MNCPA 2020 legislative agenda set
February/March 2020 Footnote
Editor's note: Updated January 31, 2020
The 2020 legislative session begins Feb. 11, which means a short and busy session awaits. A capital bonding bill is usually a legislative priority during the even-year legislative session, putting it near the top of legislators’ priority lists. Tax conformity continues to be an issue and is on the list of important topics the MNCPA will work on this year.
With so many competing issues and very little time to fully understand each one, legislators rely on experts to help them better understand how legislation affects taxpayers. This is where CPAs can help. CPAs bring experience, knowledge, problem-solving skills and a legacy of serving as trusted advisers to hundreds of thousands of Minnesota taxpayers. It goes without saying: Our members play a vital role in our efforts at the Minnesota Capitol.
The MNCPA has identified several topics to include as part of the 2020 legislative agenda; some are issues we support, while others we oppose.
Federal conformity continues to be is an issue at the Capitol. Minnesota is not a state that has automatic conformity and, every year, legislators debate the need to conform and which items to include in a conformity bill. On Dec. 20, 2019, Congress passed H.R. 1865, which included several changes to the federal tax code along with an extenders package; these changes could result in additional conformity legislation in 2020.
Legislators often do not prioritize and allocate resources for full conformity; instead, the Legislature typically selects individual federal tax code changes to adopt at the state level. This was the case in 2019 with Section 179, which nonconformity resulted in significant tax increases for some Minnesotans.
State legislators need to understand and hear, firsthand, what nonconformity means to you, your businesses and your clients. The MNCPA continues to support federal conformity
and will advocate for simplicity while supporting steps to reduce complexity and compliance burdens.
Tax on professional (accounting) services
Proposals to tax professional services have been introduced many times during the past 25 years. The most recent proposal was introduced at the end of the 2017 legislative session. This issue was last debated in 2013 when legislators faced a budget deficit and were looking at all options to balance the books and provide more state revenue stability.
Legislative leaders continue to discuss ideas for state tax reform, and taxing services is part of the discussion. Lowering rates and broadening the base are at the top of the list of reasons legislators would consider this tax. The latest proposals to tax services would eliminate personal income tax and corporate franchise tax, and the lost state revenue would be replaced by taxing more services.
The MNCPA was part of a coalition of business groups that conducted an economic impact study to look at the effects of a services tax on Minnesota’s economy. The results showed that a services tax, by 2029, would result in over 36,000 lost jobs, a negative $4.2 billion effect on GDP and workers would be earning $2.9 billion less than they would in the absence of the tax.
The MNCPA is opposed to extending the sales tax to accounting services
Taxpayer bill of rights
Authoritative guidance from tax administrators is an integral part in ensuring taxpayers and tax preparers comply with tax laws. This guidance is also vital in determining the correct tax liability. MNCPA members and businesses throughout Minnesota often need guidance to properly apply tax law and ensure the proper amount of tax is collected and remitted (if owed).
The MNCPA supports the following provisions be included in taxpayer bill of rights legislation:
Establish a private letter ruling program to address unique tax situations that may not fit perfectly with the way a tax law is written; limit the Minnesota Department of Revenue’s (DOR) authority to make sales tax assessments that are inconsistent with prior audit positions taken by the DOR; expand the DOR’s authority to abate penalties and allow a taxpayer to choose a dual audit if the DOR is auditing both sales and use tax, and either individual income or corporate franchise tax.
MNCPA efforts in 2020 will focus on the private letter ruling program.
Tort reform and accountant liability statutes affect the way the CPA profession operates. These laws impact 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.
The MNCPA supports two important tort changes
that would benefit the profession and improve Minnesota’s business climate: reduce the statute of limitations from six years to four years; and reduce pre- and post-judgment interest rates on judgments awarded by the courts. The interest rate today is fixed at 10%. If lawmakers consider using the formula in place prior to the most recent change, the interest rate today would be approximately 4%.
Occupational licensing regulation changes
Occupational licensing legislation has been introduced in Minnesota for many years, and it’s expected to be on the list of issues debated by the 2020 Legislature. A diverse mix of interest groups support the legislation for varying reasons. Those reasons include reducing the barriers to entry — making it easier for job seekers to gain employment — and eliminating or reducing of government regulation.
Proposed national model legislation includes all occupations and doesn’t differentiate between trades and professions. 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, more states are seeing this type of legislation and the threat to the CPA profession continues to grow.
The MNCPA opposes licensing legislation
that could adversely affect mobility and put Minnesota CPAs at a competitive disadvantage.
New partnership audit rule changes became effective on Jan. 1, 2018. Sometime in late 2020 or early 2021, the IRS should begin completing the first audits under the new rules. The new changes allow the IRS to audit, assess and collect partnership taxes at the entity level and will make collections and payment more efficient. Prior to these changes, when the IRS audited a partnership, it only had authorization to collect taxes from the partners.
MNCPA legislation introduced and included in the 2019 Senate tax bill aligned most of Minnesota’s tax code to the federal changes. The DOR did not support adopting these changes and supported a change that would have significantly impacted and restricted a partnership’s ability to make certain tax elections.
The MNCPA will support legislation to allow partnerships, including CPA firms organized as partnerships, to have all options available for partnership audits
and oppose any recommendations that would limit this ability.
Department of Revenue and tax court decisions
The Legislature established the Minnesota Tax Court as an executive branch agency with the responsibility of hearing and deciding tax-related cases. The court’s mission is to provide timely and equitable disposition of appeals of orders issued by the Department of Revenue (DOR) and local property tax valuations, classification, equalization and/or exemptions.
There have been recent tax court cases where the court ruled against the DOR, and the DOR chose not to appeal, yet is not following the court’s ruling. Tax professionals and businesses often rely on tax court rulings when deciding what position to take on future tax questions. This issue is another example of where inconsistent application of the law and authoritative guidance from tax administrators creates a barrier to compliance with Minnesota’s tax laws and traps the unwary. Clear and consistent guidance is also vital in determining the correct tax liability.
The MNCPA will support legislation to amend and clarify current statute to read that the DOR is bound by tax court case rulings unless the department is successful in an appeal to the Supreme Court.
As legislation is debated the next four months, the MNCPA government relations team and MNCPA members will be busy at the Capitol. We will meet with legislators, testify at committee meetings and serve as a resource to help policymakers understand how their decisions will affect individuals and businesses throughout Minnesota.
Stay involved and keep in the loop by visiting www.mncpa.org/gr