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Calif. Gov., Top Lawmakers Reach Pact On PPP Tax Conformity

By Maria Koklanaris · February 18, 2021, 6:11 PM EST

California Gov. Gavin Newsom and state legislative leaders announced they have reached an agreement to provide partial conformity to the federal tax treatment of expenses funded through Paycheck Protection Program loans.

Newsom, a Democrat, and legislative leaders said Wednesday that the state will allow companies to deduct up to $150,000 in expenses paid for with funds from PPP loans. California companies took out more than 750,000 such loans, Newsom said.

He said the same tax treatment would apply to deductibility of expenses paid for with funds from federal Economic Injury Disaster Loans. The deductibility issue is part of a broader package meant to help Californians who have suffered economic losses due to the global pandemic.

When passing the Coronavirus Aid, Relief and Economic Security Act in March 2020, Congress made PPP loans nontaxable but did not clarify whether expenses paid for with such loans would be deductible. With the passage of the Consolidated Appropriations Act in December 2020, Congress clarified that such expenses are deductible. States such as California must decide whether to conform.

Also in the agreement between Newsom and legislative leaders, the state will increase grants to small businesses fourfold, up to $2 billion from a previous $500 million. It will waive certain fees for restaurants and bars, and provide a $600 cash stimulus to families who qualify for the state's earned income tax credit.

--Editing by Tim Ruel.

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