MNCPA sets 2024 legislative agenda
Advocacy
Geno Fragnito, MNCPA director of government relations | February/March 2024 Footnote
When the 2024 legislative session begins Feb. 12, legislators will be coming off a year when they had a record state surplus and passed a record two-year state budget of more than $69 billion. With the budget passed, legislators will focus on a capital bonding bill, policy legislation and — possibly — supplemental budget requests from state agencies. This year is also an election year, so we can expect to see many of the debates framed through that lens.
Legislators 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 and knowledge as trusted advisers to hundreds of thousands of Minnesota taxpayers is invaluable.
As part of its advocacy efforts, the MNCPA identified several topics to include as part of its 2024 legislative agenda. With so much change and many new faces at the Capitol, it’s important CPAs share their knowledge and expertise to help legislators understand the policies they will debate. You are best suited to help shape the conversation and affect the final results. Here’s a look at the MNCPA legislative agenda.
Broadening pathways to CPA licensure
While the demand for CPA services continues to increase, the number of CPAs available to provide the services continues to decrease. Increased retirements, fewer students enrolling in accounting programs and fewer candidates sitting for the exam along with other factors have resulted in the need to reevaluate the requirements to become a CPA.
In 2023, the MNCPA supported legislation providing two additional pathways to become a CPA. The first additional path would require 120 hours of college education and two years of work experience. The second additional path would require 120 hours of college education, one year of work experience and 120 hours of professional education. The current path of 150 hours of education and one year experience would remain as an option. None of the pathways would change the exam requirements. Candidates would still be required to pass the exam to be a CPA.
These changes don’t solve the entire problem but do address barriers that have been identified through academic research. The research has shown the cost of additional education is a significant barrier. It also shows that 150 hours has resulted in a 15% reduction in first-time CPA exam candidates after the 150-credit requirement was implemented and the decline aggregates over multiple years. The research also shows there was not an increase in work quality after 150 hours was implemented.
Learn more about this issue at
www.mncpa.org/CPApathways.
The MNCPA supports broadening the pathways to CPA licensure.
Federal conformity
The 2023 session started fast with the passing of a partial federal conformity bill during the second week. It was one of the first bills passed by the Legislature. Minnesota now aligns with many federal tax laws passed during the pandemic; however, many 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 remains a static conformity state.
Legislators are expected to take up a tax bill soon after the 2024 session begins, but it is not known if they will address any conformity or if they will keep the bill limited in scope to correct some errors found in the 2023 tax bill. Often resources for full conformity are not allocated; instead, the Legislature prioritizes and selects individual federal tax code changes to adopt at the state level.
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. Businesses and their CPA advisers throughout Minnesota may find themselves in need of guidance and clarifications to properly apply tax law and to 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.
The MNCPA continues to support the creation of a private letter ruling program.
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 Tax Court cases where the court ruled against the DOR and the DOR chose not to appeal — yet it did not follow the court’s ruling without letting the public know of the department’s position. 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 of ensuring taxpayers and tax preparers comply with tax laws. This guidance is also vital in determining the correct tax liability.
In a November 2022 Minnesota Supreme Court case, Cities Management, Inc. v. Commissioner of Revenue, the majority stated it was “troubled by the Commissioner’s conduct that this case brought light to. Rather than appealing the tax court’s interpretation of tax law with which the Department disagreed, the Commissioner decided internally — apparently without notice to the public — that the Department would ‘not acquiesce’ to the tax court’s interpretation of law. We fear that such actions do little to inspire the trust and confidence of taxpayers in Minnesota’s tax system.”
The dissenting opinion went on to state: “Given the outrageous conduct of the Commissioner, I would instead announce an equitable rule that the Commissioner is bound by tax court decisions that are not appealed unless the Department of Revenue provides public notice of its disagreement with the tax court opinion. It is vital that taxpayers ‘have trust and confidence that Minnesota’s tax system is fairly and equitably applied to all.’”
The MNCPA supports legislation to clarify current statutes about who is bound by Tax Court case rulings.
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 30 years. Tax reform and state spending are issues legislators continuously discuss. Tax on services is an issue that 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 December 2023 state revenue forecast showed a “negative structural balance” in the next biennium. If state revenues don’t increase with the current tax laws, state leaders will need to make cuts, find new sources of revenue or a combination of both. This issue may come up during the 2024 session.
The MNCPA opposes extending the sales tax on accounting services.
Residency factors for Minnesota trusts
Past 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.
Mobile workforce
Income tax withholding and reporting requirements vary from state to state, creating complexity and a compliance burden on both employees working in multiple states and employers withholding taxes for employees working in multiple states.
Mobile workforce legislation would reduce the compliance burden and increase the efficiency of administration by creating a 30-day safe harbor for the filing requirements in states with an income tax withholding requirement. An individual working outside their home state for 30 days or less would not need to file multiple state income tax returns but would simply file a return in their home state. If the individual worked more than 30 days in other states, then the filing requirements would start and a return would need to be filed in any state the individual worked.
The legislation is modeled after the federal mobile workforce legislation and would require other states to adopt similar laws if they want their residents to receive the same benefit.
The MNCPA supports legislation to reduce filing complexity, reduce the compliance burden and increase income tax administration efficiency.
Geno Fragnito is the MNCPA director of government relations. You may reach him at govrelations@mncpa.org.
