Tennessee House passes measure to make COVID-19 relief tax deductible for businesses

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Some Tennessee businesses could receive more COVID-19 pandemic assistance after a bill that would exempt relief funds from state taxes unanimously passed the House on Monday night.

House Bill 776 would exempt COVID-19 relief payments received between March 1, 2020, and Dec. 31, 2021, from the state’s excise taxes.

The associated Senate bill is scheduled to be discussed Tuesday in the Senate Finance, Ways and Means Committee.

The bill would allow for federal Coronavirus Aid, Relief and Economic Security Act funds and others to be tax deductible, House bill co-sponsor Rep. Ron Gant, R-Rossville, said.

“I think it’s important that we don’t tax these businesses on funds that they need to keep up and running,” Rep. Patsy Hazlewood, R-Signal Mountain, said last week during discussion in a House Finance, Ways and Means Committee meeting.

The Tennessee Department of Revenue issued a notification on the bill Monday, saying the funds cannot be deducted until the bill fully passes and “if a taxpayer wishes to delay filing its 2020 return, pending the passage of this legislation, the taxpayer may submit an Application for Extension of Time to File, which grants a taxpayer who meets the extension requirements an extension of six months, from the original return due date, to file the return.”

Funds from the following programs are eligible for the deduction: Tennessee Business Relief Program; Tennessee Supplemental Employer Recovery Grant Program; Coronavirus Agricultural and Forestry Business Fund; Hospital Staffing Assistance Program; Emergency Medical Services Ambulance Assistance Program; Tennessee Small and Rural Hospital Readiness Grants Program; and payments issued by Tennessee from the federal Child Care and Development Block Grant.

The relief payments have to be deducted from the taxes for the tax year when the relief funds were awarded.

“Should this legislation be passed into law, the department will publish guidance informing taxpayers as to how they may proceed in claiming the excise tax deduction. If this legislation passes, taxpayers who have already filed a franchise and excise tax return for the 2020 tax year will be able to amend the return to take the excise tax deduction for eligible relief payments received during 2020,” the Department of Revenue said in a statement.

The Tennessee General Assembly Fiscal Review Committee estimated the state would forgo $9 million in revenue over the next two fiscal years should the bill become law.

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