Gov. Phil Murphy has signed into a law a measure exempting Paycheck Protection Program (PPP) loans forgiven by the federal government from New Jersey’s gross income tax.
Under S-3234, businesses may also deduct expenses paid for by such a loan.
Congress created the PPP loans as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act to help small businesses amid the COVID-19 pandemic. The federal government may forgive the loans for recipients that meet certain conditions.
“As we all know, the COVID-19 pandemic has devastated the small business community in New Jersey,” state Sen. Anthony Bucco, R-Boonton, said in a news release.
“New Jersey is one of the highest taxed states in the nation,” Bucco added. “During this pandemic, when small businesses are literally struggling to survive, the last thing they need is yet another tax.”
The United States Small Business Administration (SBA) has approved about $17 billion in loans for New Jersey businesses, officials said. In addition to using PPP funding for payroll, companies could use the money for non-payroll expenses, such as mortgage interest and utility costs.
“Our small businesses have been pummeled over the past year,” state Sen. Troy Singleton, D-Burlington, said in a news release. “Many of our favorite family establishments have already closed, and numerous others are at risk of shutting down.
“For many, the federal PPP loans were a godsend that helped them stay open,” Singleton added. “With this law, New Jersey is allowing businesses to deduct forgiven PPP loans from state taxes, providing further relief as we continue to recover from the economic impact of the pandemic.”
The Office of Legislative Services (OLS) determined that the bill will result in “an indeterminate loss” of revenue for the state in the 2021 and 2022 fiscal years. An OLS estimate from January concluded roughly $6.4 billion in PPP loans awarded to small businesses in New Jersey might be taxable, and the revenue “loss” might be about $688 million.