2023 legislative session review
Advocacy
Geno Fragnito, MNCPA director of government relations | August/September 2023 Footnote
When the 2023 legislative session opened in January, legislators began the debate of what to do with the state’s budget surplus of more than $17 billion. Gov. Tim Walz was sworn into his second term, Democrats retained control of the Minnesota House and won control of the Minnesota Senate. This is the first time since 2013 that one party has controlled the governor’s office and both branches of the Legislature.
The record budget surplus set the stage for the debate about what the state’s budget would look like for the next two years and what priorities would be funded. Legislators had a record level of resources to make strategic investments into capital bonding projects to fund programs ranging from road and bridge improvements to asset preservation projects. They also had the resources to pass a significant tax bill after a bill was not passed in 2022.
Federal conformity
Federal conformity is a perennial issue on the MNCPA legislative agenda and an issue that is usually not addressed until the tax bill is passed in the closing days of a legislative session. This year was different — very different.
Federal conformity was the first bill passed by the Legislature and signed into law by Gov. Walz. Legislators took swift action and passed a bill in January before tax filing began. The early tax bill provided conformity for many items, mostly related to the federal changes related to COVID, including some retroactive changes going back to 2017. However, it didn’t provide full conformity. Minnesota still doesn’t conform to items such as bonus depreciation or estate tax.
Conformity reduces the complexity of filing a tax return and is an issue for which the MNCPA will continue to advocate.
Private letter rulings
Authoritative guidance from tax administrators is an integral part of 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 to create a private letter ruling program in Minnesota was introduced during the 2023 legislative session but the bills didn’t receive a committee hearing in either the House or Senate Tax Committee.
Occupational licensing regulation changes
Occupational licensing legislation has been introduced several times in Minnesota since 2010. Licensing bills were introduced again in 2023 but didn’t advance.
In the past three years, the definition of what a workplace is has shifted, as have opinions of which businesses and individuals should be required to hold a license to conduct commercial transactions. Many proposed occupational licensing bills take a one-size-fits-all approach and could create unintended results for the CPA profession.
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 continue.
Trust residency factors
Legislation was introduced that would require a trust to meet a majority of factors before it could be deemed a resident trust. The change was included in the Senate tax bill but not the House, and it didn’t make it into the final tax bill that passed in May.
One of the factors that may be used to establish nexus is the location of a trust’s adviser. 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 will be a disincentive for out-of-state trusts to use Minnesota advisers.
Tax Court decisions
There have been Minnesota Tax Court cases where the court ruled in favor of the taxpayers, the Minnesota Department of Revenue (DOR) didn’t appeal the verdicts, but the DOR also isn’t following the court’s rulings. Earlier this year, Cities Management, Inc. filed an appeal with the Minnesota Supreme Court asking the court to find Tax Court rulings as precedential and binding. The MNCPA filed an amicus brief supporting Cities Management’s position. A Court decision is expected by early September.
The Legislature generally doesn’t debate legislation that could affect active court cases and because of the pending Supreme Court decision, legislation was not introduced in 2023.
Businesses rely on court decisions when assessing their own tax positions and consistent application of the law helps ensure voluntary compliance. This issue may be resolved by the Court decision or clarifying legislation may be needed in 2024.
Broadening the path to CPA licensure
The financial stability of individuals, businesses and governments depends on the services provided by CPAs. The demand for CPA services continues to grow while those choosing the profession continues to decrease. Market forces and demographics will continue to impact the number of CPAs available to complete the ever-growing demand for services.
Legislation introduced in 2023 would broaden the pathways to CPA licensure and would create two additional options to become licensed. No changes would be made to the current requirement of 150 college semester hours and one year of experience. The first new option would allow licensure with 120 college semester hours and two years of experience. The second new option would allow licensure with 120 college semester hours, one year of experience and 120 hours of continuing professional education in the year prior to becoming licensed.
The bill will carry over to the 2024 legislative session and discussions will continue during the interim with legislative hearings expected when the 2024 session begins in February.
Get involved
Are there issues you think the MNCPA should consider for 2024? The Legislative Issues Committee has started its process to develop a legislative agenda. You can contact me or any of the committee members if you would like to add something to the list of items to consider next year. Reach me at
govrelations@mncpa.org.
With a tax code that continues to grow in complexity, legislators 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 the state’s economy. Your experience, knowledge and role as trusted advisers to hundreds of thousands of Minnesota taxpayers is invaluable. Your voice matters and can affect the final legislation included in the next tax bill.
