The state Senate Taxes Committee on Tuesday unanimously approved S.B. 263. The bill would conform to the federal code for excluding forgiven Paycheck Protection Program loans granted by the Coronavirus Aid, Relief and Economic Security Act
from gross income. The committee also amended the bill to provide that unemployment payments that Minnesotans received under the CARES Act would be excluded as well.The CARES Act originally provided for $600 weekly unemployment payments for workers who were unemployed between April 5, 2020, and July 31, 2020; the payments were later extended but halved to $300. Under the amended bill, the subtraction for unemployment payments would be capped at $3,000 for joint filers or heads of household and $1,500 for individual filers.
The movement of the bill out of committee follows the Friday release of budget projections for the state that estimate a $1.6 billion surplus for fiscal years 2022 and 2023, instead of a budget shortfall as previously predicted. Senate Majority Leader Paul Gazelka, R-Nisswa, said in a Monday news conference that the new projections meant the state would be able to fully conform to the federal government's exclusion of forgiven PPP loans.
The bill was introduced by Sen. Tom Bakk, I-Cook, who said in the session that the PPP loan tax relief, coupled with clarifications to the state's expensing provisions under Section 179
of the Internal Revenue Code also included in the bill, would amount to about $441 million. Senate research staff said in the session that the relief for unemployment payments would be about $30 million to $50 million, but noted that they had requested an official estimate from the state Department of Revenue.Taxes Committee chairwoman Carla Nelson, R-Rochester, praised the bill's passage during the committee session as a decisive action to help Minnesotans.
"We as the Senate have taken a strong position here — and an early position — to get help into Minnesotans' pocketbooks, to the employers to keep those employees on the payroll, and I thank you for that," Nelson said. "We'll continue on and we do hope we see some early action from the House."
The bill would also allow qualifying entities — partnerships, limited liability companies and S corporations — to elect to be taxed as a "C-option corporation," where tax liabilities would be calculated by applying a 9.85% tax rate to the qualifying entity's taxable income. The election would be binding for four taxable years unless revoked by a stakeholder who holds more than 50% ownership interest in the qualifying entity.
Under the bill, income of partners, members or shareholders of an entity that makes the C-option corporation election would be a subtraction, but could not exceed their portion of the qualifying entity's net income.
The committee report from Tuesday would be adopted during the Thursday Senate floor session, Sen. Ann Rest, DFL-New Hope, told Law360. Rest, who introduced the amendment to exempt unemployment payments, said she anticipated that additional federal or state resources could be added to the bill to provide for summer school funding to address the education impacts of the pandemic. That funding could potentially be first added to S.B. 263's companion bill in the House of Representatives, H.B. 501, Rest said.
"All are interested in reaching an agreement on specifics before March 15," Rest said.
H.B. 501 was introduced by Rep. Paul Marquart, DFL-Dilworth, who told Law360 that while he agreed with the amendment to exempt a portion of unemployment payments, he felt that it did not go far enough.
"I would like to see if we could exempt all of the federal unemployment income assistance that folks received in this," Marquart said.
Republican leadership in the Senate did not respond to requests for additional comment.
--Additional reporting by Paul Williams. Editing by Neil Cohen.
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