In response to the COVID-19 pandemic, the U.S. Congress enacted legislation providing economic relief to businesses through the paycheck protection program (PPP), which allowed businesses to secure forgivable loans in order to continue paying employees while operations were impacted due to the pandemic. While PPP loans may be forgiven under the program, the business receiving the PPP loans prior to the passing of Texas House Bill 1195 (HB 1195), would have been subject to the franchise tax on the amount of PPP money received as part of its total revenue.
Yesterday, Governor Abbott signed HB 1195 into law. The legislation was authored by Representative Charlie Geren and Senator Kelly Hancock ensuring businesses that sought federal aid to stay afloat during the pandemic and continued to pay their employees are not subjected to a tax penalty for that effort by providing for the exclusion of qualifying PPP loans from the calculation of total revenue for franchise tax purposes.
The bill also authorizes a taxable entity to include in the determination of cost of goods sold or in the determination of compensation when calculating its gross margin any allowable expense paid using that amount of money.
These provisions apply only to a franchise tax report originally due on or after January 1, 2021.
For more information on how this impacts your business, please contact an HM&M advisor.
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For more information check out HM&M’s COVID-19 Resources page.
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