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A Senate bill to protect Minnesota business loan recipients from a tax hit underwent a change Tuesday to also assist people who got unemployment aid during the pandemic.

The revision made on a unanimous vote by the Senate Taxes Committee signals a deal could be developing to speed the pricey plan through. 

There’s also talk of adding money — perhaps from a pot of federal aid — to help school districts expand summer school for students who have fallen behind in a year marked by lost classroom time. That measure is a priority of Gov. Tim Walz and majority House DFLers. 

The Senate bill’s main feature would make federal Payroll Protection Program loans state tax-free for up to 100,000 companies. Businesses whose loans were converted into grants had to prove they spent a majority of the money on keeping people on the payroll during the depths of COVID-19 restrictions.

The newly added provision would also head off some tax payments owed by people who claimed an extra $600 per week in unemployment benefits. 

Not all of the taxes owed on pandemic-related unemployment aid would be eliminated. The current language would allow joint filers to subtract up to $3,000 of that income from their taxable income and $1,500 for individuals. Some people received more than $10,000 or more in enhanced unemployment benefits under special federal rules.

Even the limited provision would carry a price tag of $30 million to $50 million, according to Senate nonpartisan staff research. 

The business break adds up to almost $440 million.

Sen. Ann Rest, DFL-New Hope, spearheaded the change and promoted the school measure that hasn’t been tacked on yet.

“Kids, workers and businesses. That’s what this bill can become,” Rest said. “What could be more bipartisan than that?”

There is urgency because the tax filing season has begun, and schools need time to prepare for enhanced summer programs.

Senate Majority Leader Paul Gazelka, R-East Gull Lake, expressed openness Monday to providing the summer school money. But he didn’t commit to it.

Senate Taxes Committee Chair Carla Nelson, R-Rochester, said the tax bill will undergo more revisions as it moves ahead. Its next stop is the floor, where a vote could be held as soon as Thursday but more likely next week.

“We do have, I believe, 67 senators who are laser-focused on trying to help their constituents recover, and that is my hope going forward,” Nelson said.

House lawmakers have both tax measures under consideration. It’s not clear where they might draw the line on relief for businesses and workers.

Minnesota has a projected $1.6 billion surplus, with much of that building up during the current fiscal year. Every dollar spent now would have significant implications for the next two-year budget, which lawmakers must set this year.

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Brian Bakst

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A portion of Minnesota’s budget surplus could be used to shield businesses and those who were unemployed during the pandemic avoid a tax punch. Funding for summer school is also in the mix.

A man wearing a face mask kneels while disinfecting a tool.

Deal brewing on quick tax relief bill in Minnesota

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