The debate on deductibility of qualifying expenses paid with funds provided under the CARES Act or Consolidated Appropriations Act (CAA) has finally concluded for California businesses as Governor Newsom officially signed Assembly Bill No. 80 (AB 80) into law on April 29, 2021.
What AB 80 means for California businesses
The details of AB 80, passed by the California Assembly on April 26, 2021, closely conform to the federal treatment for deductibility of such expenses. Here are some of the significant highlights of the bill’s provisions:
- Limitation Removed, with a Few Exceptions. The California Assembly did away with the $150,000 limitation that has been debated for several months now and installed two exceptions to deductibility. In general, the bill conforms California’s tax treatment for expenses paid with forgiven loans under the CARES Act or the CAA for tax years beginning after January 1, 2019. The exceptions are for publicly traded companies and “ineligible entities.”
- Ineligible Entity Defined. An entity is ineligible to deduct expenses from PPP and PPP2 funds if it does not have a 25% or greater reduction in gross receipts in any calendar quarter in 2020, compared to the same calendar quarter in 2019.
- EIDL Fund Guideline. Funds received from Economic Injury Disaster Loans (EIDL) are not taxable income, and are not subject to the 25% reduction test.
AB 80 applies retroactively to taxable years beginning on or after January 1, 2019.
The full text of the bill is available at:
Contact a K·Coe tax advisor with questions regarding AB 80’s full applicability for your business.