The California General Assembly has sent AB 80 to the Governor, and he is expected to sign it.
AB 80 generally conforms to the federal treatment of PPP loan forgiveness and EIDL grants, with one major exception.
To deduct expenses paid with PPP loan forgiven amounts, the taxpayer must have a 25% reduction in gross receipts in any 2020 calendar quarter as compared to the comparable 2019 calendar quarter. If the taxpayer does not meet this threshold reduction, the expenses cannot be deducted on the California return.
AB 80 piggybacks on the same 25% gross reduction threshold qualification for second draw PPP loans. SBA guidance on this gross receipts test is available at:
Other key points include:
- The 25% gross receipts limitation does not apply to the EIDL advance grants, so taxpayers may exclude the EIDL grants and may fully deduct these expenses even if they don’t meet the threshold reduction;
- AB 80 conformity only applies to the exclusion from income for PPP loan forgiveness and EIDL advance grants. It does not apply to SBA subsidies paid on SBA loans, Shuttered Venue Operator Grants, or Restaurant Revitalization Grants. These subsidies/grants are subject to California tax, but expenses are fully deductible on the California return; and
- AB 80 applies retroactively to taxable years beginning on or after January 1, 2019.
