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Panel approves bill to exempt forgiven pandemic relief loans from state tax treatment
Summary
Representative Eaves told the Senate Revenue & Tax Committee that House Bill 1361 would conform state tax law to federal treatment of pandemic relief (including PPP forgiveness), and the committee suspended rules and gave the bill a 'do pass' recommendation after hearing from the sponsor and discussing revenue estimates.
Representative Eaves presented House Bill 1361, asking the Senate committee to conform Arkansas tax law to federal treatment of pandemic relief funds such as Paycheck Protection Program (PPP) loan forgiveness and certain Economic Injury Disaster Loans (EIDL) and emergency grants. "This was called the Payroll Protection Program and it would offer loan forgiveness as long as these funds are used exclusively for wages, health care benefits, family medical and sick leave, employee retirement benefits, and payment of state and local taxes on these wages," Eaves said, explaining the federal program's aims and urging state conformity so relief would not be taxed.
Eaves told the committee the estimated revenue impact was about $33,000,000 for the current fiscal year and $179,000,000 for the following year; he said those numbers reflect both rounds of PPP and related programs. He emphasized the change would be a one-time revenue effect tied to forgiveness events and discussed practical consequences, including allowing expense deductions while exempting forgiven income from state tax.
Committee members asked detailed questions about partial forgiveness, expense deductibility, and net operating loss interactions; Eaves and DFA staff explained that second-round PPP rules are more restrictive and that the bill's treatment would not allow taxpayers to create NOLs from forgiven amounts beyond the bill's provisions.
Because the bill carries a financial impact, the committee first voted to suspend its internal rule preventing consideration of items with fiscal consequences (motion by Senator Ingram, seconded by Senator Johnson). Senator Teague then moved a 'do pass' recommendation, seconded by Senator Draper; both procedural motions passed by voice vote and the chair declared the bill passed out of committee.
