Most importantly, the legislation conforms to the federal tax exemption for Paycheck Protection Program (PPP) loan forgiveness and certain funding received under the Economic Injury Disaster Loan (EIDL) program. The bill permits a deduction for Taxable Year 2020 of up to $100,000 for business expenses funded by forgiven PPP loan proceeds.
The 2021 General Assembly Session adjourned Sine Die on Monday, March 1, 2021. This year was one for the history books with regard to how the Session took place due to COVID-19 restrictions and social distancing measures. Overall, Retail had a successful year and many of the bills that would have had a negative impact on our industry were defeated.
We want to thank all of our members for their strong participation in the action alerts we sent out this year. Your voices were heard and had a great impact on the outcome of certain legislation.
Below is list of bills and their status, broken down by category.
The House and the Senate each had their own version of Tax Conformity bills this year. The main issue at hand was the cap amount for deductions of business expenses for the Paycheck Protection Program (PPP) Loans. Both bills, as passed the body of origin, allowed for a business that received a PPP loan to exclude the forgiven loan amount from their income, however each instilled a cap for maximum deduction to cover one’s business expenses related to their PPP Loans.
The Senate version created a $100,000 cap, while the House version only allowed a deduction up to $25,000. This issue came down to the end, where the conference committee ultimately decided to go with the Senate version: $100,000 cap with an Emergency Clause.
After this legislation is signed by the Governor, businesses will be eligible to deduct up to $100,000 of business expenses related to the PPP loan or Rebuild Virginia Loan. While we initially advocated for full deductibility, it was clear at the beginning Session that was not on the table. At that point, VRF along with a huge business coalition began to advocate for the $100,000 cap, which will allow full deductibility for 80% of Virginia Small Businesses that received a PPP loan. This was a huge victory for Small Business.
HB 1935 - Watts - Income tax, state; conformity with the Internal Revenue Code. (Passed both the House and Senate and is on its way to the Governor for Signature – once signed, it will go into effect immediately due to the emergency clause)
SB 1146 - Howell - Income tax, state; conformity with the Internal Revenue Code (Passed both the House and Senate and is on its way to the Governor for Signature – once signed, it will go into effect immediately due to the emergency clause)
Item 4-14 #3c
Explanation: (This amendment advances Virginia’s date of conformity with the Internal Revenue Code from December 31, 2019, to December 31, 2020. The amendment generally conforms Virginia's tax code to both the federal Coronavirus Aid, Relief, and Economic Security (CARES) Act and the Consolidated Appropriations Act (CAA), 2021, with certain exceptions consistent with SB 1146. The amendment provides a deduction of up to $100,000 for business expenses funded by forgiven loans under the Paycheck Protection Program (PPP) and provides an income tax subtraction of up to $100,000 for grant funds received under the Rebuild Virginia program.)
Multiple bills were introduced that mandate businesses to provide one form of paid leave or another. There were bills that would create a payroll tax/insurance program that would provide a certain amount of leave for employees if they met specific criteria; and there are bills that require flat number of days per year of leave for each employee.
Only two bills on this subject passed both bodies, neither of which have an impact on Retail. The first is Delegate Guzman’s bill for Paid Sick Leave for Essential Home Health Workers. The second is Senator Favola’s legislation that directs the State Corporation Commission’s Bureau of Insurance to conduct a report on allowing the sale of individual and group Paid Family Leave plans in Virginia.
Chairman Torian introduced legislation that directs the governing board of the Virginia College Savings Plan to establish the VirginiaSaves Program. This will be an automatic enrollment payroll deduction individual retirement account (IRA) retirement savings program.
Participation in the program is mandatory for all employers with 25 or more employees that don’t already offer a qualifying retirement savings program for employees. Employers will not be required to contribute, but will be required to establish an account and complete payroll deductions for employees that do not opt out of participation. An eligible Employee must work at least 30 hours a week. Program enrollment will begin July 2023.
Budget Amendment for Funding of Program:
Item 131 #3c
First Year - FY2021
Second Year - FY2022
Commerce and Trade
Virginia Employment Commission
Page 125, line 13, strike "$574,596,796" and insert "$593,570,755".
Page 126, after line 19, insert:
"K. Out of the amounts in this item, $18,923,959 from the general fund in the second year is provided to reimburse the Unemployment Compensation Fund for any forgiven overpayments of state unemployment insurance benefits pursuant to the provisions of House Bill 2040, 2021 General Assembly. Of the amounts included in this paragraph, $250,000 the second year from the general fund is provided to the Commission for administrative costs. The funding provided in this paragraph is contingent on the passage of House Bill 2040, 2021 General Assembly."
Explanation: (This amendment provides $18.9 million in the second year from the general fund to support costs for the Virginia Employment Commission to forgive the overpayment of benefits under certain conditions. House Bill 2040 requires any forgiveness of overpayments to be reimbursed from the general fund to the state's UI trust fund. This amendment provides $18.7 million for the reimbursement provisions of the bill. It also includes $250,000 from the general fund for administrative cost incurred by the Virginia Employment Commission.)
Delegate Ayala introduced legislation that required employers of “essential workers” to pay hazard pay after an executive order is issued which includes a stay-at-home or shelter-in-place order. This means that employers must compensate essential workers at a rate of at least one and one-half times that workers regular rate of pay for any hours worked during the closure order. In addition, PPE must be provided for essential workers as well. Under this legislation, an essential worker is an individual employed as a health care provider, home care provider, airport worker, or employed by an essential retail business. This legislation was defeated in House Appropriations Committee because of the large fiscal impact that it would have on the State Budget.
HB 2185 - Byron - Retail sales and use tax; exemption for personal protective equipment. (Passed both House and Senate, before Governor for signature – will become law upon signature due to emergency clause)
SB 1403 - Pillion - Sales tax; exemption for personal protective equipment; emergency. (Passed both House and Senate, before Governor for signature – will become law upon signature due to emergency clause)
Item 3-5.23 #1c
Corporate Income Tax Informational Reporting
Page 664, after line 37, insert:
"§ 3-5.23 CORPORATE INCOME TAX INFORMATIONAL REPORTING
A.1. Corporations that are members of a unitary business must file a report, in a manner prescribed by the Tax Commissioner, for the unitary combined group containing the unitary combined net income of such group. The report shall be based on taxable year 2019 computations and include, at a minimum the difference in tax owed as a result of filing a unitary combined report, computed according to the method or methods specified by the Tax Commissioner, compared to the tax owed under the current filing requirements.
2. "Unitary business" means a single economic enterprise made up either of separate parts of a single business entity or of a commonly controlled group of business entities that are sufficiently interdependent, integrated, and interrelated through their activities so as to provide a synergy and mutual benefit that produces a sharing or exchange of value among them and a significant flow of value to the separate parts. A "unitary business" includes that part of the business that meets the definition in this section and is conducted by a taxpayer through the taxpayer's interest in a partnership, whether the interest in that partnership is held directly or indirectly through a series of partnerships or other pass-through entities. A "unitary business" shall not include persons subject to, or that would be subject to if doing business in the Commonwealth, the insurance premiums license tax under Chapter 25 (§ 58.1-2500 et seq.), Code of Virginia, or the bank franchise tax under Chapter 12 (§ 58.1-1200 et seq.)
3. The report must be submitted to the Department of Taxation on or before June 1, 2021, which date shall not be extended.
4. Members of a unitary combined group shall exclude as a member and disregard the income and apportionment factors of any corporation incorporated in a foreign jurisdiction (a "foreign corporation") if the average of its property, payroll and sales factors outside the United States is eighty percent (80%) or more. If a foreign corporation is includible as a member in the unitary combined group, to the extent that such foreign corporation's income is subject to the provisions of a federal income tax treaty, such income is not includible in the unitary combined group net income. Such member shall also not include in the unitary combined report any expenses or apportionment factors attributable to income that is subject to the provisions of a federal income tax treaty. For purposes of this paragraph, "federal income tax treaty" means a comprehensive income tax treaty between the United States and a foreign jurisdiction, other than a foreign jurisdiction which the organization for economic co-operation and development has determined has not committed to the internationally agreed tax standard, or has committed to the international agreed tax standard but has not yet substantially implemented that standard, as identified in the then-current organization for economic co-operation and development progress report.
B. Any corporation required to submit such report to the Department of Taxation that fails to do so on or before June 1, 2021, or that makes a material omission or misstatement in connection with such report shall be subject to a penalty of $10,000. The Tax Commissioner shall have the authority to waive such penalty upon a determination that the requirement would cause an undue hardship. All requests for waiver shall be transmitted to the Tax Commissioner in writing.
C. The Tax Commissioner shall on or before December 1, 2021, based on the information provided in income tax returns and the data submitted under this section, submit a report to the Chair of the Senate Finance and Appropriations Committee, the Chair of the House Appropriations Committee, and the Chair of the House Finance Committee."
Explanation: (This amendment requires corporations that are members of a unitary business to file an informational report with the Department of Taxation for the unitary combined group containing the unitary combined net income of the group. The report must be based on taxable year 2019 computations and include, at a minimum the difference in tax owed as a result of filing a unitary combined report compared to the tax owed under the current filing requirements. Any corporation required to submit such report that fails to do so on or before June 1, 2021, or that makes a material omission or misstatement in connection with such report is subject to a penalty of $10,000, unless waived by the Tax Commissioner upon a determination that the requirement would cause an undue hardship.)
SB 1286 - Deeds - Income tax; rate increase; funding for schools and law-enforcement officer salaries. (Left in Senate Finance and will be heard by Senate Finance Subcommittee on tax reform in the off season)
SB 1428 - Locke - Alcoholic beverage control; operation of government stores; sale of low alcohol beverage coolers. (Passed by both House and Senate, with amendments, now before Governor for signature)
Authorizes any locality to create a local tourism improvement district plan, consisting of fees charged to businesses and used to fund tourism promotion activities and capital improvements. Under the bill, the locality is authorized to contract with a nonprofit entity to administer the activities and improvements.
RICHMOND—Governor Ralph Northam today announced that as COVID-19 hospitalizations and infection rates continue to decline and vaccinations rise in Virginia, certain outdoor sports and entertainment venues may begin to operate at increased capacity starting Monday, March 1. He amended Executive Order Seventy-Two with the next steps of the “Forward Virginia” plan to safely and gradually ease public health restrictions while mitigating the spread of the virus.
“Thanks to the hard work and sacrifice of all Virginians, hospitalization and positivity rates across the Commonwealth are the lowest they have been in nearly three months,” said Governor Northam. “As key health metrics show encouraging trends and we continue to ramp up our vaccination efforts, we can begin to gradually resume certain recreational activities and further reopen sectors of our economy. Even as we take steps to safely ease public health guidelines, we must all remain vigilant so we can maintain our progress—the more we stay home, mask up, and practice social distancing, the more lives we will save from this dangerous virus.”
The Commonwealth will maintain a Safer at Home strategy with continued strict health and safety protocols including physical distancing, mask-wearing requirements, gathering limits, and business capacity restrictions. The current modified Stay at Home order will expire on February 28, 2021.
Governor Northam is beginning to ease public health restrictions by taking steps to increase capacity limits in outdoor settings, where evidence shows the risk of airborne transmission of COVID-19 is lower. The key changes in the Third Amended Executive Order Seventy-Two include:
The new guidelines will be effective for at least one month and mitigation measures may be eased further if key health metrics continue to improve. Current guidelines for retail businesses, fitness and exercise, large amusement venues, and personal grooming services will remain in place. Individuals are strongly encouraged to continue teleworking if possible.
Last week, Governor Northam amended Executive Order Seventy-Two to increase the number of spectators permitted at outdoor youth sporting events to 250.
Visit virginia.gov/coronavirus/forwardvirginia for more information and answers to frequently asked questions.
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Please see the National Retail Federation’s announcement below on changes made by the Biden Administration to the Paycheck Protection Program, including a 14-day period, starting February 24th, during which only businesses with fewer than 20 employees can apply for relief through the program:
Yesterday, President Biden announced several reforms to the Paycheck Protection Program as a means to help the smallest businesses and those that have been left behind in previous relief efforts. The changes include:
Biden-Harris Administration Increases Lending to Small Businesses in Need, Announces Changes to PPP to Further Promote Equitable Access to Relief
The White House: whitehouse.gov
Health and government officials are working together to maintain the safety, security, and health of the American people. Small businesses are encouraged to do their part to keep their employees, customers, and themselves healthy.
Small Business Administration: sba.gov
Multiple funding options for businesses seeking relief.
Small Business Administration: sba.gov