Tax expert says Legislature should conform with federal law to avoid $450 million tax hike on Wisconsin small businesses

Wisconsin's PPP Loan Recipients Face Hundreds of Millions in Surprise Taxes
Tax expert says Legislature should conform with federal law to avoid $450 million tax hike on Wisconsin small businesses

(This analysis was written by Katherine Loughead, senior policy analyst with the Center for State Tax Policy at the Tax Foundation and author of the Badger Institute’s Wisconsin Tax Options: A Guide to Fair, Simple Pro-Growth Reform ([link removed]) .)

Nearly 90,000 Wisconsin small businesses that have taken out loans under the federal Paycheck Protection Program (PPP) ([link removed]) will face hundreds of millions of dollars in state income tax liability on those loans this spring, despite the loans being tax-free at the federal level. Unless the legislature acts, businesses that have received PPP loans and related federal assistance will face $457 million in state taxes ([link removed]) through 2024—with more than half of those taxes coming due this spring—despite Wisconsin being on track to see continued general fund revenue growth ([link removed]) even amid the pandemic ([link removed]) .

Under current Wisconsin law, first-round PPP loans (those issued in 2020) will not be treated as taxable income, but expenses paid for using those loans will be ineligible for the usual expense deduction ([link removed]) . This means that Wisconsin businesses that took out PPP loans will have a higher level of Wisconsin taxable income ([link removed]) than if they had not used the federal lifeline. Second-round PPP loans (those issued in 2021) are also on track to be taxed by the state, albeit in the opposite manner: expenses will be deductible, but the loans are set to be treated as taxable income.

Read the full analysis here ([link removed]) .
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