On March 11, the Minnesota Senate passed a Paycheck Protection Program PPP tax conformity bill, which will provide substantial relief to small businesses by ensuring they are not penalized for keeping their employees on the payroll through the COVID-19 pandemic. Last year, the federal government passed the (PPP) to be an emergency measure to help small businesses keep their employees on payroll. Unfortunately, struggling business owners are now facing large state tax bills on these loans.

“The PPP program has served as a rescue program that has helped Minnesota’s small businesses keep Minnesotans employed as our state has struggled to weather the pandemic,” Senator David Senjem (R-Rochester said). “Our businesses have done their part over the last year, complying with closures and opening at limited capacity with safety restrictions to protect residents and employees. Despite this, many are on the brink of collapse. They did their part to keep Minnesota’s economy afloat during a pandemic, and the state shouldn’t be taking a cut of their rescue funds to pay for other budget objectives.”

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, reducing their tax burden. If the bill is not signed into law, Minnesota small businesses will be forced to pay millions on PPP loans meant to keep businesses alive. Without action, many of these struggling small businesses will have sizable state tax bills due on March 15. Twenty-five other states, led by Governors of both parties, have already acted on PPP tax conformity.   

In addition to small business PPP tax relief, the legislation will provide tax relief for struggling Minnesotans who received expanded federal unemployment benefits. This added relief will be good news to the thousands of Minnesotans left unemployed during the pandemic through no fault of their own.