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2022 legislative session review

Advocacy

Geno Fragnito, MNCPA director of government relations | August/September 2022 Footnote

Editor's note: Updated July 28, 2022

When the 2022 legislative session began in January, legislators began negotiations on what to do with an estimated $7.7 billion budget surplus. A month later, the surplus projections increased to $9.25 billion.

With the state sitting on a record surplus, expectations were high that this would be a great year for Minnesota taxpayers and businesses alike. Legislators had the resources to make strategic investments, pass a capital bonding bill to fund projects ranging from road and bridge improvements to wetland preservation, and pass a significant tax bill, including much-needed federal conformity.

The prospect of this list passing looked promising until the last weekend of session, when negotiations fell apart and an agreed-upon tax bill was caught in the negotiating process.

Federal conformity

Federal conformity was debated all session and was included in the final tax bill agreement, but the Legislature did not vote on it. The Legislature planned to retroactively conform to many tax code items. Most items covered nonconformity from recent federal COVID legislation, but one dated back to 2016. This conformity, as you know, would have significantly reduced the level of complexity Minnesota taxpayers face when filing a Minnesota return.

What you may not know about the 2022 tax bill is it also contained four items that were included as the direct result of MNCPA members identifying an issue, engaging in conversations with legislators and Minnesota Department of Revenue (DOR) staff, and working with legislative staff to draft language.

Items MNCPA members identified for inclusion in the tax bill include:
  • Pass-through entity (PTE) regulation clarifications and an expansion of qualifying entities.
  • Conformity for qualified improvement property (QIP).
  • Estate tax portability.
  • Allowing certain single-member LLCs to claim income tax credits for income taxes paid to other states.
These four items most likely would not have been discussed without CPAs at the table explaining the need for change. They are also great examples of how the profession can work together for meaningful change. Legislators greatly value the insight and knowledge the CPA profession brings to the debates at the Capitol.

Legislative changes passed that affect CPAs 

Minnesota Board of Accountancy (BOA) licensing statutes

Prior to this year, BOA statutes required the board to automatically revoke a CPA certificate that had not been renewed for two consecutive years. Once a certificate is revoked, the status is updated on the BOA website and in the national licensing database.

Reasons for revocation ranged from simply not renewing for two consecutive years to serious financial crimes such as embezzlement. Another reason for not renewing is when a CPA passed away and the family didn’t notify the BOA, so the certificate of the deceased CPA was revoked after two years.

Legislation passed this year eliminates the automatic revocations requirement after two years of not renewing and allows the lapsed certificate to show up as expired.

To read more about this issue, turn to the BOA news article on page 27.

Debt settlement regulations

The MNCPA worked to pass legislation clarifying statutes the Minnesota Department of Commerce uses to regulate debt settlement practices. Prior to this law change, CPAs negotiating offer and compromise settlements with the IRS or DOR may have also fallen under the requirements of the debt settlement statutes. This  would require the CPA to register with the Department of Commerce and obtain a bond to assist clients with this type of negotiated settlement.

The new law change exempts CPAs licensed by the BOA (Minnesota Statutes Chapter 326A) from the debt settlement registration requirements of the Department of Commerce so long as the services provided are within the normal course of work regulated by the BOA.

Other items on the MNCPA legislative agenda

Tax on professional (accounting) services

Tax on accounting services is not a new issue, and legislation related to this topic has been introduced many times in the past 25 years. The topic continues to show up around the country, but it has not had a legislative hearing for many years in Minnesota and it was not discussed in 2022.
Tax reform and state spending are always among the top issues legislators debate. Legislative turnover after the forthcoming elections could result in this issue coming back to the forefront during the 2023 legislative session. Tax on services has been included as part of the discussion surrounding the need for additional revenue, as well as the discussion about tax reform — including an elimination of the income tax, with proposals having been authored by Democrats and Republicans.
A large budget surplus is good news for business and should reduce the chances of a services tax discussion, but the threat is not gone.

Private letter rulings

CPAs know authoritative guidance from tax administrators is an integral part in ensuring their businesses and clients comply with tax laws. This guidance is also vital in determining the correct tax liability.

Minnesota is one of two states without some form of a private letter ruling program. The MNCPA supported creating a private letter ruling program in the state to address unique tax situations that may not fit perfectly with the way a tax law is written. Guidance before filing taxes is much more efficient and cost-effective than expensive and protracted litigation after the fact.

Legislation was introduced and included in the 2021 Senate tax bill. The House Tax Committee didn’t hold a hearing in either 2021 or 2022 and did not support the issue, so it was not in any 2022 tax bill negotiations.

Occupational licensing regulation changes

Occupational licensing legislation has been introduced many times in Minnesota since 2010 and has been debated a few times since. This issue didn’t come up in the 2022 session but continues to be of concern.

The pandemic has changed what a workplace is and changed opinions of which businesses and individuals should be required to hold a license to conduct commercial transactions. As currently proposed, the occupational licensing regulations could affect CPA licensure and mobility, making it difficult — if not impossible — for Minnesota CPAs to work in other states without first obtaining a license in each state.

Each year the list of states seeing similar legislation grows and the threat to the CPA profession continues. A diverse mix of interest groups support the legislation for various reasons and the efforts to pass it could be stronger than ever when new legislators are seated for the 2023 session.

Trust residency factors

This issue was discussed with legislators in 2022, but no changes were included in any tax bill proposals. Past guidance and questionnaires from the DOR have indicated the location of a trust’s adviser could be a determining factor to establish Minnesota nexus. This factor is prohibited for individuals and the MNCPA supports extending the prohibition to trusts. Minnesota businesses should not be penalized for having an office in Minnesota and without policy changes, there would be a disincentive for out-of-state trusts to use Minnesota advisers.

Tax Court decisions

There have been a few Minnesota Tax Court cases where the court ruled in favor of the taxpayers. The DOR didn’t appeal the verdicts, but the DOR also isn’t following the court’s rulings. Discussions were held with legislators during the 2022 session, but no changes were included in any tax bill proposals. Businesses rely on court decisions when assessing their own tax positions, and consistent application of the law helps ensure voluntary compliance.

Thank you for your efforts

As we look to 2023, I cannot emphasize enough the importance and difference your meetings, phone calls and emails have made with legislators. You read the firsthand account of the effect those meetings had on issues this year. Establishing those relationships early is very important, and they will be more critical as we introduce the profession to an estimated 75 new legislators after the November elections. Building a network early, especially in a time when CPAs don’t have a “big issue,” will go a long way in having your voices heard when it’s most crucial.

Now is the time to get involved. Legislators will be campaigning in their districts in the summer and fall and very accessible for both public and private meetings with you. They need to know how issues affect you and the businesses and clients you represent. Share your insight and lay that groundwork now so they see a familiar face when you reach out during future legislative sessions.

Get involved

Are there issues you think the MNCPA should consider for 2023? 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 govrelations@mncpa.org.

With continued economic uncertainty and a tax code that continues to grow out of conformity, legislators will need experts to help them better understand how legislation affects taxpayers. CPAs are well-positioned to serve in this role and help legislators understand how tax policies may help or hinder economic recovery. Your experience, knowledge and role as trusted advisers to hundreds of thousands of Minnesota taxpayers is invaluable and, as you read, your experienced voice can — and does — change state laws.