While more than 20 states automatically conform (also known as “rolling conformity”) to federal law changes, the remaining states have either “selective” conformity or “static” conformity where legislation is required to conform to Federal law changes.
While the CARES act contains numerous provisions affecting states, the most notable is the PPP program and subsequent income forgiveness. Only a handful of states have passed laws or issued guidance addressing the taxability of the loan proceeds from the initial phase of the PPP program. No states have addressed the deductibility of the related expenses. (Kentucky, Maine and Minnesota have issued administrative guidance indicating they do not conform to the CARES Act). In addition, with states facing billions in lost revenue, it is expected some states will decouple from Federal legislation.
It remains to be seen how quickly states will address conformity to the original CARES Act and the subsequent COVID Relief bill passed in December. There are numerous state compliance issues yet to be settled regarding state taxation of PPP loans. State legislation, yet to come, will likely will affect state taxable income and possibly delay state income tax filings.
Please reach out to your Somerset Advisor at 317.472.2200 or with questions on how this may affect you.