BOSTON (SHNS) – 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 said Tuesday he feared many of these business owners won’t could know what’s coming – a tax bill.
Rep. Aaron Michlewitz, a Boston lawmaker and chairman of the House Ways and Means Committee, raised concerns about the tax status of the clawback grants at the first annual hearing on Governor Charlie Baker’s $ 45.6 billion spending plan for FY2022 of small businesses.
“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 .
Minister of Administration and Finance Michael Heffernan told the Ways and Means Committees that the governor’s office is involved in discussions with state and federal lawmakers about changing the law to cover taxes on all government-issued aid payments and some grants from the Waive federal paycheck protection program.
The combined taxes owed Massachusetts on the state and federal recovery 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, increasing government spending by approximately $ 300 million from the current budget. Dollars or 0.7 percent.
One thing that could dramatically change the math in the state budget is President Joe Biden’s $ 1.9 trillion COVID-19 relief bill, passed in Parliament last week. The state could receive $ 4.5 billion in direct aid under the law, which can continue to change on its way to the Senate.
The Senate Chief Democrat on the Budgets Committee told the government that lawmakers want to play an “extremely constructive and meaningful role” in determining how those billions of potential new federal incentive funds will be spent.
“We must think carefully about how to responsibly and carefully use these resources to best position the Commonwealth for long-term success,” said Senator Michael Rodrigues, chairman of the Senate Committee on Ways and Means.
The Westport Democrat said the biggest challenge in spending those funds and budgeting for fiscal 2022 will be making sure the recovery from the pandemic is fair across the government and economic sector.
Heffernan said the government will work with lawmakers as new federal aid becomes available, but prioritize reducing the proposed $ 1.6 billion withdrawal from the state’s “Rainy Day” fund, reducing the fund for fiscal 2023 and beyond that, it would only receive $ 1.1 billion.
Heffernan also suggested that if Biden extends the public health emergency until the end of 2021, as his government has proposed, the state must delay the spring eligibility redefinition for MassHealth attendees.
This will lead to higher case numbers and more MassHealth spending than currently budgeted, the secretary said, but it will also allow the state to continue receiving higher Medicaid reimbursements. Baker’s budget predicts a decrease in MassHealth spending from $ 18.2 billion this year to $ 17.6 billion in fiscal 2022, a 3.4 percent decrease.
“Hopefully it won’t be a bad hit. We’ll see, ”said Heffernan, who testified for a little over an hour.
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 can go to small businesses that do not 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 small business owners without a change in state law can charge taxes of approximately $ 150 million for PPP loans issued and between $ 25 and 35 million for government grants from Massachusetts Growth Capital Corporation 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 income-level PPP, which is mostly small business, tax-free at the state level,” said Heffernan.
Meanwhile, Michlewitz said he wanted to make sure the business owners who received the grants know that the government support could 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 relief grants on its website and communicated this with accountants.
Legislators also questioned Baker’s stated obligation to fully fund the first year of the Student Opportunities Act, implementation of which was suspended in fiscal year 2021 due to the ongoing pandemic. Before COVID-19 hit last March, Baker proposed a budget that included a $ 303 million increase in Chapter 70 school aid to fund the 2019 initiative. However, his latest budget was only $ 198 million.
Heffernan said the formula used by the administration stayed the same, but the lower amount reflected a decrease in school enrollment of about 37,000 students.
He informed the committees that the enrollment is recalculated every October. If enrollment increases, as districts deviate from distance learning and students return to class, it would be reflected in spending recommendations for the following year.
Both Michlewitz and Rodrigues said falling rates of new COVID-19 infections, increased vaccine availability, and the current tendency for tax revenues to exceed expectations give lawmakers reason to be “hopeful.”
“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.