CA PPP Conformity General Assembly Bill No. 80
April 30, 2021
On April 29, 2021, the California Governor signed AB 80, which partially conforms to the Federal treatment of the deductibility of expenses paid for with forgiven PPP loan proceeds. The biggest difference between Federal treatment and California treatment is that California requires meeting a gross receipts test in order to be able to deduct the expenses. This is an all or nothing test, so if an entity meets the gross receipts test, the expenses are fully deductible for California, but if it doesn’t meet the test, none of the expenses paid for with forgiven loan proceeds will be deductible.
To meet the gross receipts test, the answer to one of the following must be true:
- Q1 of 2020 has at least a 25% decline in gross receipts compared to Q1 2019
- Q2 of 2020 has at least a 25% decline in gross receipts compared to Q2 2019
- Q3 of 2020 has at least a 25% decline in gross receipts compared to Q3 2019
- Q4 of 2020 has at least a 25% decline in gross receipts compared to Q4 2019
The gross receipts for 2020 as a whole had at least a 25% decline in gross receipts compared to 2019 as a whole
For entities that were not in business during 2019, but were in operation on February 15, 2020:
Gross receipts from Q2, Q3, or Q4 of 2020 showed at least a 25% decline compared to Q1 2020.
Please note this is not the same as whether your PPP loan will be forgiven. The calculation for how much of your PPP loan will be forgiven is entirely separate and applications for forgiveness should be submitted directly with your lender. If you need help calculating or applying for your PPP loan forgiveness, please contact your tax professional. California Bill AB 80 relates only to whether the expenses are deductible on your California tax return.
We are still waiting to hear if California will require a statement to be filed with the tax return showing whether a business meets the gross receipts test, so we are continuing to hold on filing any returns with PPP loans at this time.
If we need additional information from you to verify if your business is eligible to deduct the expenses for California, we will reach out to you directly and let you know. In the meantime, if you have received a PPP loan first draw or second draw, please go ahead and forward us the following as soon as possible if you haven’t already, because we will need this information when filing your tax return:
- Copy of loan document from the lender showing loan was funded and the date it was funded (for both first draw and second draw PPP loans)
- Copy of confirmation showing your PPP loan was forgiven, showing the amount forgiven and the date (for both first draw and second draw PPP loans)
- Payroll Forms 941 or 941X for the following periods:
- Q2 2020
- Q3 2020
- Q4 2020
Please do not hesitate to contact our office if you have any questions.
Gatto, Pope & Walwick, LLP
Certified Public Accountants