state House.