"Not sure where you are going."

What you stated here: "then expenses are deducted. What nets out is the bulk portion of the grant that was used to pay the grantee's labor hours X grantee's hourly rate, which were submitted by grantee via invoice." is not a tax reporting issue. You didn't state it wasn't part of the business financial info, but you included it here. We can't read between the lines, and others might find your topic, so, well, I guess we try do to read between the lines, just in case.

"I did my homework, interviewed client as to nature of grant, use of funds, etc."

Then you were looking for confirmation? Again: unless you find a legislative action to the contrary, this is regular, reportable, taxable, business income. Did you check to see what the State tells you? For instance, here's mine:

"Unless expressly exempted by federal or Montana law, grant income to businesses is included in a business's federal taxable gross income and, therefore, included in Montana taxable income"