Texas business owners who received a Paycheck Protection Program (PPP) loan that was later forgiven do not have to include the proceeds in total revenue for purposes of the Texas franchise tax. Governor Greg Abbott signed House Bill 1195 into law on May 8, 2021. Before this law change, the Texas Comptroller of Public Accounts had determined that because of its January 1, 2007 date of conformity to the Internal Revenue Code, the Texas franchise tax law did not conform to the federal income tax exclusion for forgiven PPP loan proceeds.
Under this law change, other federal COVID-19-related loans and grants excluded from taxable total income include emergency economic injury disaster loans, small business loan payments, grants for shuttered revenue operators, microloan program recovery assistance, and restaurant revitalization grants. These amounts are excluded only if the loan or grant is excluded from federal taxable income.
The new law also allows a taxable entity to include business expenses paid using qualifying loans or grants in the entity’s determination of cost of goods sold or compensation, if such expenses are allowed under franchise tax law.
House Bill 1195 ensures that businesses that sought federal aid to stay afloat while continuing to pay their employees are not subjected to a tax penalty. This change is effective for original Margin Tax Reports due on or after January 1, 2021.
TECHNICAL INFORMATION CONTACTS:
Eric L. Stein
Principal
Ryan
512.476.0022
eric.stein@ryan.com
Robert Hoyt
Director
Ryan
512.476.0022
robert.hoyt@ryan.com
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