Recall the year 2018 when state lawmakers failed to align Minnesota tax laws with the revised federal tax rules. Their failure made Tax Day 2019 a nightmare for many Minnesotans. And more expensive, as many preparers charge more because of the unnecessary complexity St. Paul’s inaction left and the extra time required to complete essentially two different returns. To make matters worse, the new federal tax law eliminated a deduction for tax preparation fees.
A year later, lawmakers passed a tax compliance bill and eventually brought the state’s tax legislation more in line with the federal overhaul through a measure in the Bonding Act in 2020.
The tax compliance problem now? The federal small business paycheck protection program, designed to help them weather the economic hardships of the COVID-19 pandemic, includes loans that can be granted as long as they cover qualifying costs and 60% cover Payroll can be used. However, Minnesota still does not automatically adapt to changes in federal tax law. Hence, state legislation is required so that forgivable PPP loans are not taxed here and the federal deduction is allowed here.
“More than 100,000 Minnesota companies have participated in the PPP loan program. Without (St. Paul legislation now), many small and medium-sized businesses – already struggling with lost revenue – will face further tax burdens, “the Minnesota Chamber of Commerce said in a statement this week. “It is important that the federal tax law is complied with as soon as possible in the 2021 session as the final tax payment is due on April 15th.”
The chamber called on business leaders and others across the state to reach out to Governor Tim Walz and lawmakers to call for immediate action. The 2021 meeting is already underway. “Ask them to abide by federal PPP tax loan forgiveness and allow Minnesota income tax filing expenses to be deductible,” the board instructed.
It seems like a breeze to make sure Minnesota businesses that are already struggling receive the tax-free assistance they are given to guide them through a time of unprecedented challenge.
It also appears to be an easy bipartisan victory in the first session, potentially leading to more collaboration and compromise, better legislation, and a proper focus on the needs of Minnesotans ahead of the priorities of the DFL and Minnesota Republican parties.
Of course, nothing seems to be easy politically at the moment – not even at the state level or in the country of Minnesota Nice.
Republicans in Minnesota must work with DFLs – soon, even this week, with the need for a bipartisan victory perhaps never greater – to pass legislation so that small businesses supported by the Paycheck Protection Program don’t suffer tax penalties. Like the rest of us, they have suffered enough.