MNCPA 2017 legislative agenda set: residency factors, conformity continue as priorities

Advocacy

Geno Fragnito, MNCPA director of government relations | February/March 2017 Footnote

Editor's note: Updated February 1, 2017

When the 2017 legislative session began in January, the Minnesota Senate leadership shifted from Democratic control to a 34--33 Republican majority, the House Republicans increased their majority from 2016, the state continued to show a projected budget surplus, and the Capitol finally opened after a nearly three-year-long renovation. Rep. Kurt Daudt continues to serve as Speaker of the House and Sen. Paul Gazelka is the new Senate Majority Leader.

More importantly, there are now 40 new legislators and 161 re-elected legislators serving at the Capitol, all of whom place great value on constituents' input from the "main streets" of their districts. This session presents many opportunities for you to serve as a trusted adviser to legislators as they debate and balance competing and, sometimes conflicting, priorities.

Part of that conversation includes the MNCPA 2017 legislative agenda, which, this year, includes the perennial issues of tort reform and federal conformity. It also includes overhauling the Minnesota Department of Revenue's residency factors, updating the Minnesota taxpayer bill of rights and opposing duplicative CPA regulation that could result from the regulation of currently unlicensed tax preparers.

Here's a look into the issues the MNCPA will be talking about with legislators this year:

Residency factors

Two 2013 Minnesota Supreme Court cases cited the location of a taxpayer's professional adviser as one of the criteria that can be used to determine domicile in Minnesota. These decisions are being used as a recruitment tool by non-Minnesota advisers, and are having a negative impact on Minnesota CPAs and their businesses.

The residency criteria, originally adopted in the 1980s, need to be overhauled and modernized to address how business is conducted in today's economy. This issue was debated the past two legislative sessions, but unfortunately it has not been signed into law. Most recently, the changes were included in the 2016 tax bill that was vetoed by Gov. Mark Dayton.

In 2017, the MNCPA will work with legislators and other professional associations to modify relevant factors and repeal obsolete language that discriminates against hiring Minnesota-based professionals. A statute change is required to update the residency rules; this change has broad bipartisan support in both the House and Senate.

Federal conformity

Nonconformity continues to frustrate CPAs and clients as it increases the complexity of tax returns and the cost of compliance. Previous Legislatures have debated and passed limited federal conformity depending on the state's economic outlook. This year, with a budget surplus of approximately $1.4 billion, the Legislature has the financial resources to address the many nonconforming line items on Minnesota's tax return.

Gov. Mark Dayton in January signed into law a limited federal conformity bill. The first conformity bill of 2017 didn't address items like estate tax, Section 179 or bonus depreciation, but it did address many changes Congress made between Dec. 31, 2014, and Nov. 15, 2016.

The MNCPA continues to strongly support early adoption of federal conformity and will advocate for additional conformity that will be debated later in this session.

Tort reform

Tort reform and accountant liability statutes impact the way the CPA profession operates. These laws affect the decisions of both CPAs working in public accounting and in business and industry. Tort laws can also affect the ability to expand businesses, work with clients and recruit prospective clients.

Two important changes that would benefit the profession and improve Minnesota's business climate include reducing the statute of limitations from six years to four years, and reducing pre- and post-judgment interest rates on judgments awarded by the courts. The interest rate today is 10 percent. If lawmakers consider using the formula in place prior to the most recent change, the interest rate today would be approximately 4 percent.

Unlicensed tax preparer registration/regulation

Unethical and fraudulent actions by unlicensed tax preparers negatively affects all CPAs. New regulation focusing on enhanced monitoring of these individuals may alleviate some of the problems, but it most likely will not eliminate the issue. Federal regulation is the best solution to this problem. However, because Congress has not been able to pass anything, advocacy groups are turning to state legislatures for a solution.

Currently, only California, Maryland, New York and Oregon have some type of regulation for tax professionals who are not CPAs, attorneys or enrolled agents. State regulation of unlicensed tax preparers is not a new issue to Minnesota, but it has not been debated for several years. However, duplicative regulation for CPAs is not necessary. The MNCPA will advocate for a CPA exemption in any proposal to regulate unlicensed tax professionals, and oppose new regulation that creates confusion for individuals seeking help preparing a tax return.

Taxpayer bill of rights

Consistent guidance from tax administrators is an integral part of ensuring taxpayers' and tax preparers' compliance with tax laws. This guidance is also vital in determining correct tax liability. MNCPA members and businesses throughout Minnesota are finding it increasingly difficult to receive guidance needed to ensure compliance with the law.

State regulators' approach to tax administration seems to have shifted in recent years, with less focus on the educational opportunities and more focus on enforcing the law after a tax return has been submitted and is subject to audit.

The MNCPA supports changes and updates to the current taxpayer bill of rights, including requiring the Department of Revenue (DOR) to establish a private letter ruling program, and limiting DOR authority to make tax assessments that are inconsistent with prior written positions in previous audits. These and other changes will provide additional protections and certainty for those trying to comply with the law.

We're here for you

Given the Legislature's state of flux, we expect there will be other important issues affecting CPAs to be proposed and debated as the 2017 session progresses. Bill introductions and debates will be closely monitored to enable a quick response on behalf of the CPA profession. You are also encouraged to contact us if you have questions about the status of the MNCPA legislative agenda or other proposals.

Learn more about the MNCPA's 2017 legislative agenda at www.mncpa.org/legislative-issues.

Have questions?

Do you have questions or want to get involved in the legislative process?

Contact Geno Fragnito at 952-885-5550 or gfragnito@mncpa.org.