US Tax Newsroom

 Tax News Update    Email this document    Print this document  

May 10, 2021

Texas exempts forgiven PPP loans, other federal COVID-19 related grants and loans from franchise tax

On May 8, 2021, Governor Greg Abbott signed HB 1195, which exempts forgiven Paycheck Protection Program (PPP) loans from being included in total revenue for purposes of the Texas franchise tax. Other federal COVID-19-related loans and grants excluded from taxable total revenue include emergency economic injury disaster loans (EIDL) and targeted EIDL advances, small business loan payments, grants for shuttered venue operators, microloan program recovery assistance and restaurant revitalization grants.1 These amounts are excluded only if the loan or grant is excluded from federal taxable income.

Business expenses paid with such loan or grant proceeds can be deducted as cost of goods sold (COGS) or compensation in determining taxable margin, to the extent the expense is otherwise includable as a COGS or compensation.

These changes took immediate effect and apply only to franchise tax reports originally due on or after January 1, 2021.


Before this law change, the Texas Comptroller of Public Accounts (Comptroller) had determined that due to the its January 1, 2007 date of conformity to the Internal Revenue Code, Texas's franchise tax law did not conform to the federal income tax exclusion for forgiven PPP loan amounts.2 This law change overrides the Comptroller's earlier determination. Thus, affected taxpayers should exclude these forgiven loan amounts and grants from total revenue in computing their Texas franchise tax reports. Taxpayers that have already filed such reports may want to consider filing an amended report to reflect this income exclusion.


Contact Information
For additional information concerning this Alert, please contact:
State and Local Taxation Group
   • Jamie Bowden (
   • Karen Currie (
   • Donna Rutter (
   • Morgan McVicker (


1 Available under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) of 2020 (P.L. 116-136), the Paycheck Protection Program Flexibility Act of 2020 (P.L. 116-142), the Consolidated Appropriations Act, 2021 (P.L. 116-260), the American Rescue Plan Act of 2021 (P.L. 117-2) and the PPP Extension Act of 2021 (P.L. 117-6).

2 Tex. Comp. of Pub. Accts., Tax Policy News - Paycheck Protection Program Loans Forgiveness and Franchise Tax (Feb. 2021).


The information contained herein is general in nature and is not intended, and should not be construed, as legal, accounting or tax advice or opinion provided by Ernst & Young LLP to the reader. The reader also is cautioned that this material may not be applicable to, or suitable for, the reader's specific circumstances or needs, and may require consideration of non-tax and other tax factors if any action is to be contemplated. The reader should contact his or her Ernst & Young LLP or other tax professional prior to taking any action based upon this information. Ernst & Young LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect the information contained herein.


Copyright © 1996 – 2022, Ernst & Young LLP


All rights reserved. No part of this document may be reproduced, retransmitted or otherwise redistributed in any form or by any means, electronic or mechanical, including by photocopying, facsimile transmission, recording, rekeying, or using any information storage and retrieval system, without written permission from Ernst & Young LLP.


EY US Tax News Update Master Agreement | EY Privacy Statement