Last year, following the passage of the federal CARES Act, the Washington State Department of Revenue (DOR) published guidance regarding its view on whether federal COVID-19 related financial assistance is subject to the Business & Occupation (B&O) tax (including loan forgiveness under the Paycheck Protection Program [PPP]).
At that time, the DOR indicated its belief that the financial assistance should not be reportable for B&O tax purposes. Since then, the Legislature has enacted a specific exemption from the B&O tax for qualifying grants received on or after February 29, 2020 (the date the Governor issued a COVID-19 emergency proclamation).
The new law (SHB 1095), which went into effect on February 19, 2021, defines a “qualifying grant” to include an amount received, or relief from debt or other legal obligation received:
- Under a government-funded program directly from a government entity; or
- Indirectly through a nongovernmental third party authorized by a government entity to distribute the funds; or
- In the case of a relief from debt or other legal obligation, from a private entity under circumstance where, in exchange for providing the relief, the private entity receives a direct financial benefit from a government entity.
A qualifying grant must be provided to address the impacts of conditions giving rise to an official proclamation of a national emergency by the President of the United State or a proclamation of state of emergency by the governor. Amounts received from federal, state and local, or tribal governments will qualify provided they meet the above requirements. A qualifying grant does not include payments under a contract for the purchase of specific goods or services pursuant to government procurement laws or regulations.
The law applies both prospectively and retroactively to February 29, 2020, and it is set to expire in 10 years on February 19, 2031.
For other helpful information and resources regarding COVID-19, click here.
If you have any questions about the exemption or any other state and local tax matter, please contact any member of the CN state and local tax practice.
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