Politics and Government

Tax cuts prevail over tax hikes at Capitol

Minnesota Legislature
Gov. Tim Walz, center, Senate Majority Leader Paul Gazelka, R-East Gull Lake, right, and House Speaker Melissa Hortman, DFL-Brooklyn Park, talk after a press conference Thursday in St. Paul.
David Joles | AP file

To say DFL and Republican Minnesota lawmakers were a world away on their initial tax plans is an understatement. 

Democrats in the House squeaked through a bill this spring that would have imposed about $1 billion in new taxes on businesses and high earners; Republicans in the Senate comfortably passed a plan to slice taxes.

The final version of a tax bill blends provisions from both proposals but goes the tax-cut route as a whole.

“A highly negotiated bill that does empower Minnesotans without raising taxes, and it does spark economic growth,” is the way Sen. Carla Nelson, R-Rochester, described the bill. 

With a projected budget surplus and loads of money coming from the federal government, DFLers dropped their call for tax increases during talks between legislative leaders and Gov. Tim Walz.

“I do want Minnesotans to know this tax relief is coming, and it required legislation to make it so,” said Nelson, who chairs the Senate Taxes Committee.

The bulk of the relief comes from waived state taxes on federal assistance during COVID-19. It involves forgiven Payroll Protection Loans for businesses and extra unemployment aid received by idled workers.

“Eighty-five percent of the bill addresses COVID response and recovery and relief,” said House Tax Chair Paul Marquart, DFL-Dilworth.

Combined, the two changes will send about $650 million back to affected taxpayers.

The Minnesota Revenue Department has identified the roughly 560,000 business and individual tax filers who should see money coming their way, said Commissioner Robert Doty.

The department will contact them with direction soon and often, he said.

“We’ve got two responsibilities in this regard: One to get these refunds out to people as quickly as we possibly can, and we will do that,” Doty said. “And secondly is to make sure we get this right — that we have the right information and the amounts are right, all of that.”

Some refunds will be automatic, while filers with more complicated returns might be asked to submit new paperwork, Doty said.

“The day the bill passes, if you go out and start amending, you might be doing something you don’t need to do,” he said.

The agency will wait until the bill passes to move forward in case changes get made. While a House Taxes Committee hearing was scheduled for Friday morning, the bill will be one of the last to receive a vote during the Legislature’s special session.

There are other elements of the tax deal that will also have a notable impact.

The bill contains tax credits to drive affordable housing construction and restore historic buildings.

Lawmakers also aligned the state tax code with more than a dozen federal changes of recent years involving college savings plans, other small business loans and mortgage short sales.

It might be worthwhile for people to look over past tax forms, Marquart said.

“People have already filed things but they may want to check with their accountant to see if they qualify for more,” he said. “They might have to do an amended return.”

Most businesses will catch a break on property taxes beginning in 2023. The annual amount collected through a statewide commercial and industrial property tax will fall by $20 million. That’s done by changing when the tax kicks in — setting it on business property valued above $150,000 instead of $100,000 now.

Beth Kadoun, vice president of tax policy with the Minnesota Chamber of Commerce, said that’s a big deal, particularly to companies in greater Minnesota where land values are lower to begin with.

“Businesses pay all the local property taxes to their schools, cities, counties and in addition they pay a tax that goes into the state general fund,” Kadoun said. “It amounts to about 28 percent of a business property tax is actually the state levy, so it can be a huge part of this.” 

Another $20 million will go into a county-administered aid program to address youth homelessness around the state.

Rep. Aisha Gomez, DFL-Minneapolis, said that will help up to 5,000 displaced families through supportive services and possibly help break a vicious cycle.

“Once you experience an episode of homelessness as a kid, you are many, many more times more likely to experience an episode of homelessness as an adult and to end up in that space of chronic unsheltered homelessness,” Gomez said.

She was ecstatic it made it in the final bill, where well-connected interests tend to have more luck than social causes.

“If we’re going to be doing all this spending in the tax bill, we should spend it on people who need it. We should spend our public good on public good,” she said. “Is it a greater public good to make sure school-aged kids have a place to sleep at night or the dude who owns a private golf course has a break on his property taxes?”

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