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Minnesota small businesses face unexpected tax on pandemic relief loans

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DULUTH, MN -- Hospitality businesses can use federal Paycheck Protection Program (PPP) loans to dig themselves out from the pandemic by paying for things like payroll, employee benefits, rent, and more.

However, what was meant to be a lifeline for small businesses could now mean financial ruin.

Jason Vincent owns the Boat Club in Duluth and two other restaurants.

"We're struggling enough," Vincent said. "Right now 2021 is the year of just surviving and hopefully digging out of holes, not to try and pay back debt that was given to us to actually survive the pandemic."

Vincent received more than $500,000 in PPP loans.

While loans like that would usually be taxed as income, Congress chose to make PPP loans exempt from federal income taxes.

Though many states adopted Congress' exemption, at this point, Minnesota still plans on taxing the loans.

"We can't afford to be taxed almost 10% on help that was given to us to keep our doors open," Vincent said. "It just doesn't make sense."

Small business owners like Vincent might have to pay thousands in state taxes on money meant to help them recover.

Hospitality Minnesota, an advocacy group based in the Twin Cities, is working to pass a bill stopping that from happening.

"We're hopeful that's going to be able to make it through the process," Hospitality Minnesota's Director of Government Relations Ben Wogsland said. "Right now, it's been passed in the Senate to the Senate floor. It's got a move in the House. It's now been heard in the House, and we are cautiously optimistic that there's a bipartisan interest to move this forward."

Vincent is hopeful lawmakers will take action.

"I'm really confident that the lawmakers are going to do exactly what they said they've been doing, and that's supporting their local restaurants and their small independent businesses," Vincent said.

Vincent's businesses could owe $60,000 in taxes if a change is not made.

"It's certainly a top priority for Hospitality Minnesota here in this legislative session," Wogsland said.

Countless of other small businesses in Minnesota face an even bigger bill.

The bill waiving state tax on PPP loans would need congressional approval before going to Governor Tim Walz to sign.

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Kendall Jarboe

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