MNCPA sets 2022 legislative agenda
Geno Fragnito, MNCPA director of government relations | February/March 2022 Footnote
Editor's note: Updated January 27, 2023
When the 2022 legislative session began Jan. 31, legislators faced a much-improved economic outlook than a year ago. The Capitol building is open to the public, but lawmakers have not returned to in-person business as usual; this session, committee meetings and floor sessions are a combination of in person and hybrid.
In the past two years, we’ve learned changes happen rapidly and the same is true with the legislative session. One certainty is the 2022 regular legislative session ends May 16, the constitutional adjournment date.
Minnesota Management and Budget forecasts show a projected $7.7 billion budget surplus compared to last year’s $1.3 billion deficit — a $9 billion change. The final budget forecast will be released at the end of February, and it will be the basis for negotiations as legislators and Gov. Tim Walz discuss a tax bill and possible budget adjustments for the remainder of the state’s two-year budget.
With so much uncertainty and change in the past year — and all indicators pointing toward continued rapid change — 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 2022 legislative agenda. With so many unknowns and perhaps limited debate at the Capitol, some issues may not be discussed this year, and it’s certain that new issues will arise in session. But it’s imperative issues that affect the CPA profession and those you serve continue to get attention from lawmakers.
Federal conformity will continue to be an issue as long as Minnesota continues to be a static conformity state. The 2021 tax bill provided conformity for well-known items such as Paycheck Protection Program (PPP) loans and the taxability of unemployment benefits, but the Legislature has yet to act on many of the changes Congress passed in tax bills since 2018.
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.
The MNCPA continues to support federal conformity.
Minnesota Board of Accountancy (BOA) licensing statutes
Current BOA statutes require the board to automatically revoke a CPA certificate that has 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.
If, after revocation, a CPA wishes to have a certificate reinstated, they must pay reinstatement fees and penalties and complete the required CPE. These steps allow a CPA to practice again but the individual’s licensing file will always show the certificate had been revoked and the individual will need to report this in any jurisdiction in which they are licensed.
Revoked status does not differentiate reasons for a revocation and can range from simply not renewing for two years to serious financial crimes such as embezzlement. Proposed legislation would eliminate automatic revocations requirement after two years of not renewing and allow the lapsed certificate to show up as expired.
The MNCPA supports changes to the BOA automatic revocation statute.
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. 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. Guidance before filing taxes is much more efficient and cost effective than expensive and protracted litigation after the fact. A private letter ruling program was included in the 2021 Senate tax bill, but an agreement was not reached on this issue and the program was not passed into law.
The MNCPA continues to support the creation of a private letter ruling program.
Tax on professional (accounting) services
This issue is not new, and legislation related to this topic has been introduced many times in the past 25 years. Tax reform and state spending are issues legislators continuously discuss. Tax on services is one of those issues and 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.
The MNCPA opposes extending the sales tax on accounting services.
Occupational licensing regulation changes
Occupational licensing legislation has been introduced in Minnesota since 2016 and has been debated a few times since. This issue most likely will not be debated by the 2022 Legislature, but it continues to be of concern. 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 seeing similar legislation grows and the threat to the CPA profession continues.
The MNCPA opposes licensing legislation that could adversely affect mobility and put Minnesota CPAs at a competitive disadvantage.
Minnesota Department of Revenue and Tax Court decision
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. 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 statute 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 business 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 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 that are already regulated at the state and federal level.
Share your thoughts
As legislation is introduced and debated during the 2022 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 these topics and others by emailing firstname.lastname@example.org