Today the Minnesota Senate passed legislation that seeks to ensure businesses are not penalized for keeping their employees on payroll through the COVID-19 pandemic. Last year, the Paycheck Protection Program (PPP) was an emergency measure passed by the federal government to help businesses and business owners keep their employees on payroll. Unfortunately, business owners are now being faced with the possibility of an unexpected tax on these loans.

“Minnesota’s small businesses have been hammered by the pandemic for an entire year, and now these PPP loans that they were thrown as a lifeline could be the very thing dragging them down,” said Senator Jeff Howe (R-Rockville). “Minnesota is the only state in the upper Midwest to still have these loans subject to taxation, and it’s just wrong. This is a good bill that ensures our small businesses aren’t hit with an unexpected tax. Our small businesses did what they needed to keep their doors open and their employees paid, and now we need to do our part to help them avoid a ridiculous and unexpected tax.”

Last year the federal CARES Act established the PPP program for small businesses experiencing hardship and revenue losses resulting from the COVID-19 pandemic. In order for the loan to be forgiven by the federal government, the loan needed to be utilized to fund qualifying costs (payroll, health insurance for paid sick/medical/family leave, mortgage interest payments, rent, utilities), and 60% of the loan proceeds needed to be used for payroll costs. In December 2020, the federal stimulus bill made it evident that forgiven PPP loans were not considered taxable income at the federal level. Unfortunately, Minnesota does not automatically conform to federal tax law changes.

This bill seeks to bring Minnesota into federal conformity so that these forgivable loans are not taxed in Minnesota. With tax season on the horizon, passing this bill offers relief to businesses and business owners that have been left wondering if they would be hit with an unexpected tax, after a year of uncertainty and floundering revenues.

The passage of this bill ensures that small businesses that have been negatively impacted by COVID in the last year are not also hit with an unprecedented tax for trying to save their businesses and helping their employees during a pandemic.