MN Department of Revenue Releases Updated Tax Numbers

On Wednesday February 10, Commissioner Jim Schowalter of the Minnesota Department of Revenue released a January Revenue Review comparing the actual tax collections in January to the projected collections from the November budget forecast. The review is a positive sign for Minnesota’s economy and budget, with tax revenues exceeding expectations by 14 percent, or $296 million. According to the review, individual income, sales, and corporate tax receipts were above the projected numbers for the months, while other tax receipts matched the November forecast.

The Walz Administration and legislative leaders are closely monitoring the state’s economic health as they await the official February forecast which will set the tone for the remaining 90 days of the legislative session in which the House, Senate, and Governor all must agree to a balanced budget to keep the state government operational.

Federal CARES Act Conformity

Over the last two weeks, both Senate and House Tax committees held hearings on federal conformity provisions with an impact on state income and corporate taxes in response to relief from the Coronavirus Aid, Relief, and Economic Security (CARES) Act and the Coronavirus Response and Relief Supplemental Appropriations Act of 2021. Minnesota has not yet adopted the changes Congress passed in 2020, therefore unless the legislature agrees on a conformity relief package, PPP recipients will see a state tax liability for forgiven loans; Congress has eliminated this tax liability for federal tax returns.

In late January, the Senate tax committee heard and laid over S.F. 263, authored by Senator Tom Bakk (I-Cook), a bipartisan bill that excludes forgiveness of PPP loans from gross income and allows deductions of business expenses paid for with forgiven PPP loans; additionally, the bill provides an option for pass-through businesses to calculate and file taxes in the same form as a corporation by electing “C-option corporation” status. Last week the House tax committee held an informational hearing on the topic.

Tax bills must be initiated in the House, therefore, the Senate must wait for the House in order to act further. It is expected that floor action will not take place until the February forecast is released in late February or early March, therefore, it is likely leaders will not pass a bill to provide certainty until after most 2020 tax returns are prepared and filed. If passed, tax filers who were PPP recipients will likely be required to file an amended state tax return.

Clean Energy First to Receive House Floor Debate Again

For the third year in a row, the Minnesota House will debate Clean Energy First, a bill that requires Minnesota’s utilities to prioritize clean and renewable energy sources when replacing retiring power plants. Representative Zack Stephenson (D-Coon Rapids), the bill’s chief author, steered the bill through the House Climate and Energy Committee last week, fending off over a dozen amendments by Republican committee members who are critical of the bill, claiming Clean Energy First will raise consumer utility bills - particularly for the state’s largest commercial power users like the mining and manufacturing industry.

There is no Senate companion to H.F. 10 yet, but Senator Dave Senjem (R-Rochester) the new chairman of the Senate’s Energy and Utilities Committee has been the bill’s chief author the past two years. It is expected that Senator Senjem will introduce a version of Clean Energy First that may pass the Republican controlled state Senate.

After passing out of the House Climate and Energy Committee on Thursday February 10, the bill will await a full floor debate where it is expected to pass the Democratic controlled house on a party-line vote.

Important Dates

February 26
State budget forecast is released
 
March 12
1st Committee Deadline - committees must act favorably on bills in the house of origin
 
March 19
2nd Committee Deadline - committees must act favorably on bills, or companions of bills, that met the first deadline in the other house
 
March 26 - April 5
Easter/Passover Break - the legislature is in recess
 
April 9
3rd Committee Deadline - committees must act favorably on major appropriation and finance bills
 
May 17
The legislature must adjourn
 
Please note: Committee deadlines do not apply to the committees on Capital Investment, Ways and Means/Finance, Taxes, or Rules and Legislative Administration.

Federal Update

Committees dig into coronavirus relief markups

Now that the second impeachment trial for former president Donald Trump has concluded, several House panels continue to mark up their portions of what’s expected to become a $1.9 trillion coronavirus relief bill by way of the budget reconciliation process. The House Ways and Means Committee on Wednesday churned through five portions of the emerging coronavirus relief package, approving sections dealing with enhanced unemployment benefits and services for older Americans and low-income families with children.

Altogether, the tax-writing committee was planning to submit nine separate pieces of what will become a nearly $1.9 trillion COVID-19 aid bill next week when the House Budget Committee stitches them together with contributions from several other House panels. Democratic leaders are using budget reconciliation procedures, which would enable them to pass the measure, the top legislative priority of President Joe Biden at the moment, with a simple majority in the 50-50 Senate.