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2020 — the legislative session no one expected

Advocacy

Geno Fragnito, MNCPA director of government relations | August 2020 Footnote

Editor's note: Updated July 28, 2020

By all accounts, when the 2020 Minnesota legislative session started Feb. 11, it was going to be like many even-year sessions of the past.

But we all know Minnesota government, like every facet of our lives this year, did not go according to plan.

The plan: Legislators passed a two-year budget in 2019 and were coming into this year’s session with a $1.5 billion projected budget surplus. They were expected to spend 2020, like most even-year sessions, focusing on capital bonding and tax bills, with an adjournment by May 18, returning to their districts to campaign for the November elections.

Tax conformity topped the MNCPA’s agenda, and it was a top priority for legislators and other business groups, like the Minnesota Chamber of Commerce, Minnesota Farmers Union and Minnesota Farm Bureau. MNCPA members spent a day at the Minnesota Capitol in February driving home conformity and helping legislators better understand the importance it has for Minnesota businesses and residents.

The reality: Fast-forward six weeks to the end of March, and the world was turned upside down. A worldwide pandemic threw everyone a curveball, adding new, urgent priorities to the Legislature’s agenda, pushing the bonding and tax bills down the list and quickly turning a projected $1.5 billion budget surplus into a projected $2.4 billion deficit.

The COVID-19 pandemic also shifted the MNCPA’s focus during the 2020 legislative session. Our advocacy included requests to have accounting services deemed an essential service, and to seek deadline extensions for required CPE credits and filing deadlines for all tax types.
It wasn’t the plan, but it’s what was needed at the time. Each year, the MNCPA Legislative Issues Committee spends months planning and vetting issues to be included as part of the MNCPA legislative agenda. These items are known before the session begins, but unexpected topics come up and the planned list is never a full list of issues the MNCPA is involved with.

This year was no different in that regard.

What the session became about

The plans for all involved at the Minnesota Capitol were changed as the seriousness of the pandemic became known. Businesses were shuttered, lives were and continue to be upended, and a public health crisis not seen in generations was and is affecting everyone.

In our humble corner of the world, the MNCPA worked to have this question answered: Would accounting be deemed an essential service? It was important for both members in public accounting, as well as those in industry, to continue their work for their respective clients and businesses. The MNCPA advocated for this, and Gov. Tim Walz included accounting on the initial list of essential services released in late March.

Would the Minnesota Department of Revenue extend filing deadlines to match an earlier action by the Internal Revenue Service? The MNCPA advocated for all tax filing deadlines to conform with federal extensions but, unfortunately, the DOR did not conform to all deadlines.

What would be included in the federal stimulus packages? The MNCPA advocated for clear guidance for the Families First Coronavirus Response Act and the CARES (Coronavirus Aid, Relief, and Economic Security) Act, including the Paycheck Protection Program. 

The priorities may shift and the topics may change — sometimes daily — but the MNCPA advocacy efforts remain focused on the needs of members and those they serve. 

Our (original) plan for the session

Federal conformity, partnership audits

Two issues on the MNCPA legislative agenda, federal conformity and partnership audits, were discussed during the regular legislative session, but neither were resolved. 

Federal conformity is supported by legislators, but often it is not adopted because of the cost. The focus of the 2020 conformity discussion was Section 179 and its interaction, for Minnesota tax purposes, with like-kind exchanges.

You may recall in 2015 that Congress made changes to the federal partnership audit rules to allow an entity to pay an assessment rather than requiring each partner to pay. Minnesota has not yet conformed to these changes but will need to make changes soon so Minnesota partnerships will be allowed to use this option if an audit adjustment is assessed.

Tax on professional services (accounting services)

This issue was not debated during the 2020 legislative session, but it continues to be discussed in Saint Paul. If the budget projections continue to show large deficits, legislators will look at a combination of cuts and revenue increases to balance the budget. As you can see from the following chart, a services tax would be a significant source of new revenue.

Estimated revenue generated from a professional services sales tax

Business-to-business FY 2021 FY 2022 FY 2023
Accounting services $276,400,000 $282,300,000 $288,100,000
Legal services $310,700,000 $317,100,000 $323,400,000
Management and
consulting services
$288,600,000 $295,200,000 $301,900,000
Customer purchases FY 2021 FY 2022 FY 2023
Accounting services $19,800,000 $20,500,000 $21,000,000
Legal services $108,590,000 $112,500,000 $116,100,000
 
*Data from the 2020 Minnesota Department of Revenue Tax Expenditure Budget.

The MNCPA continues to oppose a tax on accounting services.

Taxpayer bill of rights

As tax laws continue to increase in complexity, so, too, do the compliance burdens. Guidance from tax administrators is an integral part of ensuring taxpayer and tax preparer compliance with tax laws. 

The MNCPA legislative agenda continues to include supporting updates to the taxpayer bill of rights to provide additional protections and certainty for those trying to comply with the law.

This issue was not debated in 2020 and the MNCPA continues to support resources and regulations to make compliance easier for businesses and individuals.

Other agenda items

Other profession priorities not debated in 2020 include occupational licensing regulations and how changes could adversely affect CPA mobility and interstate reciprocity; tax court decisions and how they apply to state agencies; and tort reform.

The special sessions

When the Legislature adjourned in May, lawmakers left some unfinished business that could only be addressed during a special session. Once a regular session adjourns, the only way legislators can continue to pass bills is if the governor calls them into a special session. Unfinished tax and bonding bills, and the uncertainty of the state’s finances as a result of the COVID-19 pandemic, are a few bills that would need to be addressed in a special session.

This year also presented another reason for Walz to call a special session. The governor can only declare a peacetime emergency and operate under emergency powers for 30 days. He has deemed it necessary to continue operating under the emergency powers and has called two special sessions to extend those powers.

During these times of uncertainty, the MNCPA continues to advocate to legislators and state leaders, and communicate the importance of clear and consistent tax policy.

Looking ahead

In November, all members of the Legislature are up for reelection, and the same is true in 2022. Members of the House of Representatives serve two-year terms and members of the Minnesota Senate serve four-year terms except for elections in a year ending in zero. These elections are for two-year terms to allow for updated Census numbers and the redistricting process.

The MNCPA, naturally, was not alone in having legislative priorities deferred; the 2021 Legislature will face a more exhaustive list of issues to address, both from within their own ranks as well as from others seeking policy changes.

Now is the time to get involved. In the coming months, you have an opportunity to learn more about the candidates in your area and where they stand on issues that are important to you — personally and professionally. You can also have your voice heard on those issues and to establish those relationships before candidates are in office or return to office. Legislators want to know how issues affect you and the businesses and clients you represent.  Share your insight and learn their positions to help you make an informed decision when you vote in November.

Are there issues you think the MNCPA should consider for 2021? The Legislative Issues Committee has started its process to develop a legislative agenda. You can contact any of the committee members or me if you would like to add something to the list of items to consider next year. Reach me at gfragnito@mncpa.org.