The omnibus tax bill is meant to address a top priority of the Legislature this session, federal tax conformity, while also reducing corporate and individual income tax rates.
Sponsored by Rep. Greg Davids (R-Preston), HF4385 would make numerous changes to conform state taxes to the recently adopted federal tax code. The bill also contains proposed individual income, corporate and estate tax provisions unrelated to tax conformity.
Passed 90-38, as amended, by the House Monday, the bill now heads to the Senate. The proposed Senate tax plan is scheduled to be unveiled Tuesday.
Following the Tax Cut and Jobs Act of 2017, Minnesota faces a potential $60 million increase in state income taxes for more than 300,000 families if the Legislature fails to align the state’s tax code with the federal changes.
The bill would alter the base Minnesota tax code calculation from federal taxable income to adjusted gross income. The bill would also put Minnesota in full conformity with federal Section 179 spending, allowing businesses to deduct the cost of certain property as an expense, instead of requiring the property cost to be capitalized and depreciated.
Davids, chair of the House Taxes Committee, said the guiding principle behind the bill is to ensure that individual income tax revenue would be spent on programs benefiting individuals and that corporate tax revenue benefit corporations. A perfect balance could not be achieved, however.
“I’m a little disappointed that we did take a little bit of the corporate money and put it over into individual tax relief, so I wasn’t completely successful on that part of my endeavor,” Davids said at a morning press conference.
While the bill would raise taxes for about 148,000 Minnesotans, it would also feature the first individual income tax rate reduction since 2000.
Davids said 2.1 million Minnesotans would see a tax decrease, under the bill. It would cut the second-lowest income tax tier from 7.05 percent to 6.75 percent by Fiscal Year 2020, resulting in a $336 million tax reduction from the General Fund in Fiscal Years 2020-21.
Similarly, corporate tax rates would drop from 9.8 percent to 9.1 percent by Fiscal Year 2020. The corporate alternative minimum tax would be repealed and the standard deduction for married joint filers would increase from $13,000 to $14,000 and from $6,500 to $7,000 for individuals.
Several amendments proposed by DFL members would have reinstated the corporate alternative minimum tax and eliminated the bill’s corporate income tax cuts in an effort to increase funding for programs like local government aid, the working family tax credit, the renter’s tax credit, county program aid and township aid.
All were either rejected or withdrawn.
Rep. Glenn Gruenhagen (R-Glencoe) defended the corporate tax cuts and repeal of the corporate alternative minimum tax — two frequent targets for DFL members during the floor debate.
“When you talk about not cutting the corporate tax rate and shifting it to lower-income people it’s a little bit like robbing Peter to pay Paul; they’re going to pay the additional money because the products are going to cost more,” Gruenhagen said.
Rep. John Lesch (DFL-St. Paul) unsuccessfully offered an amendment that would require corporations to prove an increase in full-time employees over the previous year in order to receive the bill’s tax relief.
“If we’re going to redistribute tax dollars to corporations, which is what this bill does, they should at minimum be accountable for the things you all say they’re going to do, which is create jobs,” Lesch said. “This amendment is minimal. You have to barely show anything to show that you actually created a job with this money.”
“Some of these small townships, especially on the north shore, are real proud of their ‘three T’s — timber, taconite and tourism industries — that they’ve had through the years and they just want to be able to keep these facilities running,” Ecklund said.
Rep. Steve Drazkowski (R-Mazeppa) spoke in opposition to the amendment, stating that Legacy funding is already available for such expenditures.
Other provisions included in HF4285 would:
What’s in the bill?