Protecting businesses’ bottom line throughout the pandemic and our economic recovery is a key priority for GLI. That’s why we are working to make sure that Kentucky businesses are fully able to deduct expenses paid with forgiven Paycheck Protection Program loans, just as they are able to do under federal law. Under current Kentucky law, businesses will not be allowed to claim deductions for expenses paid with forgiven Paycheck Protection Program loans. Without these deductions – to which businesses would ordinarily be entitled – employers throughout Kentucky will face a higher state tax burden than usual. This burden will fall especially hard on Greater Louisville, which received 30 percent of the Paycheck Protection Program loans distributed in Kentucky.

On Tuesday, GLI joined other business organizations throughout the state to testify in support of House Bill 278, sponsored by Representative Patrick Flannery, to address this issue and recently sent a letter to legislators urging action. See that letter below.

Lawmakers need to hear from business leaders on this key issue. Use GLI’s Action Alert tool to send a quick message to legislators in Frankfort.

Chairman McDaniel and Chairman Petrie:

Thank you both for your service to the Commonwealth and leadership in overseeing Kentucky’s fiscal policy through these difficult and uncertain times. Employers throughout the Greater Louisville region can certainly identify with the unique challenges and difficult decisions that come with budgeting and revenue forecasting during a global pandemic.

Many regional employers and small businesses in Greater Louisville have expressed concerns about the Kentucky Department of Revenue’s decision not to take a “same as federal” position regarding the deductibility of expenses that were paid using proceeds from a forgiven Paycheck Protection Program (“PPP”) loan. Even more troubling, we fear that many other businesses may be unaware of this issue today and how it will negatively impact their state income tax liability.  Unless the General Assembly acts now, this decision will increase the state tax burden for Kentucky businesses at a time when many employers continue to struggle. 

As the General Assembly considers the state budget and any potential revenue adjustments in the current legislative session, Greater Louisville Inc. (“GLI”) encourages lawmakers to address this issue and pass legislation specifying that expenses paid with forgiven PPP loans can be deducted for Kentucky income tax purposes.  GLI and many other business organizations in Kentucky successfully advocated for the U.S. Congress to address these issues in December’s year-end appropriations and stimulus package, which clarified that these expenses may be deducted at the federal level.  Adopting the federal position in Kentucky would align with the pro-business and pro-growth tax policies that the Commonwealth has actively pursued in recent years. More important, it would protect Kentucky businesses from a tax increase and help support the labor force at a time of great economic vulnerability.

We know that other states have already taken action to address this issue.  For example, Indiana – a state like Kentucky that has a policy of static conformity – has indicated that it intends to allow the deductibility of expenses paid for with forgiven PPP loans. Specifically, Indiana’s Department of Revenue takes the position in an FAQ that the deduction of the foregoing expenses pursuant to the December relief package “is not located within IRC and thus Indiana’s position is that the deductibility would flow through without recoupling to the current IRC. Expenses paid for with the PPP loan will be fully deductible by the business.”

Our hope is that the General Assembly will exercise its authority to provide a similar level of clarity and relief for the Kentucky business community.