Brian Dake

Without action from state lawmakers and Democratic Gov. Tony Evers, many small businesses in Wisconsin may have to pay unexpected state taxes on loans taken out under the federal Paycheck Protection Program (PPP).

The news comes less than a month after Congress created a legislative fix to the same issue on the federal level, ensuring that businesses would not have to pay additional federal taxes on their PPP loans. Those changes came in the latest round of coronavirus relief that was signed into law in late December.

But in a notice posted on its website Friday, the state Department of Revenue clarified that Wisconsin law adheres to prior PPP restrictions, meaning small businesses will not be able to deduct those expenses from their state taxes.

That means small businesses, many of which are under immense financial strain amid the COVID-19 economic downturn, could have to pay state taxes on their PPP loans unless the state Legislature and Evers intervene.

Terry Hoover, a partner at the Appleton offices of the accounting and consulting firm Wipfli, said the cost to businesses will vary depending on the size of their PPP loan and how the business is organized. For a sole proprietor, for example, Hoover estimates businesses could face an extra $6,000 to $8,000 for every $100,000 worth of expenses a business isn’t able to deduct.

If no legislative action is taken by April 15, many businesses will be required to begin paying state taxes on their PPP loans, according to Hoover. But he added that some businesses have already been affected by the confusion, including at least seven businesses at Wipfli alone.

“So now they wake up to find on Friday morning that they actually have underpaid their Wisconsin taxes, and so have to amend those returns and pay in more, plus interest at 12 percent,” Hoover said. “Or they can wait and hope for the best that the Legislature acts to retroactively (bring Wisconsin into alignment with federal law) to avoid having to do that.”

The federal Consolidated Appropriations Act, 2021 (Public Law 116-260) was enacted on December 27, 2020. The following are significant provisions of the bill that have not been adopted into Wisconsin law and will affect the filing of 2020 Wisconsin income/franchise tax returns.

Paycheck Protection Program Expenses

The Act provides that expenses paid with forgivable Paycheck Protection Program (PPP) loan proceeds are deductible for federal tax purposes (see secs. 276(a) and 278(a) of Division N of Public Law 116-260). However, Wisconsin law follows federal law prior to amendments made by the Act. Therefore, expenses incurred that are paid with the forgivable PPP funds are not deductible for Wisconsin income/franchise tax purposes. Wisconsin follows the interpretation of federal law prior to modification by the Act, which is described in Revenue Ruling 2020-27:

Note: Although Revenue Ruling 2020-27 was made obsolete as a result of the Act, it still interprets federal law prior to the Act.

Subsequent Paycheck Protection Program Loans

The Act provides that subsequent PPP loan proceeds that are forgiven are excluded from gross income for federal purposes (see sec. 276(b) of Division N of Public Law 116-260). Taxpayers must include in Wisconsin gross income any subsequent PPP loan proceeds forgiven.

Emergency Grants of Economic Injury Disaster Loans (EIDL) and Targeted EIDL Advances

The Act provides that emergency EIDL grants and targeted EIDL advances are excluded from gross income for federal purposes (see sec. 278(b) of Division N of Public Law 116-260). Taxpayers must include the grants or advances in Wisconsin gross income.

Subsidy for Certain Loan Payments

The Act provides that subsidy for certain loan payments are excluded from gross income for federal purposes (see sec. 278(c) of Division N of Public Law 116-260). Taxpayers must include the subsidy in Wisconsin gross income.

Grants for Shuttered Venue Operations

The Act provides that grants for shuttered venue operations are excluded from gross income for federal purposes (see sec. 278(d) of Division N of Public Law 116-260). Taxpayers must include the grants in Wisconsin gross income.

The Internal Revenue Service announced that the nation’s tax season will start on Friday, February 12, 2021, when the tax agency will begin accepting and processing 2020 tax year returns.

The February 12 start date for individual tax return filers allows the IRS time to do additional programming and testing of IRS systems following the December 27 tax law changes that provided a second round of Economic Impact Payments and other benefits.

Last year’s average tax refund was more than $2,500. More than 150 million tax returns are expected to be filed this year, with the vast majority before the Thursday, April 15 deadline.

Overall, the IRS anticipates nine out of 10 taxpayers will receive their refund within 21 days of when they file electronically with direct deposit if there are no issues with their tax return. The IRS urges taxpayers and tax professionals to file electronically. To avoid delays in processing, people should avoid filing paper returns wherever possible.

Wisconsin’s top health official is joining the Biden administration, according to Governor Tony Evers.

Department of Health Services Secretary-designee Andrea Palm will be nominated to be Deputy Secretary of the U.S Department of Health and Human Services, Gov. Evers’ office confirmed Monday morning.

The governor’s office says Palm will leave her post at Wisconsin DHS on January 20, 2021.

Gov. Evers says Karen Timberlake will take over the top spot at Wisconsin DHS. Timberlake was DHS secretary under former Gov. Jim Doyle during the 2009 H1N1 pandemic response.

“Karen Timberlake brings a wealth of experience and knowledge in public health, healthcare, and healthcare systems that will be critical as we continue distributing vaccines quickly in our fight against this virus,” said. Gov. Evers “Our response to this pandemic and our vaccine distribution program will continue under the leadership of Karen and given her expertise and familiarity with the Department, I have no doubts she will be able to hit the ground running.”

Timberlake will officially start at the DHS on January 25, 2021

Department of Workforce Development (DWD) Secretary-designee Amy Pechacek today announced that DWD started issuing Federal Pandemic Unemployment Compensation (FPUC) payments made available through the Continued Assistance for Unemployed Workers Act, or CAUWA.

The CAUWA extends many of the provisions included in the previously passed Coronavirus, Aid, Relief, and Economic Security Act of 2020, including FPUC, while also containing numerous new programming requirements.

“DWD staff have worked diligently to rapidly code, test and implement the FPUC extension, which provides an additional $300 per week in benefits to claimants who are receiving at least $1 in benefits from another program, and are otherwise eligible,” DWD Secretary-designee Pechacek said.

For more information on the FPUC program, and other UI programs please visit DWD’s website.

Gov. Tony Evers’ plan to nearly quadruple spending on broadband access in the state would include about $40 million to subsidize service for low-income consumers, the governor said Wednesday.

Broadband, as defined by the Federal Communications Commission, is a minimum internet speed of 25 megabits per second for downloads and 3 megabits for uploads — adequate for streaming videos or taking an online class.

About 430,000 rural Wisconsinites lack broadband access, according to a state estimate, representing close to 25% of the rural population.

Scores of sparsely populated communities remain stuck with internet speeds that lag cities by more than a decade, if they have access at all.

For many reasons, bridging the rural digital divide is a daunting task, especially with solutions such as fiber-optic cable that can cost tens of thousands of dollars a mile to install in rugged terrain.

But the $200 million would get Wisconsin “much, much closer” to having ubiquitous coverage, according to Evers.

“There are some places in the state where we may need to use different technology, but if we need to do that, we could use some of the money for it,” the governor said.

Wisconsin’s tax burden continued its slide last year, hitting its lowest level in at least 50 years, according to a report being released Tuesday.

State and local taxes ate up 10.2% of Wisconsinites’ income in 2020, according to the report from the nonpartisan Wisconsin Policy Forum. That’s the lowest it’s been since at least 1970, the report says.

Wisconsin’s tax ranking compared to other states continues to fall as well. In 2018 — the latest year for which U.S. Census Bureau information is available — Wisconsin had the 23rd highest state and local taxes, down from 17th place a year earlier, according to the policy forum.

That put Wisconsin in better standing than three of its neighbors — Minnesota (ranked seventh highest), Illinois (12th highest) and Iowa (13th highest). Michigan ranked 30th for its tax burden.

Wisconsin’s tax burden has been shrinking for years. In 1994, state and local takes took up 13.1% of personal income. By 2019, they took up 10.3%. The dip last year was just a tenth of a percentage point, but that was enough to put it at the lowest level in at least half a century.

On Friday, the Wisconsin Economic Development Corporation (WEDC) and the Wisconsin Department of Revenue (DOR) announced almost 55,000 state small businesses affected by the COVID-19 pandemic received approximately $240 million last year through the We’re All In grants program – the largest direct-aid program for small businesses in WEDC history.

“Wisconsin’s small businesses have exemplified remarkable resilience throughout this pandemic, finding new, innovative ways to keep the doors open and the lights on. But it wasn’t easy, and I am glad we were able to provide this critically needed support,” said Gov. Evers. “We aren’t out of the woods just yet, and it is vital that we continue to support our local businesses and their employees to help them get through these tough times.”

Funded by the federal CARES Act, the We’re All In grants were awarded to Wisconsin small businesses in three phases throughout first year of the pandemic.

Starting in the summer, Phase 1 distributed $65 million to more than 26,000 businesses around the state. The grants were administered by WEDC, with each receiving a $2,500 grant.

In the fall, Phase 2 provided $130 million to more than 26,000 businesses. The program was created by WEDC but received technical and customer service assistance from the DOR. Due to greater demand and limited resources, Phase 2 grants were targeted toward industries hit hardest by the pandemic, as well as diverse businesses and businesses that had not received Phase 1 grants. Businesses received $5,000 awards.

In the late fall, Phase 3, We’re All in For Restaurants, was specifically targeted at food, beverage, and amusement businesses with annual revenues between $1 million and $7 million, with each qualified business receiving $20,000. More than 2,000 received these grants, which were also administered by DOR in collaboration with WEDC.

The Small Business Administration and the Treasury Department are preparing to revive the PPP five months after its first two rounds of funding ended.

In the latest round, businesses that received loans last year will be able to borrow up to $2 million as long as they have no more than 300 employees and suffered at least a 25% drop in quarterly revenue. First-time borrowers with no more than 500 workers will be able to borrow up to $10 million.

The loans, which can be forgiven, will have five-year terms and carry an interest rate of 1%.

The SBA will initially accept only applications submitted by community financial institutions, or CFIs, lenders whose customers are minority-owned and economically disadvantaged businesses. Starting Monday, applications for first-time borrowers submitted by these lenders will accepted, and on Wednesday, applications for second loans. The SBA said it would begin accepting applications from all its lenders within a few days of that initial period reserved for CFIs.

As with the first two rounds of the PPP, applications must be submitted online at banks and other SBA-approved lenders. All applications must be submitted and approved by March 31. Loan amounts are calculated using a company’s payroll expenses; businesses can use either their 2019 or 2020 payroll to compute how much they can ask for.

Companies will have 24 weeks from the date they receive a loan to use the money. While 60% of the proceeds must be used for payroll in order for loans to be forgiven, companies can use the rest for employee health benefits, mortgage interest, rent, utilities and expenses that are essential to business operations.

The PPP is being restarted under the coronavirus relief bill Congress approved in late December, providing for $284 billion in new loans. The first two rounds, which began April 3 and ended Aug. 8, gave out more than 5.2 million loans worth $525 billion.