The Minnesota Chamber of Commerce has a message for state legislators: Do no harm to businesses that already have been impacted by the coronavirus pandemic.
“We're doing this through the lens of economic recovery with a very simple message,” said Chamber President Doug Loon.
During the meeting, held via Zoom, Loon said the Paycheck Protection Program is a boon to businesses in most states, but because of current tax code it has become a burden to some Minnesota business owners.
The reason: Minnesota has continued to tax PPP loans, even though Congress late last year said the loans, which were available to businesses to help them stay afloat during the economically challenging times of the pandemic, were, if they followed the government's expectations of how the money was to be used, forgivable and non-taxable.
The effort now, and one for which the state chamber is lobbying, is to bring Minnesota into compliance with federal tax code to ease the burdens of businesses who applied for PPP loans.
“The strategy of our work at the Capitol is, try to do no harm,” Loon said.
Minnesota currently is one of 10 states that tax PPP loans, according to the Tax Foundation. Each state’s tax code is different. Minnesota’s tax code is such that whenever changes are made to the federal code the state needs to “adjust or update or conform” its tax code, Loon said. “Minnesota has not followed suit on that. Other states, like North Dakota, have. What that does is it limits cash flow (for businesses), because now they have to pay this to the state. It also creates uncertainty for their business at a time when there is vast uncertainty. If there is anything in my mind that has the greatest macro impact on the private sector economy, it's uncertainty. …
“And so we see this as a fundamental fairness issue. The businesses that stepped up, that needed this assistance, kept their employees, did the right thing, are now being taxed on it at a time when cash flow is, for many of them, a real challenge.”
On Thursday, the Minnesota House passed the Omnibus tax bill, but it did not include full tax relief for businesses that accepted PPP loans.
“With billion-dollar surpluses, billions in reserves and billions more in federal dollars expected, we should not be imposing additional — and permanent — tax increases and costs on Minnesotans,” Loon said in a prepared statement after the vote. “It’s disheartening that the House provided only partial help to businesses that had to take out larger loans to retain employees throughout the pandemic.”
Loon said he believes it would be in the best interest of businesses — and for the state’s economy in the long run — to not tax their PPP loans. It is important for legislators to support measures that encourage recovery and growth, he said, not items that will make heavier the burdens that many businesses already bear.
“Don't layer on additional challenges, burdens and restrictions in the form of new mandates and new taxes on businesses at a time when they're trying to recover,” he said.
A proposal had already received bipartisan support in the Senate, he said; but he was concerned about the continued hesitation among some legislators because they have been dragging their feet on the issue.
“There is some resistance to it because it requires one-time resources,” Loon said. “Minnesota did not create the PPP program, the federal government did, but now Minnesota wants to grab some of it.”
The issue should have been settled before March 15, said Barry Wilfahrt, president of the Grand Forks/East Grand Forks Chamber.
“The PPP is certainly on the front burner of every business person's mind,” Wilfahrt said. “That would be considered our local chamber, our business community's top priority this session as well.”
Wilfahrt has a unique perspective leading an organization that covers two communities that cross state borders.
“We were, frankly, hoping that it would have been resolved prior to when that first quarter's taxes were actually due, but it wasn't, and so hopefully they're able to resolve that,” he said. “It's always important for Grand Forks, Fargo regional economies to have the two states as close together as they can from a business climate perspective; and this is another one of those things that pushes our two states’ business climates further apart and makes Minnesota, frankly, less competitive from a business climate perspective. We hope that both parties, and the governor, can get together on this issue and, before the session is over, pass the PPP.”
Other topics discussed during the Zoom meeting were the Minnesota Chamber’s support of new infrastructure in the state, including broadband, and Minnesota’s relationship with Canada and that country’s current border closure.
“Probably the next biggest issue in our market is the Canadian border opening,” Wilfahrt said, noting about 20% of local retail sales come from the neighbors to the north; the percentage of Canadians that impact the region’s hospitality industry is even larger.
“Our boardings, a very large percentage of them, come from Winnipeg… and so we’re watching that border opening very, very closely,” he said.
Loon said Canada is the “most important of all our trading relationships, and having open borders is a key ingredient to that.” He hopes efforts will be made to open the border sooner than later so the “trading relationship, both in terms of goods and services,” can resume for businesses and communities on both sides of the border.