Plus: Will Minnesota conform?
MNCPA
MINNESOTA SOCIETY of
CERTIFIED PUBLIC ACCOUNTANTS
Legislative Digest
MAY 24, 2018
The 2018 legislative session is history -- maybe

As the saying goes: The more things change, the more they stay the same.

Gov. Mark Dayton has, for the second time in 2018, vetoed a tax bill sent to his desk from the Republican-led Legislature. The tax bill was just one of the many bills passed in a flurry before the midnight deadline May 20. Dayton also vetoed the omnibus spending bill that included money for school safety, opioid abuse prevention and funding for increased elder care protections.

The MNCPA worked with legislators all session and stressed the importance of passing a tax bill to provide certainty as taxpayers plan for the next filing season. The MNCPA reinforced this importance by writing a letter to Dayton and legislative leaders.

Read the letter (PDF)

Dayton said it's unlikely a special session will be called, meaning nonconformity will be the hot topic through the balance of the 2018 tax filing season.

The state's top tax official said the work now begins to prepare for next year's filing season.

"We look forward to working together with taxpayers, software vendors, tax preparers and professionals, Volunteer Income Tax Assistance sites and other stakeholders to ensure everyone has the information, education and services they need to meet their obligations under Minnesota law," said Cynthia Bauerly, the Minnesota Department of Revenue commissioner. "We will work throughout the summer to engage all of our stakeholders as we update our systems."

Legislators now return to their districts for a busy summer of campaigning -- both for their respective seats and for the state's next governor with Dayton retiring at the close of the year. Senators are in the middle of a four-year term, but House members are at the end of their two-year cycles.
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The pitched tax bill

Congress created the most significant federal tax code change in more than a generation when it passed the Tax Cuts and Jobs Act (TCJA) in December. The TCJA also affected a long list of provisions in Minnesota's tax code. Many of the affected laws are a result of Minnesota using federal taxable income (FTI) as the basis to file a Minnesota return. The tax bill vetoed by Dayton would have change from FTI to federal adjusted gross income (FAGI).

The vetoed tax bill provided an exemption amount equal to what was allowed before the TCJA was passed, including the standard deduction and most itemized deductions allowed under federal law before TCJA was passed.

Other items included in the vetoed tax bill:
  • A reduction in the 5.35 percent and 7.05 percent personal income tax bracket rates.
    • 5.35 percent reduced to 5.3 percent for tax years 2018 and 2019, and to 5.25 percent for tax years beginning in 2020.
    • 7.05 percent reduced to 6.95 percent for tax years 2018 and 2019, and to 6.85 percent for tax years beginning in 2020.
  • A reduction in the corporate franchise tax rate.
    • 9.8 percent to 9.65 percent for tax years 2018 and 2019, and to 9.1 percent for later tax years beginning in 2020.
    • The corporate alternative minimum tax (AMT) would also be repealed.
  • Section 179 conformity for property placed into service beginning in tax year 2018.
  • Changes the non-itemizer charitable contribution subtraction to allow the subtraction if a tax payer selects the Minnesota state standard deduction instead of the federal standard deduction.
The vetoed tax bill included additional significant changes that would have affected many Minnesotans.

Tax bill No. 2 summary (PDF)
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County audit review procedures

The tax bill was not the only omnibus bill to pass in the closing hours of session. Legislators also passed an omnibus budget bill -- that was later vetoed by Dayton -- that included supplemental budget adjustments for state government operations and several policy changes. Policy changes included establishing review procedures for the Office of the State Auditor (OSA) when the office reviews a county audits performed by a CPA firm.

This legislation was the result of a recent report from the Office of the Legislative Auditor (OLA) that was critical of the lack of due process the OSA afforded CPA firms whose work was reviewed. The omnibus bill included new guidelines and establishes timelines and expectations for future OSA reviews of CPA firms' audits of county governments.

The following changes were included in the omnibus bill:

When the state auditor requires additional information from the CPA firm or makes additional examinations that the state auditor determines to be in the public interest, the state auditor must afford counties and CPA firms an opportunity to respond to potential findings, conclusions or questions, as follows:
  1. At least 30 days before beginning a review for work performed by a certified public accountant firm licensed in chapter 326A, the state auditor must notify the county and CPA firm that the state auditor will be conducting a review and must identify the type and scope of review the state auditor will perform.
  2. Throughout the state auditor's review, the auditor shall allow the county and the CPA firm at least 30 days to respond to any request by the auditor for documents or other information.
  3. The state auditor must provide the CPA firm with a draft report of the state auditor's findings at least 30 days before issuing a final report.
  4. At least 20 days before issuing a final report, the state auditor must hold a formal exit conference with the CPA firm to discuss the findings in the state auditor's draft report.
  5. The state auditor shall make changes to the draft report that are warranted as a result of information provided by the CPA firm during the state auditor's review.
  6. The state auditor's final report must include any written responses provided by the CPA firm.
Read the OLA report findings (PDF) that are the basis for the proposed statutory changes.
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Geno Fragnito Your Lobbyist
Geno Fragnito
Geno Fragnito, director of government relations, is the MNCPA's registered lobbyist working full time on behalf of the membership. For more information or to get involved, contact Geno at 952-885-5550 or gfragnito@mncpa.org.
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