MINNEAPOLIS (WCCO) — For Stephanie Shimp’s seven restaurants currently operating, a forgivable loan from the federal government to help pay their bills was a “lifeline.”

“There’s no way we would be here without it,” Shimp said.

The Paycheck Protection Program loan of nearly $4 million that Blue Plate Restaurant Company received last year was about 10% of the company’s typical annual revenue.

“It’s really scary to think we could have a tax bill when we’re upside down,” Shimp said.

If businesses met federal criteria — using that money for payroll costs like wages, rent and utilities — that loan is forgiven and free from federal taxes.

But thousands of Minnesota businesses like Blue Plate Company that received PPP loans will soon owe the state money if the legislature doesn’t act to match, or “conform,” to federal law. Right now those funds are considered taxable income.

For Blue Plate, that’s a looming tax bill of nearly $400,000.

“It still isn’t enough to pay everyone or to pay all of our rent or utilities,” Shimp said. “Adding taxes to that when we’re just trying to survive … it’s another tough blow.”

(credit: CBS)

The pandemic has decimated the hospitality industry, which accounts for about half of all of Minnesota’s job losses last year, according to a new report from Minnesota Department of Management and Budget.

That report, released Friday, estimated a drastic turnaround for the state’s finances from a December prediction of $1.3 billion deficit to a $1.6 billion surplus in the two-year budget that begins July 1.

The sunnier economic forecast is dialing up pressure at the state capitol to relieve businesses of that tax obligation on PPP loans. Surrounding states have already conformed to federal tax law.

GOP lawmakers during a Monday news conference cited the budget surplus as their reason for urgency and to quell concerns about the $438 million the law change would cost the state’s general fund.

“For Minnesota to not act and then provide an over 9% tax on these forgiven loans would be unconscionable,” said Sen. Carla Nelson, R-Rochester, chair of the Senate Taxes Committee.

Senate Majority Leader Paul Gazelka said he hopes a bill will be brought to the Senate floor this week. He said he is in conversation with House Speaker Melissa Hortman, DFL-Brooklyn Park, to strike a deal. It would need approval of that chamber before going to Gov. Tim Walz for signature.

Last week before the new budget estimate, Walz suggested the relief might need to be targeted to businesses that need the help the most. On Friday, he further expressed openness to the idea.

“I certainly want to work for a solution with them,” Walz said, adding he wants “fairness” in the system.

Nearly 100,000 loans were approved totaling more $11.2 billion in Minnesota through June 2020, according to the U.S. Small Business Administration. Businesses may apply for a second round of PPP approved in the coronavirus relief package approved in December.

Shimp says an extra $400,000 that Blue Plate wouldn’t owe in taxes should a proposal like this pass would help cover health care benefits and another month’s worth of costs.

“It’s really a matter of survival,” she said. “At this point, we are still kind of one week at a time trying to get by.”

Caroline Cummings