Lawmakers are moving ahead with a bill exempting federal COVID-19 relief loans from state income tax, a move which mirrors the most recent extension of the measure then-U.S. President Donald Trump signed on Dec. 27.

Under the proposed Senate Bill 3234, income from the federal Paycheck Protection Program – forgivable loans to help businesses stay afloat during the pandemic – would not be used to calculate how much taxes a business owes to the state.

Congress created the PPP program when enacting the Coronavirus Aid, Relief and Economic Security Act in March 2020, as the pandemic began to take hold of the nation and business closures meant to contain the virus pushed many establishments to the brink of permanent closure.

Unemployment soared as entities closed indefinitely, or utilized a combination of layoffs and furloughs to stay afloat.

With PPP loans, businesses can receive funds and use them to keep staff on the payroll and pay for other overhead. In turn, those loans would be forgiven.

By some estimates, the federal Small Business Administration lent over half a trillion dollars to businesses across the nation, $17 billion of that in New Jersey.

Federal law initially counted those proceeds as taxable income, but the latest extension exempts it from federal income tax.

“Not all clients realized the impact. If you spent the money and you really were still struggling and you couldn’t deduct those expenses, the taxable income was going to up $1 million, and where were clients going to come up with the money?” said Karen Henderson, senior manager with SobelCo.

S3324 would not count those loans as business income subject to state taxes, meaning that like with the federal government, employers can deduct the loan amount from their taxes.

Both the federal government and, under this bill the state government, allow businesses to deduct other expenses like rent and utilities, which they paid via loan money.

“For many, the federal PPP loans were a godsend that helped [businesses] stay open,” reads a Jan. 21 statement from the bill’s sponsor, Sen. Troy Singleton, D-7th District. “New Jersey should follow the federal government’s lead and allow businesses to deduct forgiven loans from state taxes. This would provide further relief to businesses around the Garden State.”

Chris Emigholz, vice president of government affairs for the New Jersey Business and Industry Association, praised the measure, saying that the PPP loans were a “huge help to thousands of small businesses throughout New Jersey.”

“The possibility of New Jersey increasing state taxes on the back of that federal aid goes against the purpose of that aid and helping the businesses that already can’t pay their bills before any increased tax burden,” he told lawmakers during the Thursday afternoon hearing.

The bill passed by a 12-0 vote in the Senate Budget and Appropriations Committee.

Another measure approved on Jan. 21, Senate Bill 3305, would let businesses deduct expenses from their taxes between 2020 and 2022 for renovations to safeguard against COVID-19.

Those could include increased ventilation, ultraviolet lighting, touchless entryways and Plexiglas, the costs for which could be deducted from a business’s income tax filings. It passed by a 12-0 vote on Thursday.

“The expenditures businesses have incurred throughout the pandemic to increase safety in their buildings and offices for their employees and clients, has weighed on them as they have struggled to stay afloat,” the bill’s sponsor, Senate Environment Chair Bob Smith, D-17th District, said in a Thursday statement. “This bill will provide tax relief to businesses that made improvements to their facilities to decrease the spread of COVID-19.”