Through Aug. 8, 2020, 107,659 paycheck protection program (PPP) loans were made to businesses in Washington. The total amount of the loans was $12.465 billion. Nationally, $525.012 billion was loaned to 5,212,128 businesses. The program was first established in the federal CARES Act, to provide funding for businesses—mainly to keep employees on the payroll during the recession. The loans are forgivable if the businesses meet certain payroll requirements. (The Small Business Administration had forgiven 1.1 million PPP loans nationally through Tuesday—85% of the number that have applied for forgiveness so far.)

The new federal relief bill that was passed in December included $284.5 billion for the PPP, and it specified that gross income does not include any forgiven PPP loan amounts for federal tax purposes.

However, in Washington, the Department of Revenue (DOR) has suggested that such amounts could be subject to the business and occupation (B&O) tax, absent action by the Legislature.

At DOR’s request, HB 1095 has been introduced (and was heard by the House Committee on Finance this morning). The original sponsor, Rep. Walen, had also previously introduced a similar bill, HB 1002.

Under HB 1095, government-funded grants (including forgiven PPP loans) received since Feb. 29, 2020 that are provided to help address the impacts of a national or state emergency would not be subject to the B&O tax, public utility tax, or retail sales tax.

According to DOR, the revenue impact of HB 1095 is indeterminate, “because the amount of loan forgiveness under the federal programs for COVID-19 is unknown.” However, DOR estimates that if all loans are forgiven, “the state could lose up to $209.7 million in Fiscal Year 2022.” (Rep. Ramel asked if the revenues that would be exempt under this bill were included in the November revenue forecast. Rep. Stokesbary and committee staff said that they do not believe they were.)

DOR also notes that if HB 1095 is not enacted, “All state and federal COVID-19 related grants are subject to B&O taxes under the service & other tax classification. Taxpayers with more than $1,000,000 in taxable activity would pay the higher rate on this income of 1.75 percent.”

(Under HB 1002, government-funded grants and forgiven loans that do not qualify for other tax exemptions and that are provided to help address the impacts of the COVID-19 pandemic would not be subject to the B&O tax or public utility tax. The tax exemptions would expire Jan. 1, 2023.)

At the AP Legislative Preview, Speaker Jinkins said that ensuring that businesses don’t have to pay B&O tax on their PPP loans was a priority for early action in the House.