Only a handful of states plan to hit businesses with taxes by accepting paycheck protection program loans, and it’s outrageous that California is one of them.

A generous chunk of federal COVID-19 relief funds are on their way to California, a state that has imposed some of the country’s toughest limits on business operations during the pandemic and has seen its unemployment rate drop to 4, 7% in January 2020 to 9% in January. 2021.

The purpose of PPP loans was to help businesses keep their employees on the payroll. This need continues in California, as evidenced by the governor’s personal appearances in the state to highlight small business assistance programs.

In most cases, a canceled loan is taxed as income. However, Paycheck Protection Program loans were specifically designed to be canceled. The money was advanced to qualifying businesses to help them keep their employees on the payroll. If they met the conditions, the loans turned into grants.

When the CARES Act was passed in March 2020, Congress apparently wanted PPP loans not to be considered taxable income and that expenses paid with the funds would continue to be deductible. The Joint Committee on Taxation assessed the bill in accordance with these assumptions. When the Treasury Department subsequently ruled that expenses paid with PPP loans were not deductible, Congress added a provision to the Consolidated Appropriations Act for 2021, enacted on December 27, clarifying that those expenses were, in fact, deductible on federal income tax returns.

This still left the issue unresolved for state income tax returns. Some state legislatures have passed new laws to comply with federal rules.

It certainly makes sense. When taxpayers distribute emergency aid, now is not the time to recoup the money in the form of higher taxes by eliminating tax deductions.

California has not acted to comply with federal tax guidelines. Lawmakers are taking their time to pass Assembly Bill 80, which would allow businesses to deduct expenses, such as payroll, that were paid with the proceeds of PPP loans.

The delay is a problem for small business owners who are currently preparing their tax returns and facing higher tax bills than they should be. If the legislature ultimately passes the tax compliance bill, those business owners will have the additional expense of preparing and filing amended returns.

“Under titanic stress and strain, U.S. taxpayers and tax preparers must be given more time to file tax returns,” said Rep. Bill Pascrell, Jr., D-New Jersey, who chairs the House Ways and Means Subcommittee on Oversight.

Sacramento should do everything possible to deflect comparisons to the Titanic. After all the effort to throw a lifeline to struggling business owners, now is not the time to burden them with short deadlines and long tax bills.