By: Linda Galler, William Bricker and Maria Pigna
The New York State Fiscal Year 2020-2021 Budget Bill, signed into law by Governor Cuomo last April, decoupled New York State tax law from changes made to the federal Internal Revenue Code after March 1, 2020. As a consequence, New York no longer automatically follows any changes to federal tax policy and needs to actively adopt any changes it decides to follow. In particular, New York does not follow many of the favorable changes enacted at the federal level to address financial challenges caused by the COVID-19 pandemic.
The Coronavirus Aid, Relief, and Economic Security (CARES) Act, among other things, created PPP loans and provided that forgiveness of the loans will not result in taxable income. Although the CARES Act did not address the deductibility of expenses paid with the proceeds of PPP loans, another statute enacted in December provides that such expenses are deductible under the general rules applicable to business deductions. (An earlier blog post discusses the position of the IRS, in previously published guidance, that deductions were not allowed.)
Despite the decoupling, the New York State Department of Taxation and Finance recently decided to adopt the federal rules applicable to PPP loans, providing that the forgiven portion of the loans is not taxable and allowing the deduction of expenses paid with the proceeds of a loan.