Minnesota Senate passes PPP tax conformity legislation

ST. PAUL — The Minnesota Senate passed a Paycheck Protection Program loan tax conformity bill Thursday intended to provide relief to small businesses by ensuring they are not penalized for keeping their employees on payroll through the COVID-19 pandemic.

Both Sen. Gary Dahms, R-Redwood Falls, and Sen. Bill Weber, R-Luverne, joined the rest of the Republican caucus to urge the House and Gov. Tim Walz to support the legislation.

“The pandemic has devastated many of our small businesses,”Dahms said. “PPP loans kept many of our small businesses alive during the pandemic. It does not make sense for the state to tax our small businesses on these lifesaving loans. We need our economy to get back moving again, and providing tax relief to our local employers is critical.”

“The PPP loans were meant to serve as lifelines for thousands of struggling Minnesota businesses that were just trying to keep their workers employed during the pandemic,” Weber said. “These loans are not taxed at the federal level or by any other states in our region, but inexplicably are in Minnesota. With the pandemic’s effects still looming, our local and small businesses are just trying to stay alive, and by taxing them, we’re going to harm the folks that employ our neighbors and families. Minnesota cannot delay this relief. We must take action now.”

The Minnesota Chamber of Commerce said the bill’s passage was positive news for businesses in the state.

“This is positive news for Minnesota businesses who have struggled to keep their doors open and people employed during the pandemic,” the Chamber statement read. “With a $1.6 billion surplus and billions more dollars now coming from the federal government, there is no reason Governor Walz and House leaders shouldn’t provide this tax relief now – just like neighboring states have done. Providing this one-time relief will help the 100,000 businesses that received a PPP loan to continue growing the economy and creating and sustaining jobs for Minnesotans.” 

Last year the federal CARES Act established the PPP program for small businesses experiencing hardship and revenue losses resulting from the COVID-19 pandemic. Under the program, loans would be forgiven if they were utilized to fund qualified costs and 60% of the loan proceeds were used for payroll costs.

The federal government made it clear that forgiven PPP loans were not considered taxable income at the federal level, but they are at the state level according to Minnesota Law.

This bill will bring Minnesota into federal tax conformity so that these forgivable loans are not subject to state taxes. Additionally, the bill will give some small businesses greater flexibility to file as C-corporations which will help reduce their tax burden. If the bill is not signed into law, Minnesota small businesses will be forced to pay millions on PPP loans that were meant to keep businesses alive.

In addition to small business PPP tax relief, the legislation will provide tax relief for struggling Minnesotans who received expanded federal unemployment benefits.

“Many of our friends and neighbors who were left unemployed through no fault of their own now face significant tax bills,” said Senator Dahms. “This legislation provides crucial tax relief for the Minnesotans who have been hit hardest by the pandemic. I ask the Minnesota House of Representatives and Governor Walz to move quickly and follow the Senate’s lead in passing this critical relief.”


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