The state of Massachusetts may be poking a hole in the life raft that many small employers used to remain afloat during the pandemic by demanding state taxes be paid on Paycheck Protection Program loans.
Consider the financial hardships small businesses in every community faced over the past year as so many stores, restaurants and services were forced to close their doors by the state for months and they had no incoming revenue.
Plain and simple, it is wrong for the state to impose such a tax on PPP loans when small business owners never would have needed one but for the shutdown, and they took it to survive.
The business owners were promised these federal loans would turn into grants if the money was used to keep their employees on the job and off unemployment, as well as cover rent and utilities.
Many small businesses couldn’t access the loans for weeks and they played second fiddle to large corporations who gained access through big banks. Now they are surprised to learn the state of Massachusetts, unlike the federal government, wants to tax those forgiven loans.
After a financial and emotional roller coaster ride of closing, reopening, rollbacks, capacity limits and restrictions, small businesses that file their taxes as pass-through entities will now be forced to pay state taxes on their forgiven PPP loans.
And the higher costs come as these employers need every last cent of that money to recover from the losses, keep their businesses running and keep their workers employed.
The funds were designed to save small businesses and jobs, and to prevent the permanent closure of the shops and restaurants that make up Massachusetts’ Main Streets. They were not supposed to be a funding mechanism to fill state coffers with revenue.
What makes the situation even more perplexing is that under existing state law, businesses filing as corporations will not be required to pay state taxes on the PPP loans, which is downright unfair.
So, an independent tax preparer, plumber, coffee shop, pet groomer or another very small business owner, who was fighting to keep their business from failing during their darkest hour and are still financially fragile, will now need to send a portion of their forgiven loan funds to the commonwealth in the form of state taxes.
Massachusetts must take every step possible to make certain as many small businesses as possible survive the pandemic, so they once again provide jobs and assist with the state’s economic recovery.
Fortunately, state Sen. Eric Lesser, Jason Lewis and Patrick O’Connor filed a bill to reverse this wrong and make PPP loans tax-free.
A bipartisan group of several dozen lawmakers is co-sponsoring the legislation to help small businesses in their districts.
But time is of the essence. The Massachusetts Legislature must move quickly as tax season nears and small employers still face economic hardships created by COVID-19.
I believe many people across the state who work for small businesses or patronize them would agree: It’s only fair, and it is the right thing to do.
Christopher Carlozzi is Massachusetts state director of the National Federation of Independent Business, a small business association with over 5,000 members in the state.