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MNCPA 2021 legislative agenda set

Advocacy

Geno Fragnito, MNCPA director of government relations | February/March 2021 Footnote

Editor's note: Updated February 1, 2021

When the 2021 legislative session began Jan. 5, there were many unknowns: How would the session work? How would committee meetings function? How would the public provide comments and testimony for proposed legislation? The one certainty about this legislative session is it must end by the May 17 constitutional adjournment date.

Minnesota faces a projected $1.3 billion deficit, which is actually good compared to the $4.7 billion deficit projected last May in the early months of the COVID-19 pandemic. The final budget forecast will be released at the end of this month, and it will be the basis for negotiations as legislators and Gov. Tim Walz develop a balanced two-year budget and consider policy changes to address in 2021.

With so much change in the past year and so much uncertainty ahead in 2021, legislators will rely on experts to help them better understand how legislation affects taxpayers. CPAs are well-positioned to help legislators understand how fiscal policy may help or hinder economic recovery. Your experience, knowledge and role as trusted advisers to hundreds of thousands of Minnesota taxpayers is invaluable.

The MNCPA has identified several topics to include as part of its 2021 legislative agenda. With so many unknowns, some issues may not be debated this year, and it’s certain that new issues will arise in session.

Federal conformity

Federal conformity continues to be an issue as long as Minnesota continues to be a static conformity state. The 2020 tax bill provided full Section 179 conformity, but the Legislature has yet to act on the 2020 changes Congress passed to address pandemic-related issues.

Legislators often don’t allocate resources for full conformity; instead, the Legislature prioritizes and selects individual federal tax code changes to adopt at the state level. Some Minnesota nonconformity items include the treatment of Paycheck Protection Program (PPP) loan forgiveness and expense deductibility; Section 163(j) interest expensing; NOL carrybacks and NOL taxable-income limits.

The MNCPA continues to support federal conformity.

Tax on professional (accounting) services

As legislators look to balance the budget, they have three tools to consider as they debate how much the state should spend. The options are increase revenue, reduce expenses or accounting shifts. Legislative leaders have said all three are on the table. One potential new revenue source is to extend the sales tax to services (including accounting); Minnesota could be one of many states to consider a new services tax to help address pandemic-related budget shortfalls.

This issue is not new, and legislation related to this topic has been introduced many times in the past 25 years.

The MNCPA opposes extending the sales tax to accounting services.

Private letter rulings

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.

Minnesota is one of two states without some form of a private letter ruling program. Guidance before filing taxes is a much more efficient and cost effective than expensive and protracted litigation after the fact.

The MNCPA supports creating a program in Minnesota to address unique tax situations that may not fit perfectly with the way a tax law is written.

Occupational licensing regulation changes

Occupational licensing legislation has been introduced in Minnesota since 2016 and it’s expected to be on the list of issues debated by the 2021 Legislature. A diverse mix of interest groups support the legislation, and the efforts to pass it could be stronger because of changes that have come out of the pandemic.

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, the list of states considering similar legislation increases the threat to the CPA profession.

The MNCPA opposes licensing legislation that could adversely affect mobility and put Minnesota CPAs at a competitive disadvantage.

Partnership audits

Congress passed new partnership audit rule changes that became effective Jan. 1, 2018, and Minnesota has yet to update its partnership rules to conform. Soon, it is expected the first IRS audits under the new rules will be completed and states will look at state-level adjustments. The new changes allow the IRS to audit, assess and collect partnership taxes at the entity level, which 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 would align most of Minnesota’s tax code to the federal changes, create a more efficient and cost-effective process and allow partnerships to choose the best option to fit their respective structures.

The MNCPA supports legislation to allow partnerships, including CPA firms organized as partnerships, to have all options available for partnership audits and will 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 tax-related cases. The court’s mission is to provide timely and equitable disposition of appeals of orders issued by the Minnesota Department of Revenue (DOR) commissioner 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 it 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 where consistent application of the law and 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.

The MNCPA supports legislation to clarify current statutes about who is bound by Tax Court case rulings.

Residency factors for Minnesota trusts

Recent guidance and questionnaires from the DOR have indicated the location of advisers to a trust could be a determining factor to establish nexus for Minnesota tax purposes.

The Legislature prohibited this practice for individuals, but trusts were not included when the legislation passed. If the adviser’s location is considered a factor, the result will be businesses leaving Minnesota to advisers in other states.

The MNCPA supports legislation to prohibit using the location of an adviser as a determining factor to establish Minnesota nexus for a trust. Current guidance provides a reason to not hire Minnesota-based professionals.

Debt settlement regulations

There are two pending legal cases under the debt settlement statute that could affect offer and compromise work CPAs do on behalf of clients. The cases involve enrolled agents but cover the same scope of work CPA firms do in the normal course of work at a public accounting firm. 

The MNCPA opposes legislation that impedes a CPA’s ability to provide services to clients. Services are already regulated at the state and federal level.

Share your thoughts

As legislation is introduced and debated during the 2021 session, the MNCPA government relations team and MNCPA members will be busy (virtually) at the Minnesota Capitol helping policymakers understand how their decisions affect individuals and businesses throughout Minnesota. CPAs are critical to this conversation. Please share your insights on the aforementioned topics and others by emailing govrelations@mncpa.org.