Thank you to this week’s sponsor of our Advocacy Update:
April 23, 2021
This week saw movement on some major issues and the budget bill moving closer to completion. The Vermont legislature hopes to keep to their target adjournment date of May 22nd, however, budgeting, federal guidance, and other factors may be working against them.
In this week’s update;
- Struggle to turn back PPP taxation continues
- Budget nears completion, and a showdown with the administration
- Unemployment legislation moving – chance for you to share your perspective
- Tax credit available to provide leave for vaccination
- More news rolling out on the Restaurant Revitalization Fund
- The Laundry list
Struggle to Turn Back PPP Taxation Continues
On Tuesday, the Senate Committee on Finance heard testimony on the issue of PPP taxability. Senators expressed frustration that the business community was upset or uneasy with the language in H.315, as they felt that the language was just a “placeholder language” and that they always intended to revisit the issue and eventually take testimony at a later date. Still, another Senator expressed frustration that the Committee was taking time to hear testimony (for the first time) on the subject. Witnesses tried to make clear to the Committee that there is not a desire to relitigate how or why the language to tax PPP loans was included in H.315 with the Governor allowing the legislation to become law without his signature, in part because of the issue of PPP taxation, it is now the law of the land and need to be reversed. Our only focus is ensuring that legislation passes making forgiven PPP loans non-taxable before the scheduled May 22nd adjournment.
While Senators are indicating that their intent will likely move in a favorable direction, additional outreach to House members is needed by struggling businesses. Despite most of the concern stemming from the House Ways and Means Committee, the Committee has said that they are waiting on the Senate to lead on this issue and not taking testimony on it at this time, however, they did have an in-depth discussion on the issue this week in the broader context of linking up to the federal tax code.
The Committee’s conversation, which can be watched here, indicated that many members are still interested in taxing forgiven PPP loans with one legislator expressing, “on this idea of fairness and confusion with constituents … things change from year-to-year … we don’t always have the same tax law from year-to-year because things change … mostly I just mean that everything is unfair, usually, in the world, and that’s the environment we create law in, and that’s hard.” and another member saying that businesses who only got loans in 2021 “still have time to plan on paying taxes on that revenue.” In LCC’s opinion, both for fairness and a lack of confusion, the legislature should not treat two people differently because one had forgiveness before December 31st, 2020 and the other had forgiveness after that date. We believe they need to not tax PPP loans in 2021 just as they did in the tax year 2020.
Additionally, since the start of this year, 8,146 new PPP loans totaling over $534 million have been made to Vermont businesses many under the understanding that they would not be taxed on those loans. It would violate the rules of the program if they were to withhold funds from the loan to pay the tax liability created under H.315. Businesses that received loans in 2021 could be among the most vulnerable businesses as the program then started to require a 25% revenue loss and the Biden Administration prioritized women and minority-owned businesses, as well as sole proprietors, to the exclusion of other businesses for a two-week period.
The Committee is still also struggling with the antiquated “double-dip” or “double benefit” notion created by the Trump Administration’s Treasury Secretary and rectified on the national level by bipartisan leadership in Congress. If you continue to hear this from your legislators, remind them that there is only one benefit and that is the PPP loan itself; deduction of payroll and expenses is a normal part of the tax code and exists for good reasons. A person receiving a loan or grant should not suddenly mean that the tax code changes for them specifically overnight. Congress wrote the law that created PPP explicitly saying that they wanted the forgiven loan to be a tax-free grant as well as their payroll and expenses to have the same deductibility as they typically would under law. As we highlighted in our testimony to the Senate, the debate over the double benefit was strictly one between Congress and the Trump Administration, and Congress was victorious. It is baffling that this debate has been reopened in Vermont.
Below is a list of resources;
- LCC’s testimony to Senate Finance
- FAQ sheet on forgiven PPP loan taxation
- Infographic – “where did the forgiven PPP money go?”
- Joint Letter from over 55 Vermont organizations to prevent PPP taxation
The Committee also got their first look at the revenue impact of not taxing forgiven PPP loans and confirmed what LCC has been saying all along; “link up to the Federal statute is assumed in the forecast. Therefore, if the Legislature links up, there is no revenue impact.” If the Legislature were to decouple from the Federal position that PPP is non-taxable, they could expect to raise $9.77 million in FY 2022 and $1.25 million in FY2023.
LCC was skeptical of that number, as CPAs we’ve been working with see that number being closer to $25 million by even more conservative estimates as roughly 60% of businesses will be caught in taxation. We believe JFO did not consider the significant effect that PPP taxation would have on the property tax rebates of individuals who use a “flow-through” entity such as a sole proprietor, S Corp, LLC. Decreases in property tax rebates given (an unforeseen and not talked about consequence) would give the state another $15 million or so on top of the $25 million estimates. Hopefully, the Committee decides that the amount of revenue raised is not worth the hassle, ire, or impact on the Vermont economy, especially when the budget has an over $200 million surplus without this new revenue.
Budget Bill Continues to Move with Controversy Around ARPA Usage
In a regular call LCC hosts with congressional staff and organizations focused on economic development, an advisor from the White House Office of Intergovernmental Affairs, made clear that the underlying message around the use of American Rescue Plan Act (ARPA) dollars was this: patience, the guidance is coming from the Treasury on how money can be spent as soon as May 10th, and you have three-years to spend it. This, of course, is of little consolation to members of the legislature who hope to adjourn for the year by May 22nd.
The use of ARPA money has truly been the hot potato of the session. At any given time, the legislative leadership and the Governor have traded roles, with one criticizing the other for advancing plans to spend the funds too soon while simultaneously advancing their own plans to spend the money. The Governor expressed frustration that the legislature was moving too fast when they included ARPA money in H.315 and again in the budget, only to then turn around and present his own plans to spend the money in the budget. Things escalated more this week when the Governor said that he might veto the fiscal year 2022 state budget if the Democratic legislative leadership rejects his ARPA proposals, yet the budget was scheduled to leave the Senate Appropriations Committee today, and it does not contain many of the Governor’s proposals. It now looks as if the budget will leave the Committee on Monday.
Nonetheless, the game of “what do we cover with ARPA money so we can free up our own money for other things?” continues. Primarily, the “other things” include trying to make a dent in our state’s unfunded pension liabilities, as well as propping up the state college system, and paying for projects we’ve wanted to do for a long time, yet haven’t had the money.
Figuring into this budget are those topics under H.159, the economic development bill. A directive from the Appropriations Committee to reduce their recommended $92 million in ARPA requests to $40 million moving forward, did not give the Committee much to work with. This leaves little money for Economic Recovery Grants. The Senate Committee on Economic Development, Housing, and General Affairs has not finished their requests to the Committee and will likely do so over the weekend, staying within the confines of what is directed by Appropriations.
Financial Assistance Available for Employers to Help Employees Get Vaccinated
The American Rescue Plan Act of 2021 (ARP) allows small and midsize employers, and certain governmental employers, to claim refundable tax credits that reimburse them for the cost of providing paid sick and family leave to their employees due to COVID-19, including leave taken by employees to receive or recover from COVID-19 vaccinations. The ARP tax credits are available to eligible employers that pay sick and family leave for leave from April 1, 2021, through September 30, 2021. Learn more here.
Have more questions around employment and vaccinations? Watch this employment attorney roundtable discussion LCC hosted on the issue.
Unemployment Insurance Legislation – Chance for You to Tell Your Story
The Lake Champlain Chamber weighed in on S.10 in the House Committee on Commerce and Economic Development this week with a message that the bill should be simplified to solely provide universal charge relief for employees separated from work under qualifying reasons and removal of the year 2020 from the calculation of the necessary trust fund balance size. Evidence and forecasts presented by the Department of Labor now show that if the year 2020 was removed from the calculation, the fund would restore itself at a sustainable rate.
While the bill passed by the Senate included an additional, new benefit for the next 5-years, LCC presented to the committee that in the time between the bill being passed from the Senate Committee and the Senate as a whole, the American Rescue Plan Act created a more substantial version of the benefit envisioned in S.10 in the form of the Child Tax Credit and has the advantage of being federally funded.
LCC went on to propose that if more dependent aid was envisioned at the state level, that the Child and Dependent Care Tax Credit, which was subjected to a massive expansion under ARPA, would provide an avenue to deliver that aid. As we covered in the link-up section of this update, Vermont has its own CDCC which is 24% of what the federal government provides, and a low-income version of the CDCC which provided 50% of what the federal government provides. We suggested that it was a more efficacious use of funds to leverage the existing federal program to get a larger benefit to more individuals and allow the discussions around the trust fund to remain solely about closing the roughly $300 million hole created by the pandemic and through no fault of employers.
When pushed on the issue, LCC’s Government Affairs Manager noted that the state was reluctant to pass such a link-up that could result in a one-year loss of $1.5 million in revenue to the state’s general fund, however, proponents of the dependent benefit had no hesitation in creating an ongoing benefit at a cost of more than 10-times to employers via unemployment trust fund dollars.
Joint hearing on unemployment experience for employers and employees
On Tuesday, May 4, 2021 from 5:00 p.m. to 7:00 p.m. the House Committee on Commerce and Economic Development and the House Committee on Government Operations will hold a joint public hearing to listen to employees and employers in Vermont about the issues faced with unemployment insurance during the COVID pandemic. The public is invited to register to speak at the hearing or submit written testimony.
To register as a speaker at the hearing, please sign up here. Registrations will be accepted on a first-come, first-served basis, and testimony time will be limited to two minutes per person.
To submit written testimony, please email an MS Word or PDF file to [email protected] The hearing will be live-streamed on the Legislature’s Joint Committees YouTube channel here.
Restaurant Revitalization Fund
The SBA has been rolling out new details over the last week involving the application requirements and eligibility for the upcoming Restaurant Revitalization Fund (RRF). At this time, businesses should be reviewing the application and resources in anticipation of the application being opened. SBA recently announced that applications for the program will now be slightly easier as it will allow restaurants to access grant applications and other data they need to apply through their point-of-sale providers, including Square, Toast, Clover, and NCR Corporation.
The program is broader than one would think, as a business that receives 33% of gross receipts from a restaurant-style food operation, which means that not just restaurants, but also brewpubs, food trucks, coffee shops, bars, and lodging establishments can apply. The RRF will provide restaurants with funding equal to their pandemic-related revenue loss up to $10 million per business and no more than $5 million per physical location. Recipients are not required to repay the funding if funds are used for eligible uses no later than March 11, 2023.
ACCD hosted a webinar for businesses to discuss the Vermont Forward Plan and to answer questions about guidance and timelines. For those who missed the webinar, a recording along with the slide deck is now available at the ACCD COVID-19 Recovery Resource Center.
The Small Business Administration’s Vermont District Office is hosting a free webinar at 9 a.m. Tuesdays and Thursdays about the Restaurant Revitalization Fund. To access the webinar, click here.
- Read last week’s update here.
- Universal taxation of internet services got a cold reception from the Senate this week as the Senate President reaffirmed the position most thought the Senate would take, that taxation of internet services is not something they will consider. The Chair of the Finance Committee is likely to take the language they do like, specifically around a tax exemption on feminine hygiene products.
- When is the last time you revisited your written COVID-19 plan for your business? With the restrictions and regulation moving towards universal guidance, you should revisit your plan to be sure it is reflective of the latest guidance to protect you from liability.
- Ever wanted to know more about TIF (Tax Increment Financing)? Join Lt. Gov. Molly Gray’s “Seat at the Table” series for an hour-long panel discussion this Monday, April 26 at 12:30. Registration is free. Register here: Lt. Gov. Molly Gray’s “Seat at the Table”.
- The U.S. Small Business Administration has completed rigorous testing and the Shuttered Venue Operators Grant application portal will reopen on Saturday, April 24. Interested applicants should register for an account in advance through the portal.