Without action from state lawmakers and Democratic Gov. Tony Evers, many small businesses in Wisconsin may have to pay unexpected state taxes on loans taken out under the federal Paycheck Protection Program (PPP).
The news comes less than a month after Congress created a legislative fix to the same issue on the federal level, ensuring that businesses would not have to pay additional federal taxes on their PPP loans. Those changes came in the latest round of coronavirus relief that was signed into law in late December.
But in a notice posted on its website Friday, the state Department of Revenue clarified that Wisconsin law adheres to prior PPP restrictions, meaning small businesses will not be able to deduct those expenses from their state taxes.
That means small businesses, many of which are under immense financial strain amid the COVID-19 economic downturn, could have to pay state taxes on their PPP loans unless the state Legislature and Evers intervene.
Terry Hoover, a partner at the Appleton offices of the accounting and consulting firm Wipfli, said the cost to businesses will vary depending on the size of their PPP loan and how the business is organized. For a sole proprietor, for example, Hoover estimates businesses could face an extra $6,000 to $8,000 for every $100,000 worth of expenses a business isn’t able to deduct.
If no legislative action is taken by April 15, many businesses will be required to begin paying state taxes on their PPP loans, according to Hoover. But he added that some businesses have already been affected by the confusion, including at least seven businesses at Wipfli alone.
“So now they wake up to find on Friday morning that they actually have underpaid their Wisconsin taxes, and so have to amend those returns and pay in more, plus interest at 12 percent,” Hoover said. “Or they can wait and hope for the best that the Legislature acts to retroactively (bring Wisconsin into alignment with federal law) to avoid having to do that.”