| Statehouse News Service
BOSTON – Thousands of small businesses have received hundreds of millions of dollars in government recovery grants to help them pay rent and run paychecks since December, but a top home democrat says he worries many of these business owners don’t know what’s coming – a Tax assessment.
Rep. Aaron Michlewitz, D-Boston, and chairman of the House Ways and Means Committee last week raised concerns about the tax status of the grants for the recovery during the first annual budget hearing on Governor Charlie Baker’s $ 45.6 billion spending plan of small businesses for the 2022 financial year.
“The businesses in my district were very grateful, but I don’t think a lot of people know there will be a tax charge later,” said Michlewitz, who represents the North End of Boston and parts of other parts of the city that have many restaurants .
Administration and Treasury Secretary Michael Heffernan told the Ways and Means Committee that the governor’s office is involved in discussions with state and federal lawmakers about changing the law to waive taxes on all federal aid payments and some federal paycheck protection program grants .
The combined taxes owed Massachusetts on the state and federal redevelopment grants, according to official figures, amount to approximately $ 175 million and were not included in Baker’s budget.
The hearing was the first in a series that will focus in the coming weeks on the Baker budget, which is currently based on reserves of $ 1.6 billion and government spending up about $ 300 million or over the current budget 0.7%.
Baker launched a $ 668 million small business recovery program in late December that used funds the state received through federal CARES law and the Coronavirus Relief Fund. So far, the administration has given $ 563 million to 12,320 companies to help COVID-19-affected employers meet wages, salaries, rent and other expenses.
While Congress agreed in December to exempt PPP loans issued from federal taxation, a subset of these grants could go to small businesses that don’t pay corporate taxes but pass revenue on to owners as income could continue to be taxed at the state level. Some states have chosen to waive taxes on these grants, but in 19 states the funding remains taxable in some form, according to the tax foundation.
Massachusetts automatically complies with federal corporation tax law, but not for income. Budget officials said this means that without a change in state law, small business owners will be able to pay taxes of approximately $ 150 million for PPP loans issued and between $ 25 and 35 million for government grants made by Massachusetts Growth Capital Corp. . must be granted.
Heffernan said the government is also speaking to US Representative Richard Neal, chairman of the House Ways and Means Committee in Congress, about exempting small business restructuring grants from federal income taxes.
“What we are actively discussing with our colleagues in the legislature is to make the PPP tax-free at the income level, which are mainly small businesses, at the state level,” said Heffernan.
Meanwhile, Michlewitz said he wanted to make sure business owners who received the grants know that the government support might be taxed.
“A lot of these people who get scholarships have never received a scholarship before because they never really had to,” Michlewitz said. “I’m worried that the communication lines, we have to make them strong, which could possibly come on the pike.”
Hefferan said the Treasury Department had information on the tax status of aid grants on its website and communicated this with accountants.
Both Michlewitz and Michael Rodrigues, D-Westport, chairman of the Senate Committee on Ways and Means, said the falling rates of new COVID-19 infections, the increased availability of vaccines and the current tendency for tax revenues to exceed expectations Legislators give cause for hope. “
“We still have a long way to go before this crisis is over, but we can start to think about it and prepare for what the new normal will look like,” said Michlewitz.