NC House OKs tax deduction for PPP loans, not for unemployment

Under the proposal, businesses that received loans through the Paycheck Protection Program, an effort Congress approved to keep workers employed amid widespread shutdown orders last year, would be able to deduct the expenses on which they used the relief money.

The forgivable loans aren't taxable, and the federal government and 47 states allow deductions on the business expenses.

House Bill 334 would add North Carolina to that list. The House gave it preliminary approval by a 111-2 vote, and a final vote there is set for next Tuesday before it heads to the Senate.

About 200,000 PPP checks went to about 127,000 North Carolina businesses. House Speaker Tim Moore said those funds helped small businesses keep their doors open.

"We already know how bad unemployment has been. Can you imagine how much worse it would have been?" Moore said.

Most of the business owners at a news conference at the legislature then raised their hands when Moore, R- Cleveland, asked who would have had to lay people off without the PPP help.

"The state of North Carolina will continue to thrive and survive without collecting this tax revenue, but the many small businesses like ours that stand to lose $30,000 – out the door – could fold," Hobgood said.

"It’s asking businesses to come up with money that, frankly, they were required to spend months ago," Creech said.

Rep. Keith Kidwell, R-Beaufort, noted that many businesses had added expenses because of the pandemic – plexiglass partitions, masks, hand sanitizer – that the PPP loans paid for.

"I don’t think it was intended to be a windfall for the state coffers," said Russell Rhodes, owner of Neuse Sports Shop in Kinston.

But lawmakers aren't giving a similar break to people who collected unemployment benefits during the pandemic.

The federal government is waiving federal taxes on unemployment income, but House Republican leaders said the state can't afford to give up that much revenue.

"That is something I know both sides of the aisle are very conscious of," said Reives, D-Chatham. "We’ve got to figure out the way to do it, but I do feel comfortable both sides are really looking hard at getting it fixed."

The House did unanimously pass another bill Thursday to align North Carolina taxes with federal policy. That one exempts interest on taxes paid after April 15, and both the Internal Revenue Service and the state Department of Revenue have already pushed this year's tax deadline back to May 17.

Senate President Pro Tem Phil Berger said his chamber would back waiving the interest fees, but he wouldn't commit to passing any other tax relief.