View from Revenue: Working together

Advocacy

Cynthia Bauerly, Minnesota Department of Revenue commissioner | April 2019 Footnote

On behalf of the Minnesota Department of Revenue, I’m pleased to begin quarterly contributions to Footnote to build on our ongoing partnership with the MNCPA and its members.

Our partnership with you is a crucial part of the department’s mission: “Working together to fund Minnesota’s future.” We look forward to answering your questions and providing helpful updates throughout the year in this space.

Please read on for answers to some of this year’s most common questions and a brief update on Gov. Tim
Walz’s tax and budget proposals.

Questions

Here are some of the most common questions CPAs have asked Mark Krause, the department’s tax professional outreach coordinator. You can reach Mark at taxpro.outreach@state.mn.us or 651-556-6606.

When will Minnesota conform to the federal Tax Cuts and Jobs Act?

The governor has proposed substantial conformity measures in his 2020–21 budget. There are also several other proposals under discussion. The department will continue working with lawmakers and the governor as they work to pass a conformity package that works for Minnesota.

Under current state law — which conforms to federal law through December 2016 — are mortgage insurance premiums deductible on the Minnesota return?

Not for tax year 2017 or 2018, under current law. The governor proposed extending the state deduction beyond tax year 2016; however, this may change during the legislative session.

Does the department send letters to verify my client’s identity?

Yes. We may take extra steps to protect your client’s identity when reviewing returns. To confirm that you filed the returns we receive, we may send letters to your clients asking them to verify their returns. The letter directs your clients to our website where they enter information and a verification code provided in the letter.

Are driver’s education fees an allowed expense for the K-12 Education Subtraction?

It depends. They are allowable only if:
  • The fees are paid directly to the school or school district for driver’s education classes.
  • The classes are part of the curriculum.
  • The classes are taught by a qualified instructor.
Fees paid to private companies for instruction are generally not allowable.

My client received a Form 1099-MISC from the state of Minnesota for 2018. Why?

We issue a Form 1099-MISC to report the refundable credit claimed from Schedule M1RCR, Credit for Taxes Paid to Wisconsin. This payment is not a reimbursement of tax that was already paid. It is a payment from the state to qualifying taxpayers and must be included in their income.

Are scholarships or grants received by a dependent included in household income?

Scholarships and grants received by a customer claiming the K-12 Education Credit or Property Tax Refund are included in household income if they are for the claimant’s education.

Income from dependents is not included in household income for the K-12 Education Credit or Property Tax Refund.

Walz’s plan for One Minnesota

In February, Gov. Walz and Lt. Gov. Peggy Flanagan proposed a tax and budget package that focuses on Minnesota families, seniors, small businesses and farmers. Their Budget for One Minnesota provides more than $440 million in tax relief in the 2020–21 biennium by:
  • Extending the Working Family Credit to another 2,400 families — including more middle-class households — and allowing more taxpayers to claim the maximum credit at lower incomes. This $100 million investment cuts taxes by $220 on average for 44,000 Minnesotans.
  • Cutting taxes on Social Security by expanding the income subtraction and increasing the phase-out income threshold. Under this proposal, nearly 56 percent of Minnesota seniors would pay no tax on their Social Security benefits.
  • Maintaining personal exemptions on Minnesota returns, and allowing taxpayers to choose standard or itemized deductions regardless of what they chose on their federal return.
  • Fully conforming to federal Section 179 expensing and cutting taxes by more than $220 million for our state’s farmers and small businesses. This proposal:
    • Allows these taxpayers to deduct up to $1 million of qualifying equipment purchases in the year they are placed in service.
    • Eliminates the 80 percent Minnesota add-back on this deduction.
    • Simplifies filing and record keeping by conforming to federal law.
  • Promoting innovation and high-tech investments by investing $10 million a year in the Angel Tax Credit Program to help early-stage businesses grow in Minnesota and tap our highly educated workforce.

Some of these specifics may change. Walz said he will revise his tax and budget package after the February economic forecast projected a smaller balance than the November forecast.

As always, we will provide updates and information about any tax law changes when they occur. And we will work to implement them as efficiently as possible for the people and businesses we serve.

For the latest information, we encourage you to sign up for our email updates, such as the Individual Income Tax Updates for Tax Professionals. You can do that from our home page (www.revenue.state.mn.us). Click the red envelope icon, enter your email and select the updates you want to receive.

Thank you for your partnership!

Cynthia Bauerly is the commissioner of the Minnesota Department of Revenue and will be a regular guest columnist in the Advocacy space.