Will Massachusetts business owners with COVID grants face larger tax bills? Baker administration supports legislative ‘fix’ Updated Mar 02, 2021; While the federal government made forgiven loans under the Paycheck Protection Program tax-free, small business owners in Massachusetts could still face a larger tax bill due to a forgiven PPP loan or state business grant. The state makes forgiven PPP loans from corporations tax-free because the state corporate tax code conforms to the federal code, but the state’s code for individual income tax doesn’t default to federal code, Administration and Finance Secretary Michael Heffernan told lawmakers during Tuesday’s budget hearing. Barring any change in state law, Massachusetts would tax forgiven PPP loans of independent contractors or small businesses — the type of borrowers Congress aimed to help in the first place.