February 16, 2021

Contact: Senator Robert Cowles: (608) 266-0484

Votes Against PPP Tax Changes

MADISON– Senator Robert Cowles (R-Green Bay) released the following statement after voting against 2021 Assembly Bill 2 (AB 2) as amended which creates an unfair “double tax” benefit for Paycheck Protection Program (PPP) loan recipients: 

“I’ve seen the impact that COVID-19 has had on our small business community first hand and I sympathize with them, however I could not vote in favor of 2021 Assembly Bill 2 today as it creates a massive and inequitable tax benefit in favor of large loan recipients and singularly profitable businesses that I view as outside of the intent of the Paycheck Protection Program: preserving small local businesses.”

In response to the COVID-19 pandemic, Congress enacted legislation, which, among other things, provided financial aid to businesses in the form of the PPP loans. PPP provided forgivable loans to businesses, so long as recipients met loan conditions. In the first round of PPP loans (Round 1), loan amounts are excluded from taxable income. Meanwhile, the federal Internal Revenue Service (IRS) issued guidance that expenses related to forgiven loans could not be deducted. In December of 2020, Congress passed the Consolidated Appropriations Act of 2021 (CAA), which provided for a second round of PPP loans (Round 2), as well as further altered the treatment of PPP loans and overruled the IRS by determining that these loans would not be included in taxable income and can be deducted as business expenses.

Prior to passage of AB 2, state law treated Round 2 of forgiven loans as part of the recipient’s gross income, but the loan recipient could claim deductions for business expenses. This would result in a net effect of $0 of taxable income from the PPP loan from both Round 1 and 2. AB 2 was amended to allow Round 2 of PPP forgiven loans to be excluded from gross taxable state income and to allow deductions of expenses paid for using PPP loans from their taxable state income. This results in a “double tax” benefit to the recipient, resulting in a $431 million fiscal hit to the State’s coffers.

“Under current state law, if a business is showing a loss, has spent their entire PPP loan and is deducting the expenses, or did not profit last year, they do not have tax liability. What is being done under this legislation is saying that you can make deductions on expenses paid for with tax-exempt income for only the segment of the business community that received a PPP loan, resulting in a double tax benefit. For example, a $1 million loan would not be considered income, and expenses paid for from that $1 million would be deducted, therefore the net impact to the recipient is $2 million. Meanwhile, the rest of the businesses that did not receive a PPP loan are paying taxes as usual, and the businesses suffering most from the pandemic that did not turn a profit have no tax liability. I contend that this double tax benefit does not equitably assist businesses around the state, and therefore I could not support AB 2 as it came before the state Senate today. I’ll be looking to find innovative ways to assist Wisconsin’s business community in its entirety moving forward.”