Companies that have used the Pandemic Loan Program are now realizing that it can cost them | Free

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Legislative encroachment aside, tens of thousands of Minnesota companies that have received federal loans to keep employees during the pandemic will face new financial hardship when filing their state taxes.

Those who have been granted loans under the Payroll Protection Program face higher state tax bills as the law treats the written off debts as income. Legislators are weighing possible corrections but could be hampered by the state’s own budget problems and a $ 440 million cost if each loan is approved.

This is a top priority for business lobbies, including the Minnesota Chamber of Commerce, during a meeting where companies hold off proposals to increase tax rates. But every dollar used on a PPP loan break cannot be spent on schools, health care, and other programs, which means a tax change of any size faces fierce competition.

The auditor Todd Koch had to deliver the news to his business customers, who were surprised by the possible tax consequences.

“It has the same effect as if you had sold additional goods,” said Koch.

Koch said the scramble for a loan over the past year and the steps companies must take to meet the requirements was a top priority.

“Everyone was so focused on getting through the whole pandemic, just trying to survive. And they hear about all federal rules, ”said Koch. “Basically nobody was paying attention. The customers ignored the effects of the state. “

The PPP loans came with a temptation: spend a majority of the money on payroll within a set time frame (some were eight weeks and others six months) and the loan was granted. No principal repayments or interest would be payable. In late December, Congress passed law clarifying that no federal tax would be levied on loans made.

But Minnesota isn’t one of the states that automatically complies with federal tax law. Typically, Minnesota lawmakers decide which deductions, deductions, and exclusions to apply, sometimes taking into account how much they would cost the treasury.

All of Minnesota’s neighbors have chosen to follow state tax treatment of PPP loans, with Wisconsin joining the list last week.

In the first two rounds of PPP, loans were granted to 102,000 Minnesota companies that participated in more than $ 11 billion in loans. The smallest was $ 42 to a sole proprietorship in White Bear Lake and the largest was $ 10 million in loans to law firms, food processors, and healthcare companies.

JIT Powder Coating Co. of Farmington received just over $ 550,000 in loans last year and this year.

“This loan was used solely for payroll,” said owner Tim Milner.

Milner recently told a House committee that he kept his roughly 60 employees 40 hours a week, even though there wasn’t that much work due to a drop in sales.

“For me personally as a business owner, this is not a godsend,” said Milner. “That was given to my employees. It was given to them to keep them viable, to keep them moving during a pandemic. “

Milner said this means Minnesota has already received a cut in payroll tax withholding. It is not fair that the state now wants to charge him around ten percent tax on the waived loan.

Joe Piket said the PPP loan he received for his 65 employees at two daycare centers in western suburbs was covered for about two and a half months for payroll.

“I didn’t think about the tax implications at the time,” said Piket. “I was just trying to figure out how to get through the next six months to stay open to our families who needed us.”

Had he known about his tax obligations, he might have taken a different route – fired half of his employees because enrollment was postponed. And that, he said, would have weighed heavily on government funds.

“But essentially, I was kind of subsidizing the state unemployment system by keeping people I didn’t need at the time,” he said.

Legislators are trying to find out whether they will take companies off and where to draw the line. A revised economic forecast for Friday is likely to show improvements in Minnesota’s finances and possibly boost proposals for help.

House Taxes Committee chair Paul Marquart, DFL-Dilworth said this could mean looking closely at what the loans have done for businesses.

“We have to find a way by which we can reach those who are hardest hit,” said Marquart. “It can be big; it can be small. “

Representative Kaohly Her, DFL-St. Paul said a distinction should be made between small businesses and larger businesses that have qualified for help – some through workarounds.

“The biggest corporations continue to get the breaks they really don’t need,” she said. “And we know that during this pandemic, many corporations, many large companies, did very well during this time.”

Governor Tim Walz, a DFLer, did not include the discharge in his budget, but said this week that he is open to the possibility.

“I’m more than ready to have this conversation,” said Walz, pointing out that there are financial constraints that need to be considered. “It is certainly not intended to punish the very companies it helped.”

Senator Tom Bakk, a Republican independent from Cook, supports Senate PPP loan exclusion law. He fears that even if the government forecast shows there is more money available, it could be difficult to get a deal in time for the 2020 tax filing deadlines.

That would mean some business owners have to pony up now and hope they get the money back later.

“I don’t think people should try to use this provision as some kind of chip in the final negotiations,” Bakk said. “It’s going to be a terrible inconvenience to people if it’s done as part of the ending.”

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