The prolonged and closely watched debate on deductibility of qualifying expenses paid with PPP funds provided under the CARES Act or Consolidated Appropriations Act (CAA) has finally come to an end for California businesses as Governor Newsom officially signed Assembly Bill 80 (AB 80) into law on April 29, 2021.
What AB 80 Means For California Businesses:
The details of AB 80 as passed by the California Assembly on April 26, 2021, closely mirrors the federal treatment for deductibility of qualifying expenses paid with forgiven PPP funds. The significant highlights of the bill are as follows:
- The California Assembly removed the $150,000 limitation that has been considered for several months and instead established two exceptions to deductibility. In general, the bill conforms California’s tax treatment for expenses paid with forgiven loans under both the CARES Act and the CAA for tax years beginning after January 1, 2019. The two exceptions created under the bill are for publicly traded companies and “ineligible entities”.
- A company is considered an “ineligible entity” and unable to deduct expenses from PPP funds if the entity does not have a 25% or greater reduction in gross receipts in any calendar quarter in 2020, compared to the same calendar quarter in 2019. Taxpayers who are considered ineligible under this provision are still allowed to exclude forgiven PPP funds from taxable income.
- Funds received from Economic Injury Disaster Loan (EIDL) grants are not considered taxable income and are not subject to the 25% reduction in gross receipts.
The full text of the bill is available at:
https://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=202120220AB80