NCACPA secured three key wins for taxpayers impacted by the COVID-19 pandemic in a bill passed by the General Assembly moments before it adjourned for the upcoming primary election.
Legislation making technical corrections to the state budget contained three provisions advanced by NCACPA through direct lobbying, grassroots outreach by members of our Key Person Program, and cooperation with a state Cabinet agency.
Lawmakers adopted the changes as a conference committee report for HB 243. The bill passed the Senate and House on March 9 and 10 with broad, bipartisan majorities and was sent to Governor Cooper to be signed into law.
TAX DEDUCTION FOR EMPLOYEE RETENTION CREDIT
Employers that took advantage of the federal Employee Retention Credit (ERC) will now be allowed to deduct wages associated with the ERC in calculating their state income tax. NCACPA asked lawmakers to clarify provisions in G.S. 105-153.5(b) and G.S. 105-130.5(b) that prevented businesses from taking the deduction because the ERC was applied against federal employment taxes and not federal income tax.
NCACPA argued that the existing law denies the taxpayer a full deduction for an ordinary and necessary business expense without giving the taxpayer—as the federal government did—an alternative tax benefit. The new provisions will be effective retroactively for taxable years beginning on or after January 1, 2020.
Special thanks goes to Jason Poole, CPA, chair of NCACPA’s Advocacy Advisory Council and Key Person for House Finance Chair John Szoka, for working closely with Rep. Szoka to get this provision into the bill. Jason is a partner with TRP Sumner PLLC in Fayetteville.
EQUITABLE TAX TREATMENT FOR PANDEMIC GRANTS
In a letter to House and Senate Finance Committee chairs in February, NCACPA urged lawmakers to address an inequity in state law regarding the tax treatment of the RETOOLNC and Mortgage, Utility, and Rent Relief (MURR) pandemic assistance grants.
Existing state law exempts Extra Credit Grants and Business Recovery Grants from state income tax. Thanks to a post on Connect, NCACPA learned that recipients of RETOOLNC grants were not getting a tax break. The association worked with the NC Department of Administration to lobby legislators to fix this inequity.
RETOOLNC provides grants of $10,000–$25,000 to historically underutilized businesses (i.e., owned and operated by a woman, minority, and/or disabled person) that were adversely affected by the COVID-19 pandemic. The $40 million MURR program was initiated in September 2020 to help businesses or nonprofits that experienced extraordinary business disruption due to the pandemic.
Section 20.7 of the bill exempts RETOOLNC and MURR grants from state income tax and will be effective retroactively for taxable years beginning on or after January 1, 2020.
NCACPA extends its gratitude to Tracy Shortt, CPA, with Thompson, Price, Scott, Adams & Company P.A. in Cary for initially raising this issue on Connect.
BROADENED ELIGIBILITY FOR BUSINESS RECOVERY GRANTS
NCACPA has been working with legislators for several months to help them understand that the Business Recovery Grant program inadvertently excluded certain businesses from applying because of their tax structure. At the association’s urging, lawmakers corrected this issue in preparation of a rollout of Phase 2 of the grant program.
For the initial round of the program, businesses had to demonstrate a decline of at least 20% in gross receipts using only Form E-500 or Form 1065. This limitation rendered businesses that do not collect sales tax and are structured as an S corporation, C corporation, single-member LLC, or sole proprietorship as ineligible for a grant.
The bill expands the list of tax forms that a business can use to demonstrate a decline in gross receipts to include Form 1120, 1120-S, 1040 Schedule C, or 1040 Schedule F.
The NC Department of Revenue temporarily paused Phase 2 of the program earlier this year at the request of legislators.
NCACPA deeply appreciates the grassroots advocacy on this issue by Vicki Hafele, CPA, who serves as NCACPA’s Key Person for House Appropriations Chair Dean Arp. Vicki is Treasurer for Duncan-Parnell in Charlotte.
The NCACPA Key Person Program helps advance our advocacy goals by linking association members with lawmakers. By building and enhancing relationships with legislators, Key Persons are positioned as the go-to experts in the accounting profession when decision makers need input on state policies.
If you have questions about this issue or other policy matters, please contact NCACPA Director of Advocacy Robert Broome, CAE.