Tax burdens might be slapped on grants for small enterprise restoration

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Tax burdens can be slapped on grants for small business recovery

Thousands of small businesses have received hundreds of millions of dollars in government recovery grants to help them pay rent and run paychecks since December, but a top Home Democrat said Tuesday he feared many of these business owners don’t know what’s coming – one Tax bill.

Rep. Aaron Michlewitz, a Boston lawmaker and chairman of the House Ways and Means Committee, raised concerns about the tax status of grants for the first annual hearing on Governor Charlie Baker’s $ 45.6 billion spending plan for FY2022 recovery from small businesses.

“The businesses in my district were very grateful, but I don’t think a lot of people know there will be a tax charge later,” said Michlewitz, who represents the North End of Boston and parts of other parts of the city that have many restaurants .

Minister of Administration and Finance Michael Heffernan told the Ways and Means Committees that the governor’s office is involved in discussions with state and federal lawmakers about changing the law to cover taxes on all government-issued aid payments and some grants from the Waive federal paycheck protection program.

While Congress agreed in December to exempt PPP loans issued from federal taxation, a subset of these grants could go to small businesses that don’t pay corporate taxes but pass revenue on to owners as income could continue to be taxed at the state level. Some states have chosen to waive taxes on these grants, but in 19 states the funding remains taxable in some form, according to the tax foundation.

Massachusetts automatically complies with federal corporation tax law, but not for income. Budget officials said this means small business owners without a change in state law can charge taxes of approximately $ 150 million for PPP loans issued and between $ 25 and 35 million for government grants from Massachusetts Growth Capital Corporation must be granted.

Baker launched a $ 668 million small business recovery program in late December that used funds the state received through federal CARES law and the Coronavirus Relief Fund. So far, the administration has given $ 563 million to 12,320 companies to help COVID-19-affected employers meet wages, salaries, rent and other expenses.

The combined taxes owed Massachusetts on the state and federal recovery grants, according to official figures, amount to approximately $ 175 million and were not included in Baker’s budget.

“What we actively discuss with our colleagues in the [state] Legislators are making the PPP tax-free at the income level, which is mostly small business, at the state level, ”said Heffernan.

The hearing was the first in a series that will focus in the coming weeks on the Baker budget, which is currently based on reserves of $ 1.6 billion, increasing government spending by approximately $ 300 million from the current budget. Dollars or 0.7 percent.