PROVIDENCE — The House Finance Committee budget would boost the threshold for taxing Paycheck Protection Program loans from $150,000 to $250,000, state officials announced Thursday.
Under the budget that Governor Daniel J. McKee proposed in March, companies that profited from PPP loans in excess of $150,000 were subject to state taxation. But a “collaborative effort” by House Speaker K. Joseph Shekarchi, Senate President Dominick J. Ruggerio and McKee bumped the threshold up to $250,000 under the budget that House Finance plans to take up Thursday night.
About $2.6 billion in PPP loans were issued in Rhode Island, and state officials emphasized the 93 percent of loan recipients won’t be taxed.
But Rhode Island could still end up as one of the only states to tax both forgiven PPP loans as well as full unemployment benefits.
“PPP loans were a lifeline during the pandemic for many businesses. However, some recipients accepted PPP loans and then profited from them,” Shekarchi said in a statement. “Only businesses that profited from the loans will be taxed. Of the approximately 30,000 Rhode Island businesses receiving PPP loans, this may impact only 2,000 businesses.”
Ruggerio said he’s glad fewer businesses will be hit with the tax.
“The taxpayer funded, forgivable PPP loan program helped many businesses stay afloat during very difficult times,” he said. “The revised budget proposal would only apply to PPP awards over $250,000, and even then only when a business showed a profit.”
McKee said, “While my administration’s original proposal gave significant tax relief to thousands of Rhode Island small businesses that received these funds, I am pleased that, because of the projected budget surplus, we will be able to extend that tax relief to even more businesses across the state.”
But Sarah Bratko, vice president of advocacy and general counsel for the Rhode Island Hospitality Association, said the group is disappointed that the tax remains in the budget.
Most states, including Massachusetts and Connecticut, chose not to tax any of the forgiven PPP loans, Bratko said. “So Rhode Island will be very much an outlier around the country about this issue,” she said.
The hospitality industry, which is crucial to Rhode Island’s economy, remains in the very early stages of recovery from the economic devastation wrought by the pandemic, Bratko said.
“The prospect of all these businesses needing to refile taxes to find out if they have to pay a surprise tax is very concerning for us,” she said.
The Rhode Island Hospitality Association had urged state officials to use the influx of federal funding to avoid placing a tax burden on these companies, Bratko said.
“I doubt you will find any business group saying it’s a good idea to tax any business, but particularly to tax a program meant to keep employees on the payroll during an unprecedented pandemic adds a little bit to the frustration,” she said.
But the Rhode Island Small Business Coalition issued a statement saying it was pleased that the tax threshold had been raised to $250,000.
“This is a smart compromise with revenues higher than projected for the state, as more of our members would have been affected at the original threshold,” the coalition said. “However, many of our members in the RISBC are smaller businesses that do not have $100,000+ monthly payrolls and therefore this largely does not affect our group.”