April 27, 2018

Minnesota Legislative Update: House Tax Bill Proposal Tackles TCJA Conformity

With three weeks left of session, lawmakers have picked up the pace to get their work done. On Thursday, the Senate passed their supplemental budget bill off the Senate Floor and the House passed the education portion of their supplemental budget bill off the House Floor. Both the House and Senate Capital Investment Committees have been holding hearings regarding project proposals and signaling the committees’ priorities.

Supplemental Budget Bills

The Senate’s Supplemental Budget Bill passed off of the floor late Thursday evening after legislators spent nearly 12 hours debating the 600-page bill and its approximately 50 amendments. Highlights in the bill include provisions for safer schools, protections for elderly and vulnerable adults, and the opioid epidemic.

The bill passed 34-31 on a party line vote. Governor Dayton has repeatedly stressed that he does not want policy provisions to be in finance bills, and has not shied away from threatening vetoes to omnibus bills that contain provisions to which he strongly objects.

The House did not combine all the supplemental budget bills into one bill, but instead four bills. On Thursday, they passed the Education Omnibus Bill 94-29. Next week, they will take up the Healthcare and Transportation Omnibus Bill; the Environment, Agriculture, and State Government Finance Omnibus Bill; and the Public Safety Omnibus Bill. Ultimately, these bills will be rolled into one to mirror the Senate’s bill.

House Releases Its Tax Bill

The Minnesota House released their conformity response to the federal Tax Cuts and Jobs Act (TCJA) this week. The Legislature has spent a significant portion of its time considering proposals to conform to the TCJA while providing simplicity for filing returns. HF4385, authored by Rep. Greg Davids (R-Preston), would provide roughly $105 million in tax relief. The bill is currently on the House General Register and planning to be heard on the floor Monday.

The proposal would provide tax relief for over two million Minnesotans and limits potential tax increases to roughly 140,000. This is accomplished by lowering the second-tier tax rate for individuals from 7.05 percent to 6.5 percent by 2020. Businesses will see relief as well, as the proposal would lower the corporate tax rate from 9.8 percent to 9.06 percent over the same time. The bill would also allow Minnesota taxpayers to claim the standard deduction at the federal level while itemizing on their state taxes.

Other key provisions in the bill are as follows:

  • Individuals’ Minnesota income taxes starting point will be their Federal Adjusted Gross Income
  • Corporations, estates and trusts will remain with Federal Taxable Income
  • Full conformityto Section 179
  • Removal of the corporate AMT
  • The standard deduction will increase
  • Many itemized deductions will be removed

Proponents of the bill expressed how HF4385 is a very generous first step being made by Chair Davids to pass a conformity bill this session. Many of the provisions in the bill are similar to those carried in Governor Dayton’s proposal. Chair Davids stated how he tried to keep individual revenue with individuals and business revenue with businesses. 

Opponents argued that corporations and wealthy individuals greatly benefited from the TCJA, and there is not enough relief for low-income families. They urged to consider increases to the Working Family Credit and Dependent Credit that Governor Dayton proposed. Another issue is that the rate reductions are phased in over time so it is difficult to see the true impact, which could affect the state’s fiscal stability.

Senator Roger Chamberlain (R-Lino Lakes), Chair of the Senate Tax Committee, said the Committee will release is Tax Omnibus bill Tuesday of next week and mark it up.  The bill is likely to be heard on the Senate floor Thursday.

Important Dates

  • May 21, 2018 – Last day of session
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