Repayable PPP Business Loans To Be Taxed By Minnesota | Minnesota
(The Center Square) – Minnesota businesses can accept their canceled pandemic loans without worrying about paying federal taxes, but the IRS is another story.
More than 93,000 Minnesota businesses have taken out repayable federal Paycheck Protection Program loans valued at approximately $ 11 billion.
After the Internal Revenue Service ruled that the canceled loans were taxable, Congress passed a law in December exempting them from federal taxes.
In January 2021 alone, nearly 28,000 companies agreed to $ 1.8 billion to keep them afloat.
Under current state law, these businesses could face tax bills on canceled loans because the money is considered business income.
Ryan Brown, senior media specialist at the Department of Revenue, explained that Minnesota does not have ongoing compliance with the Internal Revenue Code (IRC).
“With respect to the taxation of PPP loans, Minnesota has not passed federal law changes passed after December 31, 2018, which affect federal adjusted gross income for the 2020 tax year,” he said. writes Brown. “Taxpayers will make an adjustment to Minnesota’s appropriate non-compliance schedule to report paycheck protection program funds as income.”
Morgan Scarboro, director of tax policy and economist at Multistate’s, a Virginia-based government relations firm, Explain: “The baseline is that rolling compliance reports will follow IRC – canceled PPP loans are not taxable, and expenses associated with the canceled loan are deductible – unless the state legislature takes action to decouple.
“For static compliance states, it’s the opposite – canceled PPP loans are taxable, or the expenses associated with the canceled loan are non-deductible, or potentially both – unless the state acts to adopt the Current IRC (and does not dissociate itself from these specific sections in the process). However, further analysis is needed state by state, as each state has slight differences in the exact way they pair with IRC. “
Since the state’s corporate tax rate is 9.8%, that could leave businesses with a five-figure bill.
But money is tight in Minnesota.
The state faces a projected $ 1.3 billion deficit, and while it has a $ 2.4 billion rainy day fund, not taxing these federal loans would cost $ 411 million. dollars in fiscal year 2022, according to the state revenue office.
Senate Bill 263, sponsored by Cook County Independent Thomas Bakk, aims to ensure that PPP loans are tax-free and can be deducted from business expenses.
Mike Hickey, state director of Minnesota for the National Federation of Independent Businesses, said it was “essential” that the state not tax P3 loans.
“You shouldn’t be taxing an entity you’ve sent a vital loan to,” Hickey said. “We have sent a lifeline to small businesses, which through no fault of their own due to all kinds of pandemic restrictions,” have had their businesses closed or restricted.