You know the issue you are advocating for is urgent when it ends up being the first item on a new legislature’s agenda. That’s the position the PICPA government relations team found itself in when the Paycheck Protection Program loan forgiveness provision it supported ended up becoming Act 1 of 2021 on Feb. 5. Peter Calcara, PICPA vice president of government relations, walks us through the origin story of this important, PICPA-member-driven legislative victory.
By: Bill Hayes, Pennsylvania CPA Journal Managing Editor
You know you have an important issue on your hands when you end up as the first item on a new legislature's agenda. That's exactly the position the PICPA and its government relations team found itself in when the PPP loan forgiveness provision it supported ended up as Act 1 of 2021 on February 5th, 2021. To walk us through the origin story of this important legislative victory, and what it means to CPAs and citizens, today we are with Peter Calcara, PICPA vice president of government relations.
As we look back on what is now Act 1 of 2021, what problem was the PICPA attempting to address with that piece of legislation?
[Calcara] It was really, at its core, about taxpayers being treated differently. When the Congress enacted the CARES Act in March 2020 – it's hard to believe a year ago now – it provided that PPP loan forgiveness income was not subject to federal income tax. What happened next was the IRS came and turned that on its head and took, I would say, a more traditional position, saying that, since PPP loan forgiveness income was not taxable expenses paid with a PPP loan, they were not deductible. Essentially, this was making the PPP loan forgiveness taxable income. The IRS was basically going against what Congress was trying to do.
Congress then enacted legislation in December 2020 that clarified its position once and for all. PPP loans were not subject to tax, and expenses paid by PPP loans were deductible. That set the stage in Pennsylvania, because Pennsylvania's a rolling conformity state for corporate tax purposes, meaning that we adopt the changes that Congress enacts to the federal code down to the Pennsylvania code. At least, as it applies to corporate taxes. You had corporations in Pennsylvania that were going to be able to take the benefit of the PPP loan, but pass-through entities, S-Corps and partnerships, not being able to take that. There was that discrepancy between taxpayers.
Why would you say that the PICPA decided this was something that needed to be advocated?
[Calcara] First and foremost, we heard from members. Members were out of the gate on this. Early last year, we heard consistently from members saying, "Hey, we need to address this now, because these pass-throughs in Pennsylvania are going to be treated differently and they shouldn't be treated differently." Really, members really spurred us to take a look at this.
Then, the whole fairness issue. Just because you're organized as – which 80% of business entities now are pass-throughs – but just because you're organized as a pass-through doesn't mean you should be harmed and not be able to take the benefit that Congress was intending to pass through corporate taxpayers.
It was really members, and then the fairness issue.
Can you walk us through a little bit? Because it was an interesting road here. Can you walk us through the process of how Act 1, with the PPP loan forgiveness component, how did that come about?
[Calcara] Just as way of maybe some additional background, as I just mentioned members really spurred us to take a look at this issue, so we did last year, last session in 2020. We actually had legislation introduced in May 2020 – it was House Bill 2497 – to address this at the state level. We were able to get that through the House in June, and then it just died in the Senate, primarily because there was uncertainty as to how the federal government was going to handle it. We had teed this up, and we came back in early 2021, a new legislative session, we needed a new bill. We got Rep. George Dunbar, who was the sponsor of House Bill 2497. He introduced a new bill, House Bill 385. Similar to 2497, we were able to get that moving and we actually had that out of the House and that was a tax code bill.
But we had an opportunity and the legislative process is always uncertain, and you have to be able to respond to it quickly. There was a bill moving through that had already passed the Senate, was in the House – Senate Bill One – which was relief legislation for hospitals and restaurants and the like. Actually, it was Senate Bill 109, I apologize. It was Senate Bill 109. It was a fiscal code bill, and we just saw an opportunity to amend House Bill 385 into Senate Bill 1. It was just a circumstance that was presented to us. We had the support of the leaders in the four caucuses, so we jumped on that opportunity.
We did not anticipate that coming about, but Senate Bill 109 was a perfect vehicle because it was a fiscal code bill and we could put the tax code – the PPP loan forgiveness language – in there. It was almost an accident, but it was an opportunity that we certainly took advantage of.
You mentioned the members a couple times there – the PICPA members – and their ability to identify the issue and how it's affecting them. But what would you say PICPA's role in this was? How did its members contribute to the success?
[Calcara] I think we were the voice to educate lawmakers about the need to make this change, to put taxpayers on equal footing. I know from legislators telling me, "Yes, we're hearing from your members about this." I think we had issued an alert, maybe a week or two before Senate Bill 109 was moving through the process, and I think lawmakers on both sides ... and I've been told this by the leaders that, "Your members were starting to reach out aggressively to lawmakers to say we have filings due on March 15th, there's a lot of uncertainty here, you need to address this." I think that type of outreach and education was critical to getting lawmakers to understand the need to expedite this issue.
What obstacles did the government relations team encounter along the way in this process?
[Calcara] Two primary obstacles: One is a bit of a misunderstanding about what we were trying to do. I heard a number of times lawmakers say this legislation, House Bill 385, and then the provision that was amended into Senate Bill 109, was a double dip for businesses.
I think that was maybe a little bit of an exaggeration. It was more of a double benefit, if you will. I think there was a misunderstanding of what we were trying to accomplish here. Lawmakers, I think through outreach of our members, finally came to understand that we're not trying to get extra benefits, we're just trying to make it equal for those pass-through entities and corporations. I think that was one of the big hurdles.
Then, the second hurdle was the cost. Department of Revenue came out with a $220 million price tag on House Bill 385, but we were able to overcome that with just the argument that you're penalizing these businesses and you're not penalizing the corporate side of it. I think we were able to counter those concerns to a certain extent.
Something like this doesn't get done without support from all sorts of areas. Was there anyone in particular who requires thanks? I never love the term a “shout out,” but people who deserve thanks for this getting done.
[Calcara] PICPA members who did the outreach are at the top of that list. Right below that I'd put one of the representatives, George Dunbar, who championed back last session, and was also the champion of House Bill 385. Rep. Mike Peifer, who's the chairman of the Finance Committee, who was instrumental in getting this through the process as well. On the Senate side, Senator Pat Browne, chairman of the Senate Appropriations Committee. This does not happen without him. And then, of course, all our CPA legislators.
Reps. Keith Greiner, Frank Ryan, Ben Sanchez, and Nick Pisciottano, they're the voices within those caucuses that are able to cut through some of the misinformation, misunderstanding, that I talked about earlier and explain why we needed to do this legislation. All of them deserve a very hearty thank you from the PICPA and our members for getting this done.