Minnesota House is holding up PPP tax relief

Last month I noted that Minnesota’s state government was planning to tax federal government loans made to businesses under the Paycheck Protection Program (PPP):

The PPP loaned businesses money, a loan which would be forgiven if the borrower could prove that they used the funds for qualifying purposes, such as payroll costs, mortgage interest payments, rent, and utilities, within a specified amount of time. It was sound policy, given the circumstances.

Of course, our state government saw it as another way to stuff its own coffers. A forgiven loan ordinarily qualifies as income, but Congress exempted forgiven PPP loans from federal income taxation.

Minnesota’s government does not presently intend to exempt them from state taxation.

This, as I noted, is hitting some of our state’s businesses hard after a year when they have struggled to keep going in the face of a pandemic and the government’s responses to it. As KBJR 6 reported:

…what was meant to be a lifeline for small businesses could now mean financial ruin.

Jason Vincent owns the Boat Club in Duluth and two other restaurants.

“We’re struggling enough,” Vincent said. “Right now 2021 is the year of just surviving and hopefully digging out of holes, not to try and pay back debt that was given to us to actually survive the pandemic.”

Vincent received more than $500,000 in PPP loans.

While loans like that would usually be taxed as income, Congress chose to make PPP loans exempt from federal income taxes.

Though many states adopted Congress’ exemption, at this point, Minnesota still plans on taxing the loans.

“We can’t afford to be taxed almost 10% on help that was given to us to keep our doors open,” Vincent said. “It just doesn’t make sense.”

Small business owners like Vincent might have to pay thousands in state taxes on money meant to help them recover.

The Minnesota Senate has passed a bill to shield businesses from this hit. The House, however, insists on capping the amount of forgivable loans at $350,000 and bundling the whole thing with completely unnecessary tax hikes: in effect, they are saying ‘Give us the tax hikes or the businesses get it.’

This is not a helpful approach as Minnesota tries to recover from COVID-19 and the various shutdowns. Opposition to the House bill was bipartisan so there is hope that it will come to its senses.

John Phelan is an economist at the Center of the American Experiment.