SALT ALERT TEXAS MARGIN TAX UPDATE PAYCHECK PROTECTION PROGRAM (PPP) LOANS

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SALT ALERT TEXAS MARGIN TAX UPDATE PAYCHECK PROTECTION PROGRAM (PPP) LOANS

On May 5, 2021, the Texas Governor signed into law House Bill 1195, which excludes federal PPP loans forgiveness as revenue for Texas Margin Tax (the “Margin Tax”).

In response to the COVID-19 pandemic, the U.S. Congress enacted legislation providing economic relief to businesses through the paycheck protection program , which allowed businesses to secure forgivable loans and grants in order to continue paying employees while operations were impacted due to the pandemic. While PPP loans may be forgiven under the program, the business receiving the PPP loans or grants would still be taxed on the amount of money received as part of its total revenue subject to the Margin Tax.

House Bill 1195 seeks to ensure that businesses that sought federal aid to stay afloat during the pandemic and continue to pay their employees are not subjected to a tax penalty for that effort by providing for the exclusion of qualifying PPP loans and grants from the calculation of total revenue for Margin Tax purpose.

House Bill 1195 also allows a taxable entity to include expenses paid using qualifying loan or grant proceeds in the entity’s determination of cost of goods sold or determination of compensation if such expenses were allowable under the law.

House Bill 1195 is effective for Margin Tax reports that are due after January 1, 2021.