MNCPA sets 2023 legislative agenda
Advocacy
Geno Fragnito, MNCPA director of government relations | February/March 2023 Footnote
Editor's note: Updated January 31, 2023
When the 2023 legislative session began Jan. 3, legislators came into office with a record surplus in the state’s coffers. A DFL majority continues to lead the Minnesota House, a new DFL majority now leads the Minnesota Senate with a razor thin 34–33 advantage, and Gov. Tim Walz appointed former state representative Paul Marquart as the new Minnesota Department of Revenue commissioner.
The past few years have shown us change can happen rapidly, and the same is true with the legislative session. More than one-third (68) of the Legislature is new and these new legislators spent the first month learning the committee process, meeting advocates for many causes and developing priorities for the next state budget.
The only certainty for the 2023 regular legislative session? It must end by May 22, the constitutional adjournment date. Otherwise, the Capitol building is open to the public and legislative hearings are in person again, but hybrid options remain and allow greater access and opportunity to participate in the committee process. Floor sessions also returned to in person.
The elephant in the room: The surplus
The November 2022 budget forecast issued by the Minnesota Department of Management and Budget shows a record projected $17.6 billion budget surplus. This is almost $10 billion more than the surplus one year ago and includes money carried over from 2022 when a tax bill was not passed. The November number will be used to begin budget development, but legislators will rely on the February 2023 forecast to set the final amount available to fund state government.
With such a large surplus, legislators and the governor face many competing interests as they look to make a case for state funding. They will have an opportunity to fund programs and projects that require a one-time funding source that would not add to the base budget for future legislatures. Some tax conformity provisions such as bonus depreciation are items that would require a one-time appropriation to reduce tax complexity and administrative costs.
Legislators always rely on experts to help them better understand how legislation affects their constituents. CPAs are well positioned to help legislators understand how policy changes may help or hinder Minnesota’s continued 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 2023 legislative agenda. With so many new faces at the Capitol, it’s very important CPAs share their knowledge and expertise to help legislators understand the tax policies they will be debating. You are the best suited to help shape the conversation and affect the final tax bill.
Federal conformity
The first bill passed by the Legislature in early January addressed federal conformity. Minnesota now aligns with many federal tax laws through Dec. 15, 2022, however items such as bonus depreciation and the estate tax remain out of conformity. Nonconformity continues to add unnecessary complexity and increased cost for filing a Minnesota return and will be an issue as long as Minnesota continues to be a static conformity state.
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. With a record state surplus, legislators have the resources to address more conformity and reduce complexity.
The MNCPA continues to support federal conformity.
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 has been included in previous Senate tax bills, 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 is not a new issue, 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. This issue is expected to come up during the 2023 session.
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 continues to be debated nationally and could come before the 2023 Legislature. A diverse mix of interest groups support the legislation and the efforts to pass it could be stronger because of changes that have occurred as a result 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. 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.
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 past 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.
Share your thoughts
As legislation is introduced and debated during the 2023 session, the MNCPA government relations team and MNCPA members will be busy 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
govrelations@mncpa.org.
