The status of small business policies in state governments nationwide
Many state legislatures have adjourned in recent weeks having changed or created laws that could make or break their states’ small businesses and the jobs they create. “I can’t think of a time when we’ve been engaged in more state policy issues where the true survival of our members is at risk,” said Executive Director of State Government Relations Tim Goodrich.
Here is a summary of the status of some of the biggest advocacy issues facing small businesses nationwide.
For months now, small businesses have been reporting record-high levels of unfilled positions. The lack of applicants has slowed small business growth and recovery – and many NFIB members have identified enhanced federal unemployment benefits as a major factor in their staffing shortages.
26 states have ended their participation in the federal unemployment insurance supplement, while the remainder intend to keep the supplement in place until it expires on September 6.
Simultaneously, many states are considering an increase in the cost of unemployment insurance to refill their depleted unemployment trust funds. The last thing small businesses need is higher taxes, which is why states like Maryland and New Jersey have passed legislation to protect small businesses from steep increases on the cost of unemployment insurance. Other states have placed the burden of tax increases on small businesses as Massachusetts did with its $7 billion shortfall.
NFIB continues to advocate on this issue and recently State Director Chris Carlozzi in Massachusetts urged action, saying, “Governor Baker and the Legislature must help struggling businesses and use a significant portion of federal dollars for the UI trust fund to encourage job growth and speed the state’s economic recovery. The state-mandated restrictions and overly generous state benefits helped fuel the current UI crisis, and now the state should help employers pay for it.”
PPP Loan Tax Deductibility
Countless small businesses took federal Paycheck Protection Program (PPP) loans during the pandemic as they worked to keep themselves afloat. Part of the appeal of these loans was that eligible expenses paid by the loan would be forgivable, turning the loan into a grant, and those forgiven expenses would be tax-deductible.
But while expenses paid by forgiven PPP loan dollars are deductible in the federal tax code, it may be a different story on the state level. At the start of 2021, only half the states had mirrored the federal treatment of forgiven PPP loan expenses.
Since then, nearly every state has conformed its tax treatment of forgiven PPP expenses, with New Hampshire being the most recent. Only two states have yet to conform with the federal practice: North Carolina and Utah. NFIB continues to encourage the governments of those states to conform with the federal government and the rest of the country.
Gregg Thompson, NFIB State Director in North Carolina says, “Small business owners stand to lose millions of dollars unless the General Assembly votes to let them deduct forgiven expenses paid for with federal Paycheck Protection Program (PPP) loans on their state income taxes.”
COVID Liability Protections
Several lawsuits have been filed against businesses, with plaintiffs claiming that they suffered injury when they were exposed to COVID-19 at a business. These lawsuits are controversial because of the difficulty of proving where someone contracted COVID-19 and even a single frivolous lawsuit could force a small business to close.
Congress considered passing a national liability protection standard in 2020 but ultimately did not do so. However, 28 states have passed legislation that would shield small businesses from liability so long as the businesses are following federal, state, and/or local safety guidelines.
NFIB State Director Brad Jones said of the COVID-19 liability protection law recently passed in Missouri, “This is a big relief for small businesses and other organizations concerned about predatory trial lawyers looking for opportunities to profit from the pandemic. Small businesses are focused on protecting their customers and employees and emerging from the economic crisis created by the pandemic. The cost of defending themselves against just one COVID-19 lawsuit could put them out of business for good.”
As Congress considers a series of tax increases, some state governments have taken the initiative to cut taxes on small businesses in their state. Iowa, for example, passed an income tax reduction for S-corps and LLCs that will save small businesses $1 billion.
Matt Everson, NFIB State Director in Iowa said of the reduction, “This key piece of legislation is a huge win for small business owners, many, who have been devastated by the COVID-19 pandemic. This legislation will allow our small business owners to re-invest in their business, give employees raises, and hire new workers. In short, it ensures that Iowa’s economy can continue to grow.”
Arizona also reduced their income tax rate, creating a flat tax of 2.5% for nearly all state residents. This comes in response to a November 2020 ballot proposition to raise taxes including an increase to 8% for the top income bracket.
“This change will improve the equity of treatment, for tax purposes, for owners and leasers of business property and should result in lower property tax bills,” said state director Chad Heinrich in praise of the change.
Finally, Ohio passed a law reducing income taxes by 3%, eliminating the top tax bracket and increasing the lowest tax bracket to start at $25,000. All told, these tax cuts will save Ohio taxpayers $1.64 billion.