ST. PAUL — Minnesota Senate leaders on Monday, March 1, said they hope to waive taxes on federal Paycheck Protection Program loans in an effort to stave off additional economic hardship spurred by the pandemic.

Sen. Tom Bakk, I-Cook, in a news conference with Republican colleagues told reporters that more than 100,000 Minnesota business owners stood to face a financial blow if state tax codes weren't conformed to match federal guidance. Dozens of other states have exempted the loans from state taxes, including all of Minnesota's neighboring states.

The federal safety net program went into effect last year and was designed to help businesses keep workers on their payroll even as they took a hit from COVID-19 and state policies aimed at limiting its spread. And without a legislative change, businesses could be asked to start paying the income taxes beginning this month.

"Now to be told they're going to have to pay taxes on it really really seems unfair," Bakk said. "This is easily doable within the confines of the budget."

Bakk said he hoped to have a bill passed to the governor's desk by March 15, the date businesses could be expected to pay some of these income taxes. But House leaders remain in discussions about whether the state has the financial means to exempt taxes on all the PPP loans.

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Democrats in the House of Representatives have also pushed for exempting supplemental unemployment insurance benefits from state income taxes.

The one-time cost to exempt the PPP loans from state taxes comes with a $438 million price tag. And Bakk, along with Senate Majority Leader Paul Gazelka, R-East Gull Lake, said lawmakers should chip into a projected $940 million state budget surplus to pay that.

"There's no reason not to do this with the surplus that we have," Gazelka told reporters. "These are the businesses that struggled, these are the businesses that kept their employees and now we want to help them by conforming."

Gazelka said he was in conversations with House Speaker Melissa Hortman, D-Brooklyn Park, about a possible compromise that could pass both chambers.

Rep. Greg Davids, R-Preston, serves as the Republican lead on the House Committee on Taxes and in a letter Monday urged House Chair Paul Marquart, D-Dilworth, to approve the tax conformity plan. Marquart has said he would consider the proposal.

"We should pass this tax exemption as soon as possible and make sure it doesn't get bogged down by political games," Davids said. "Businesses are waiting on us, and with a healthy budget surplus there's no excuse for delay."

Follow Dana Ferguson on Twitter @bydanaferguson, call 651-290-0707 or email