Getting facts straight on PPP taxation

Pitter op-ed provides readers with inaccurate information

THERE HAVE BEEN many confused news reports, editorials, and opinion pieces on whether Massachusetts business owners will pay state taxes on their federal PPP grants. Amy Pitter’s op-ed adds to the confusion, providing readers with inaccurate information.

As we recently explained, under existing laws, businesses – passthroughs and corporations alike – will not pay state income taxes on their federal PPP grants. Yes, PPP will be counted as part of gross income, but expenses paid for with PPP grants will be deductible from gross income. Result: no tax liability. The Massachusetts Department of Revenue provided clear guidance on this: “Q: Can I deduct my business expenses paid for with my PPP loan proceeds? A: Yes.”

The tax change Pitter promotes would establish instead a new, double-dip tax break for passthrough businesses. They would get their PPP grants tax-free (the first “dip”) and then be allowed to deduct expenses paid for with those tax-free dollars from other, non-PPP income (the second “dip”). Such a tax break wouldn’t be so bad if it weren’t so poorly targeted and expensive: it would benefit immediately only owners of profitable businesses or owners with other income sources and it would cost the state $165 million.

Meet the Author

Peter Enrich

Professor emeritus, Northeastern University School of Law
Meet the Author

Kurt Wise

Senior policy analyst, Massachusetts Budget and Policy Center
Worse still, without a favorable determination from the US Department of Treasury, that cost will double. Due to a claw back provision in the federal American Rescue Plan, each dollar a state spends on net tax cuts will mean one dollar less in American Rescue Plan aid to that state.

We believe there are better ways to support businesses and communities struggling with the fallout from COVID-19. Others may disagree. At a minimum, let’s have an honest debate on the merits of the proposal – one that begins with a shared recognition of the facts.

Peter Enrich is emeritus professor of law at Northeastern University and Kurt Wise is a senior policy analyst at the Massachusetts Budget and Policy Center.