Minnesota's divided Legislature has agreed to provide nearly $1 billion in tax relief over the next four years, focusing on businesses that received federal payroll loans and workers who collected unemployment checks during the COVID-19 pandemic.

The final agreement also extends tax credits for preserving historic buildings and film production in Minnesota, while pumping $20 million into local governments to help prevent student homelessness in communities across the state.

Notably, the package includes no new tax increases, a pledge made by Republicans in control of the Minnesota Senate and a far cry from the $1 billion in hikes on wealthy residents and corporations Democrats proposed earlier this year.

"This is a great bill and we started from very different places," said Senate Taxes Chairwoman Carla Nelson, R-Rochester. "Minnesotans are still recovering from the economic fallout from the pandemic, and it would have been really disastrous to tax them."

Gov. Tim Walz and top legislative leaders had reached a broad deal on the tax bill on the last day of the regular session May 17, and negotiators have spent weeks behind the scenes working out the details. Both sides came together around relief for people hit hardest by the pandemic, a position bolstered by a projected budget surplus and billions flowing in from the federal government.

"Eighty-five percent of the bill deals with COVID-19 relief and recovery," said Rep. Paul Marquart, DFL-Dilworth, who chairs the House Tax Committee. "That's a huge benefit and will provide immediate relief, assistance and tax cuts to a lot of folks."

The Department of Revenue estimates 560,000 Minnesotans who received federal COVID-19 aid over the past year will get tax relief under the bill.

The package conforms state and federal tax code for the tens of thousands of state businesses that received forgivable Paycheck Protection Program loans, which were used to help cover employee salaries even as some businesses were shuttered due to the pandemic.

Minnesota tax law had treated those forgiven loans as taxable income, even though Congress moved late last year to make the assistance tax-free at the federal level. The bill excludes from income up to $10,200 in unemployment insurance compensation. Lawmakers also aligned the state tax code with the federal government in other areas, including home short sales and small business loans.

Department of Revenue Commissioner Robert Doty said a majority of those refunds will be automatic or manually done by the agency, but some filers may have to fill out more paperwork. Doty said taxpayers should wait to hear from the department about next steps.

"Our advice right now is for people to hold off and wait to hear from us. We are going to be communicating directly with taxpayers and it's important that if we can save them money and time and effort with that, we want to make sure we can do that," he said. "They might amend something that we can do ourselves."

There's disagreement about when that work can start. Nelson said the PPP and unemployment provisions have been broadly agreed to for more than a month. Doty said they can't start much of that work until the bill is passed and signed by the governor.

Legislators are facing a July 1 deadline to pass all of the budget bills or risk a state government shutdown. House Speaker Melissa Hortman said the tax bill will likely be the last to be voted on in the chamber as leverage to make sure other work is completed.

Other provisions tucked in the tax bill are appealing to both sides. It extends a tax credit for angel investors and those who restore and rehabilitate historic properties and buildings. It provides a tax credit to lure film production to the state.

There's an affordable housing tax credit that focuses on workforce housing, single-family homes and small towns. The bill extends the working family tax credit to 19- and 20-year-olds.

"These are things that are going to spark economic development in our state," said Nelson.

The bill also provides counties with aid to help prevent students from winding up on the streets, which can keep them from the classroom.

"These are folks and kind of issues that we don't talk about normally in tax committee. People with no income, no home," said Marquart. "What this bill provides is local solutions to a huge problem. If we can help prevent homelessness, that is going to help stabilize families, address poverty, address the opportunity and achievement gap."