FILE - Minnesota State Capitol

The Minnesota State Capitol in Saint Paul, Minnesota.

(The Center Square) – On Thursday, the Minnesota Senate passed a bill seeking to forgive state taxes on the federal Paycheck Protection Program (PPP).

The U.S. Congress approved the PPP program as part of the March 2020 stimulus law to stem last spring's ballooning unemployment rate. The program handed $11.3 billion to 102,352 Minnesota businesses.

If nothing changes, the state will tax businesses that took PPP loans as income at the corporate tax rate of 9.8%, which could leave a business that received $500,000 in PPP loans with a roughly $50,000 tax bill.

More than 30 states, including all of Minnesota’s neighbors, have conformed with the Internal Revenue Service tax code and won’t tax those loans.

Sen. Thomas Bakk, I-Cook, said the $438 million businesses would have to pay in taxes would otherwise be invested into the community, loans which the federal government explicitly said shouldn’t be taxed.

Bakk sponsored Senate File 263 to ensure PPP loans can’t be taxed and can be deducted from business expenses.

“Taxing our struggling small business owners who did the right thing, by keeping their workers on payroll, would make it much more difficult to get our state’s economy back moving again,” Bakk said. “Small businesses and their workers are the lifeblood of our communities, and we cannot afford to take them for granted. I am glad to see the Senate leading in supporting our businesses and workers by passing this critical legislation.”  

The Minnesota Chamber of Commerce supports the bill.

Sen. Jennifer McEwan, DFL-Duluth, called the bill a “double-tax break” for businesses and offered an unsuccessful amendment seeking to fully exempt the first $10,200 of unemployment benefits from taxes. The amendment would have cost roughly $207 million.

Sen. Carla Nelson, R-Rochester, called McEwan’s amendment “premature” but said her tax committee will further look into the idea.

The bill moves to the House.

Staff Reporter

Scott McClallen is a staff writer covering Michigan and Minnesota for The Center Square. A graduate of Hillsdale College, his work has appeared on Forbes.com and FEE.org. Previously, he worked as a financial analyst at Pepsi.