Tax Relief

Minn. Senate Approves PPP Loans, Unemployment Tax Aid Act

The Minnesota Senate approved a bill exempting issued loans for the federal pandemic pandemic and a portion of pandemic-related unemployment benefits from state income tax, with proponents of the bill urging it to pass by the corporate filing deadline Monday.

The Senate approved SB 263 with a bipartisan vote from 55 to 12 on Thursday. The bill would be in line with federal law by excluding Paycheck Protection Program loans granted under the Coronavirus Aid, Relief and Economic Security Act from gross income. The bill would also provide for the exclusion of unemployment benefits that Minnesotans receive under the CARES Act.

Senator Thomas Bakk, I-Cook, a sponsor of the bill, said passing the bill is an urgent priority as the Minnesota business filing deadline is Monday, March 15. Without legislative action, companies would pay $ 375 million to the State Department of Revenue that day.

“Why should we take $ 375 million out of our economy on Monday and then send it to the Treasury building until we get down to appropriating it?” Bakk said in Thursday’s session. “That will slow our economic recovery.”

The CARES Act provided weekly unemployment benefits of $ 600 for employees who were unemployed between April 5, 2020 and July 31, 2020. The payments were later extended but cut in half to $ 300. The bill passed by the Senate would provide that 18% of the amount of unemployment benefit a person receives under the CARES Act could be deducted from income.

The subtraction would be reduced by $ 1 for every $ 4 of Adjusted Gross Income of more than $ 75,000 for individuals and $ 150,000 for joint applicants. An earlier version of the bill would have cut The subtraction is $ 3,000 for joint applicants or heads of household and $ 1,500 for individual applicants.

The bill would also allow qualified companies – partnerships, limited liability companies, and S companies – to opt for taxation as C-option companies, with tax liabilities by applying a 9.85% tax rate to taxable income of the qualifying company would be calculated. The choice would be a workaround for businesses for the $ 10,000 limit on state and local tax withholding, Bakk said at the meeting.

Qualifying companies could use their deductions as a business expense, Bakk said, although he noted that the corporate tax rate may be higher than what companies would pay if filing as individuals.

The election would be binding for four tax years unless revoked by a stakeholder who holds more than 50% of the shares in the qualifying company. Under the bill, the income of partners, members or shareholders of any company making the election of the C-Option company would be a deduction but could not exceed their share of the qualifying company’s net income.

The law was largely supported, but not passed without criticism.

Senator Jen McEwen, DFL-Duluth, said at the meeting that, in practice, large corporations and other corporations that were not the intended target recipients of PPP loans would have received them while smaller corporations would not. double tax relief “for such companies.

McEwen added that the bill did not go far enough to give tax breaks to Minnesotans who received CARES unemployment benefits. McEwen proposed an amendment that would have exempted unemployment benefits of up to $ 10,200 from taxation, but the amendment was not adopted.

“If we want to create this economic incentive for companies, we must also offer fairness to the workers,” said McEwen. “We have to stand up for the average Minnesotan, for the workers in Minnesota.”

Bakk didn’t respond to requests for additional comment, but said in a statement that he hoped the House of Representatives and Democratic Governor Tim Walz would quickly approve the legislation.

Rep. Paul Marquart, DFL-Dilworth, chair of the House Taxes Committee, did not respond to requests for comment on SB 263 but previously told Law360 that he would like the full amount of unemployment benefit to be exempted.

Marquart Sponsored The accompanying invoice for SB 263, HB 501. A separate invoice, HB 1658, sponsored by Rep. Zack Stephenson, DFL-Coon Rapids, would completely exclude unemployment payments received under the CARES Act. According to the company’s communications staff, this invoice was submitted for possible inclusion in the tax omnibus invoice.

According to the House’s website, the next Chamber will meet on Monday.

– Adaptation by Neil Cohen.

To have this article reprinted, please contact reprints@law360.com.

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