Last week I discussed the recent state budget forecast that projects a $1.6 billion surplus. I closed with a comment that this should dampen any further effort to raise taxes this year. To my surprise, we have discovered we still have a sleeper tax increase buried in Minnesota’s complex state income tax laws.
One of the anomalies supporting the $1.6 billion budget surplus is it includes state income tax revenue that will be collected from Minnesota employers on federal Paycheck Protection Program (PPP) funds they received in the form of federal loans during the height of the pandemic.
The federal government mandated that PPP funds be very specifically focused on keeping employees on the payroll. That is exactly what Minnesota businesses did. They used those funds to continue their employees during the forced shutdown, when normal revenues ceased to come in and many more lay-offs would have been necessary.
For businesses that complied with the federal rules those loans were considered forgivable emergency loans and are not taxable at the federal level. However, under Minnesota tax code they are still considered taxable.
The Tax Foundation reports Minnesota is the only state in the Upper Midwest that has yet to exempt forgiven Paycheck Protection Plan loans from state income taxes. These loans were offered as lifelines for businesses to keep employees on the payroll and meet other financial obligations amid COVID-19 restrictions. More than 102,000 Minnesota businesses received them.
The state has a projected $1.6 billion surplus. We need to fix this and not punish recovering businesses with this unintended and unfair quirk in our state tax code. This issue is too important to wait until the end of the session when things can easily fall through the cracks.
The Senate Tax Committee has already approved a bill that exempts federal PPP loans from state income taxes. There is no reason to delay or play games with people’s livelihoods.
We need a clean bill – no amendments – with bipartisan support from our colleagues in the House Majority and the governor’s cooperation this bill could be on his desk in no time. Our workers have had to endure far too much this past year. We should not put their jobs at further risk. I will work to eliminate this unjust tax liability.