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As taxpayers begin filing their 2020 income tax returns, there are numerous considerations regarding the state tax treatment of specific provisions of the CARES Act. Understanding state conformity with these provisions is critical ahead of filing state income tax returns. Some states have updated their conformity provisions and their position is clear. Others have introduced legislation that has not yet been signed into law. Noted below are some recent legislative developments addressing state conformity.


On Feb. 27, 2021 the Virginia General Assembly passed S.B. 1146 to update the state's date of conformity with the Internal Revenue Code (IRC) from Dec. 31, 2019, to Dec. 31, 2020.[1]This bill was signed into law by the governor on March 15, 2021. The bill adds several exceptions to that conformity, as well as guidance for the treatment of funds related to certain state programs. A summary of some of the more significant changes in S.B. 1146 along with guidance provided by the Department of Taxation ("Department") in Tax Bulletin 21-4 are noted below.

Exceptions to Federal Provisions Related to COVID-19 Relief

S.B. 1146 addresses Virginia's specific decoupling from provisions of the Coronavirus Aid, Relief, and Economic Security Act of 2020 (CARES Act), the Consolidated Appropriations Act (CAA) and other related federal and state legislation providing pandemic relief to taxpayers. Some key provisions of these were the establishment of the Payroll Protection Program (PPP), the expansion of the carryback period for federal net operating losses (NOLs) and the allowance for the deduction of expenses paid for with PPP funds.

S.B. 1146 explicitly states that Virginia does not conform to the following portions of the CARES Act and the CAA:

  • The state does not follow the federal treatment allowing for the deduction of expenses funded by PPP loans. The state allows a deduction of up to $100,000 of those expenses from taxable income. In Tax Bulletin 21-4, the Department issued some guidance to help taxpayers understand this provision. For taxpayers who received PPP loan forgiveness of $100,000 or less will have no adjustment on their tax year 2020 return.  For taxpayers who had received more than $100,000 of PPP loan forgiveness, the Department will require a net addback that will be calculated by subtracting $100,000 from the total allowable federal deductions funded by PPP loans and adding back the difference. The two items will not be separately shown as a gross addback of all PPP loan expenses greater than $100,000 and a separate subtraction of the allowable $100,000 for Virginia purposes. The Department guidance also indicates that the limitation will apply at the flow-through entity level and that owners do not need to further limit any deduction.
  • The state does not conform to the federal treatment for the five-year carryback of NOLs that was established by the CARES Act.[2]
  • The state does not conform to the changes made to Section 163(j) (limitation on business interest) by the CARES Act.[3]
  • The state does not conform to the temporary suspension of the excess business loss limitation provided for in the CARES Act.[4]
  • The state does not conform to the 7.5 percent of adjusted gross income (AGI) threshold set forth in Section 213(a) of the Internal Revenue Code, for purposes of calculating the deduction for medical expenses. Virginia's threshold for calculating the deduction for medical expenses is 10 percent of AGI.

Modifications for State Programs

  • For tax years beginning on or after Jan. 1, 2020, but before Jan. 1, 2021, up to $100,000 of grant funds received by taxpayers under the Rebuild Virginia program may be subtracted from the calculation of taxable income.[5]

The state tax impact / treatment of many of the federal provisions enacted in 2020 as part of the Congressional response to the pandemic is critical to many taxpayers. Virginia has addressed these for the 2020 tax filing season to allow taxpayers to move forward with tax calculations, returns, etc.

The state did not conform to many of the taxpayer-favorable items in the CARES Act or the CAA with reason likely due to the revenue impact on Virginia. The $100,000 allowable deduction for expenses funded by PPP loan funds is fairly straightforward for corporate taxpayers, however, additional consideration should be given for flow-through entities.

The Department has provided some guidance to taxpayers in Tax Bulletin 21-4 and has indicated that they will provide additional guidance. We would recommend that taxpayers continue to monitor the situation and guidance to be issued by the Department.

West Virginia

On Feb. 24, 2021, West Virginia Governor Jim Justice signed into law House Bill 2358[6] (H.B. 2358) and House Bill 2359[7] (H.B. 2359), which update the IRC conformity date to Dec. 31, 2020, for corporate income tax and individual income tax purposes. The IRC conformity date update means that all changes made by the CARES Act for tax years 2020 and prior (whether prospective or retroactive) are allowed under West Virginia law to the same extent as permitted under the IRC.

Individual Income Tax Implications

Due to the revised IRC conformity date within H.B. 2358, West Virginia conforms to the forgiveness of PPP loans and allows for the deduction of related expenses on individual returns. H.B. 2358 also specifically defines the personal exemption allowed for West Virginia purposes to be the exemption that would have been allowed prior to the disallowance for federal purposes in tax year 2018.

Corporate Income Tax Implications

There are several significant changes made as part of H.B. 2359, including:

  • Conformity to the forgiveness of PPP loans and allowance for the full deduction of related expenses paid for by forgiven PPP loans.
  • Conformity to the CARES Act definition of Qualified Improvement Property (QIP) as 15-year property instead of 39-year property. Because the state follows federal bonus depreciation rules, it also conforms to the immediate expensing of QIP.
  • Conformity to the CARES Act provisions allowing a taxpayer to elect to compute the Section 163(j) ATI using a 50 percent limitation in place of a 30 percent limitation.
  • Conformity to the suspension of the 80 percent net operating loss (NOL) utilization limitation under the CARES Act. Conforming to this provision of the CARES Act further allows West Virginia taxpayers to carry back a total of $300,000 of NOLs from a single tax year to offset West Virginia taxable income. The carryback period in West Virginia is similar to carryback period for federal purposes under the CARES Act.


On Feb. 25, 2021, Georgia Governor Brian Kemp signed into law House Bill 265[8] (H.B. 265), updating its IRC conformity date to Jan. 1, 2021. Georgia's previous conformity date was March 27, 2020, which was subsequent to the CARES Act.

Due to Georgia's previous conformity date, the state already conformed to the exclusion of income of forgiven loans from the Paycheck Protection program (PPP). The greatest significance of this most recent legislation and updated conformity date is that it is subsequent to the CAA of 2021 in which it was confirmed that PPP related expenses are deductible for federal purposes. Georgia's conformity with the CAA confirms deductibility of these same expenses for states purposes and that Georgia taxpayers will receive the full benefit of the PPP at the state level.

Conformity with the CAA was by far the most notable provision in Georgia's conformity legislation this year. The legislature's position on other federal items maintains the historical status quo.

North Carolina

North Carolina's current conformity date with the IRC is May 1, 2020, which means the state conforms to federal tax changes made in the CARES Act, but not the CAA.[9] To assist taxpayers with understanding their filing obligations under North Carolina's current tax law, the North Carolina Department of Revenue (NCDOR) released an Important Notice on July 20, 2020, that was later updated on Oct. 1, 2020.[10]

The Important Notice dealt with several provisions within the CARES Act, from which North Carolina decoupled, that impacted individuals and corporations. Specific to the treatment of expenses paid with PPP loans that were later forgiven, NCDOR stated that North Carolina's current revenue laws would exclude the amount of the PPP loan forgiven from North Carolina's tax base (similar to the federal treatment), but would require an addback on the North Carolina income tax return of expenses paid by forgiven PPP loans if those expenses are deducted on the corresponding federal return.

Two separate bills have been introduced in the current session of the North Carolina General Assembly that would conform North Carolina's treatment of expenses paid for by forgiven PPP loans with the treatment under the IRC. Senate Bill 104 (S.B. 104) would permanently conform North Carolina's treatment of these expenses with the treatment under the IRC and allow full deductibility of expenses for tax years beginning on or after Jan. 1, 2020. Senate Bill 112 (S.B. 112) would conform North Carolina's treatment of these expenses to the treatment under the IRC, but only for tax years beginning before Jan. 1, 2021 (i.e., full expense deductibility would only be permitted for the 2020 tax year).  Both bills were referred to the Committee on Rules and Operations of the Senate.

No action has currently been taken on either bill since they were referred to committee in mid-February, and it is not yet clear whether the North Carolina Senate will see either bill move out of committee as the revenue impact of full conformity by the General Assembly would be significant since estimates have been put at several hundred million dollars.

Until one of these bills are enacted, North Carolina taxpayers are not eligible to deduct PPP related expenses.



How DHG Can Help

Prior to making any tax decisions based on the information provided in this alert, we recommend consulting your DHG tax advisor or performing a detailed review of the bill. As this alert provides a summary of the enacted legislation, it does not cover every detail or nuance. For questions or more information, you can also reach out to us at




[1] Full text available here.

[2] Includes amounts under Section 2303(a) & 2303(b) of the CARES Act, P.L. 116-136.

[3] This decoupling includes both the increase to the Adjusted Taxable Income (ATI) threshold limiting the deduction of interest expense to a set percentage of ATI from 30 percent to 50 percent for tax years 2019 and 2020 and the utilization of tax year 2019 ATI as the ATI for tax year 2020.

[4] The CARES Act allows noncorporate taxpayers to fully deduct excess business losses arising in 2018, 2019 and 2020.

[5] The Rebuild VA Grant Fund was launched in August 2020 to help small businesses and nonprofits affected by the pandemic. Grant funds could be used to cover such items as payroll expense, employee salaries, working capital, principal and interest on loans, as well as eligible personal protective equipment and cleaning materials.

[6] Full text available here.  

[7] Full text available here.  

[8] Full text available here.

[9] N.C. Gen. Stat. §105-228.90(b)(7).

[10] Important Notice: North Carolina's Reference to the Internal Revenue Code Updated – Impact on North Carolina Corporate and Individual Income Tax Returns, July 20, 2020 (updated Oct. 1, 2020).

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