As many small businesses continue to be weighed down by occupancy restrictions and revenue losses from closures, the state of Minnesota continues to tax Paycheck Protection Program (PPP) relief dollars. An issue that seemed like it would be resolved when the recent state budget forecasted a $1.6B surplus-PPP conformity would ‘cost’ the state approximately $438M.
This policy hits hundreds of businesses right here in the greater Owatonna area. Recently Steele County tallied the applications for their most recent economic relief grants (State Money) in which 164 businesses and non-profits applied requesting $5.3M in funds lost due to Covid closures. The county has $714,000 in grant money to provide to these businesses a $4.6M shortfall. Tally that impact over 87 counties in Minnesota and numbers get big real fast.
As covid closed businesses, the federal government jumped in with the PPP program which for hundreds of businesses in Steele County and over a hundred thousand statewide was vital in surviving the economic impacts of Covid. The program was a key lifeline for business, allowing them to keep people employed and pay some important bills like mortgage/rent and utilities.
According to the Tax Foundation (www.taxfoundation.org), ordinarily, a forgiven loan qualifies as income. However, Congress chose to exempt forgiven PPP loans from federal income taxation. Many states, however, remain on track to tax them by either treating forgiven loans as taxable income, denying the deduction for expenses paid for using forgiven loans, or both.
States that use rolling conformity automatically adopt federal tax changes as they occur, which is the simplest approach and provides the most certainty to taxpayers. States that use static conformity, like Minnesota, link to the federal tax code as it stood on a certain date and must proactively adopt legislation to accept more recent changes.
To date, Minnesota has not conformed to the federal tax code regarding PPP income. This delay is causing real uncertainty for businesses as they prepare to file their tax returns. State representatives John Petersburg and John Jasinski are supportive of the tax conformity now, but caution it probably wouldn’t happen until April or May if it happens at all (as they see the legislative process taking place).
Keeping businesses and their employees in this uncertain economic peril goes against the rhetoric that we are ‘all in this together’. Are we? For those seeing their life’s work get crushed economically, through no fault of their own, it’s hard to believe this tax change hasn’t been made yet. Businesses have both directly (through shut downs) and indirectly (through slower business) sacrificed their economic future for the safety and security of the greater community.
PPP tax conformity is a straightforward way to support businesses who have demonstrated they need it the most through their granting of PPP funds in the first place. Timing is important and businesses need this relief now.
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