House weighs mixed bag of business tax changes due to pandemic
Posted May 19, 2020 6:31 p.m. EDT
Updated May 19, 2020 8:07 p.m. EDT
Raleigh, N.C. — House lawmakers are expected to vote next week on tax law changes that include good and not-so-good news for business owners working to navigate the coronavirus pandemic.
The measure, House Bill 1080, was approved by the House Finance committee Tuesday morning.
Under North Carolina tax law, loan write-offs and other debt settlements are generally treated as income received by the debtor and are subject to income tax. But the House bill would specify that forgiven loans under the federal Paycheck Protection Program wouldn't be considered taxable income.
That would benefit the small percentage of North Carolina businesses that have received PPP assistance. However, another change could negatively affect many more.
That proposal would block businesses from recovering 100 percent of their net operating losses for 2020. Instead, business owners would have to stretch those deductions over five tax years.
When Rep. Keith Kidwell, R-Beaufort, who's a CPA, asked about the change, committee staffer Jonathan Tart explained that close to a million tax returns will have business income or losses on them. If even half of them claimed 100 percent of their projected losses due to the pandemic and the shutdown, Tart said, "you’d be immediately talking about several hundred million dollars less in revenue collection."
The state took similar measures in 2009 during the recession to soften the fiscal impact to the state, Tart added.
Kidwell, one of the bill's co-sponsors, asked that the section be taken out of the bill.
"This financial crisis that we are in is going to impact businesses as badly as it will the state," Kidwell said. "My fear is we’re going to see a lot of businesses go out of business, and this is something that could potentially help them to survive – to be permitted to take that net operating loss."
Rep. Deb Butler, D-New Hanover, spoke in favor of the bill, saying it's important to do everything possible to inject money into the economy and help taxpayers. But she also alluded to the looming state budget shortfall.
"We are going to having to make some tough decisions in the coming weeks and months and possibly years because of what our budget is going to look like, and I don’t think it’s easy to predict right now," Butler said.
The bill passed the committee nearly unanimously, with only Kidwell and Rep. Lee Zachary, R-Yadkin, against it. However, it was pulled from the House Rules committee agenda Tuesday afternoon without explanation.