Concern that Virginia is seeking to tax federal pandemic relief grants to Virginia businesses – grants which kept Virginians employed — is putting a normally routine tax administration bill in jeopardy.
The House Finance Committee on Monday approved the annual bill to bring Virginia tax law into conformity with the Internal Revenue Code effective December 31, 2020. But eight of 22 committee members voted no, and a similar division in the full House would kill the bill. The bill needs to go into effect immediately to be reflected on tax returns now being prepared, but that requires an 80% super majority.
The Thomas Jefferson Institute for Public Policy, joined by the National Federation of Independent Business and the Virginia Society of Certified Public Accounts, opposed one section of the bill in committee testimony (watch with the link). While Congress told businesses with PPP loans that they can deduct the wages and salaries they maintained to earn forgiveness of the loans, Virginia wants to disallow those costs as a deduction.
That effectively taxes the forgiven loan. Consider the following simple example. Continue reading