Minn. Bill Seeks PPP Loan Tax Exemption, Entity Tax Election

Minnesota would exempt forgiven federal pandemic aid loans from state income tax and allow certain pass-through entities to elect to be taxed as an optional C corporation under a bill introduced in the state House of Representatives.

H.F. 501, filed Thursday, 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 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 legislation was referred to the House Taxes Committee. The committee's chair, Rep. Paul Marquart, DFL-Dilworth, introduced the bill.

--Editing by Vincent Sherry. 

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