Bailed-out biz could trip on tax
Pols discuss fed help to make grants, loans exempt
Tens of thousands of struggling Massachusetts small businesses could be on the hook for millions in taxes on the bailouts they received from the state and federal government amid the pandemic, officials warned.
“I don’t think many people know there’s going to be a tax bill down the road,” House Ways and Means Chairman Aaron Michlewitz said Tuesday during the first in a series of budget hearings on Gov. Charlie Baker’s $45.6 billion proposed spending plan for the coming fiscal year.
Massachusetts companies received $14 billion in federal Paycheck Protection Program loans in 2020 and Gov. Charlie Baker’s administration last December launched a $668 million small business grant program. Taxes owed by businesses total about $175 million, officials estimated — revenues that were not included in the Baker budget’s bottom line.
“A lot of these people who are getting grants have never gotten a grant before because they’ve never really had to,” Michlewitz continued. Small businesses should have been warned “about what could potentially be coming down the pike,” he added.
Administration and Finance Secretary Michael Heffernan told lawmakers the Baker administration is angling to change the laws to waive taxes on all state-issued relief payments and some federal Paycheck Protection Program grants.
While most forgiven PPP loans are exempt from federal taxation, some small business owners who claimed them as income will be liable for about $150 million in taxes on forgiven PPP loans, according to the administration. Local companies awarded grants through the state will owe between $25 million and $35 million, Heffernan said.
Some states have chosen to waive taxes on those grants, but in 19 states including Massachusetts, the funding remains taxable in some form, according to the Tax Foundation. Heffernan pointed to “fairness” and indicated the administration is “actively discussing” with U.S. House Ways and Means Chairman Rep. Richard Neal, D-Mass., options for making both the state and federal grants tax-exempt.
Tuesday’s hearing was the first of a series that will pick apart the governor’s spending plan for the upcoming fiscal year. Baker’s proposal slashes state spending by about $300 million compared to the current year but Heffernan said a major priority is to reduce the draw on the state’s “rainy-day” fund. Baker’s budget would withdraw $1.6 billion from the stabilization account.
President Biden’s $1.9 trillion COVID-19 relief bill, which includes $4.5 billion in direct aid to Massachusetts, could help the state reduce its reliance on one-time funding sources, Heffernan said. The House Ways and Means Committee is expected to release its budget sometime in April.