Last year with the economy grounded to a halt by the pandemic and with businesses — particularly smaller, mom-and-pop, Main Street storefronts — shutting down or struggling to stay afloat, the federal government came up with $953 billion for an emergency-loan fund it called the Paycheck Protection Program. Immediate cash was made available to keep small businesses going — and to keep workers on their payrolls — until the pandemic could ease and the economy could rebound.
In Minnesota, more than 104,000 small-business owners reached up for the lifeline, receiving $16 billion that were badly needed and that arrived just in time for many, though not for all.
Sounds like a success, right? The power of our representative government stepping up to help us little guys at a time when we need it most.
In Minnesota, however, there’s one big problem. The Gopher State remains one of 10 whose tax laws do not automatically conform with federal tax regulations and changes. So the Paycheck Protection Program loans distastefully and inexcusably are being taxed by the state of Minnesota — even though Congress vowed that, as long as recipients followed guidelines for the money’s appropriate use, the loans would be forgivable and non-taxable.
If all this reminds you of a back-alley loan shark squeezing someone down on their luck and with nowhere else to turn, yeah, it does kind of feel that way.
Minnesota Chamber President Doug Loon sized it up like this last week in an interview held virtually with the Grand Forks Herald: “Minnesota did not create the (Paycheck Protection) Program. The federal government did. But now Minnesota wants to grab some of it.”
Lawmakers in St. Paul recognize there’s an unsavory problem. Some of them do anyway. Last month Minnesota senators said they had bipartisan support to waive the tax. But last week, the Minnesota House passed an omnibus tax bill that failed to include full tax relief for businesses which received the federal loans.
“With billion-dollar surpluses, billions in reserves and billions more in federal dollars expected, we should not be imposing additional — and permanent — tax increases and costs on Minnesotans,” Loon said in a statement after the House vote, his references to the state’s finances. “It’s disheartening that the House provided only partial help to businesses that had to take out larger loans to retain employees throughout the pandemic.”
This tax on COVID relief is particularly difficult for recipient businesses along Minnesota’s borders, including in Duluth. That’s because all the states bordering Minnesota already automatically comply with or took measures to mitigate the federal tax impact. Minnesota businesses are being left at a competitive disadvantage, bearing a tax penalty just for accepting help it desperately needed, while businesses across the border in Wisconsin, the Dakotas, and Iowa aren't similarly taxed.
Minnesota’s small businesses shouldn’t be penalized or harmed for needing or accepting help to survive an unprecedented moment. The Minnesota Legislature, this session, can waive the state's uncouth tax on forgivable lifeline loans through the federal Paycheck Protection Program. Lawmakers can also work to bring Minnesota into automatic conformity with federal tax laws to prevent such problems ever again.