Op-Ed: Pandemic relief taxes kick small business when it’s down
Danny Schwartzman and Davis Senseman
March 22, 2021
This op-ed was originally published in the Star Tribune on March 18, 2021
Values-based small businesses that belong to the Main Street Alliance of Minnesota are compelled to respond to the editorial “How to best aid workers, employers,” (March 17) about the state tax treatment for Paycheck Protection Program (PPP) pandemic rescue funds.
For many small-business owners, the pandemic has been the worst year of their lives and they have just barely survived. When we hear DFLers, and now the Star Tribune Editorial Board, talk about not doing federal conformity for PPP and other survival funds, or only for those who received less than $100,000, it feels like they’re kicking us when we’re down.
We had no idea that we would owe taxes on these funds when we took them.
We want to be sure everyone understands how the program worked: PPP was limited to small businesses — only those with fewer than 500 employees were even eligible. In order to be forgiven, the funds had to be used primarily for payroll and, according to the program’s original rules, within a very limited amount of time. This meant that small businesses had to use the funds for employee salaries, even if the business was closed to the public and there was nothing that actually added value for the employees to do.
Many businesses took the funds and kept employees on, despite having to find make-work for them, because the government asked them to do so (instead of sending direct payments to people as other countries did). One member who is an accountant reported that 60% of his clients would have laid off staff to reserve cash to pay taxes, if they had been clearly told it would be required.
Even if a business had a loss this year, small businesses should be able to carry it forward to help ease the pain in the coming years. The road to recovery will be long and the ideas espoused by the Star Tribune and certain DFL legislators makes us feel as if folks believe that after 2021 all will be well for our businesses, or that taxes and income neatly tie up each year. This is absolutely not the case.
Instead of only forgiving tax on loans under the state average, we urge lawmakers to use an alternative cutoff to focus forgiveness — that way the state isn’t penalizing industries that are staff-heavy and had to take out larger loans to cover payroll costs and preventing them from carrying those losses forward in future years as they slowly build back their business.
Looking at Minnesota’s PPP data, the state could waive state taxes entirely for the vast majority of businesses that received relatively small PPP loans, while still collecting income tax on quite a bit of funds.
Speaker of the House Melissa Hortman and House Tax Chair Paul Marquart argue that they want to help businesses now. We agree that small businesses are still hurting and need this. However, with the federal funds that are expected as a result of the American Rescue Plan, it doesn’t need to be an either/or proposition. We support forgiving taxes for the majority of businesses that received PPP, and targeted relief to support businesses that are still struggling, as well as tax forgiveness for workers who received unemployment.
We also support long term investments in infrastructure that support Minnesotans and small businesses alike, such as making health insurance affordable and accessible by allowing individuals and small businesses to buy into MinnesotaCare, establishing a state Paid Family and Medical Leave program, and fully funding high-quality early childhood education to make it accessible and affordable to all families.
We are a state of abundance. The wealthy and large corporations that were permitted to stay open throughout the pandemic and often posted record profits should pay their fair share to help small businesses and individuals who are struggling now and into the future so that we can all thrive.
Danny Schwartzman is owner of Common Roots Cafe and Catering. Davis Senseman is owner of Davis Law Office. They co-chair the Main Street Alliance of Minnesota.