California PPP conformity

Some good news! After months of back and forth, California has finally passed some PPP conformity legislation and the governor has signed it. So we can finally get on with the business of computing California returns. But of course, they have added a level of complexity that requires some additional calculations and have not yet given guidance on how compliance with the new rules must be documented. Below are the key points that will be applicable.

California will allow deductions for amounts paid with forgiven PPP debt. However, to qualify to take the deductions, a business must demonstrate at least a 25% reduction in gross receipts in any 2020 calendar quarter compared to the comparable 2019 calendar quarter. If they were in business for all of 2019, they can also compare calendar year 2019 to calendar year 2020.

If the entity was not in business during all of 2019, then the business must show a 25% reduction in gross receipts during any quarter in 2020 from the 2019 calendar quarters it was in operation

AB 80 also provides that EIDL advance and targeted grants are excluded from taxable income, and the expenses paid with those amounts are fully deductible. The 25% gross receipt reduction threshold does not apply to these grant recipients for purposes of the exclusion or allowing deductions.

AB 80 does not conform to the exclusion of:

• SBA subsidies (SBA payments of up to six months of principal and interest on existing SBA loans);
• Shuttered Venue Operators Grants; or
• Restaurant Revitalization Fund grants.

This means these subsidies and grants are included in the taxpayer’s income, and any expenses paid with these amounts are deductible on the California return.

Article credit : Spidell Publishing