A fifth tier, exempting unemployment and PPP – it all adds up in omnibus tax bill

How are you going to pay for it? That question gets asked whenever a politician puts forth a proposal for a new program.

In Minnesota’s case, it must be answered because the state constitution mandates a balanced budget.

So it’s up to the Legislature’s tax committees to come up with an answer, negotiate a compromise between their two proposals, and get the governor on board. On Tuesday, the House Taxes Committee was the first to put its proposal on the table.

Sponsored by Rep. Paul Marquart (DFL-Dilworth), HF991 is the omnibus tax bill. It was given a walk-through by nonpartisan House staff, with public testimony planned for Wednesday and amendments and a vote Thursday.

With the help of a voluminous number of changes to state tax code, it’s projected the bill’s provisions would raise $49.1 billion in revenue for the 2022-23 biennium.

Rep. Paul Marquart

It would also provide $4.2 billion in property tax refunds, aids and credits, leaving $1.74 billion in the state’s budget reserve account and $100 million in the stadium reserve account.

The bill’s companion, SF961, sponsored by Rep. Carla Nelson (R-Rochester), awaits action by the Senate Taxes Committee.

So where does that $49.1 billion come from? A key element is one that Marquart said would give some Republican members heartburn: Creating a new fifth individual income tax tier of 11.15%, which would apply to those individuals with annual incomes of $500,000 or more, or $1 million for those married filing jointly. It’s estimated that this would bring in $303.6 million in fiscal year 2022.

Another big source of revenue would be a change in corporate franchise taxes. It would make all income of a controlled foreign corporation subject to the state’s apportionment formula, or require it to report its worldwide income, which would then be subject to state taxes. It’s estimated this would add $229.6 million to state coffers in fiscal year 2022.

“This uses a tool that was passed by a Republican Congress and President Trump that would allow us to bring foreign profits back to Minnesota,” Marquart said. “Our small businesses can’t put profits in Bermuda and the Cayman Islands. … This would help even the playing field.”

As for those refunds, aids and credits, the biggest difference maker on the budgetary bottom line would be creating a tax subtraction for unemployment benefits up to $10,200 for those with gross incomes under $150,000. This would apply only to tax year 2020, but it would reduce state revenues by $259.7 million.

As for loans forgiven through the federal Payroll Protection Program becoming tax exempt, the bill would do that for 90% of the recipients. It would require an addition for the amount of associated expenses in excess of $350,000 per loan.

“It is a bipartisan bill,” Marquart said. “I counted at least 29 Republican provisions in the bill.”

Here are some other key elements:

• it would conform to the tax provisions in five federal acts that have become law since December 2019, resulting in a loss to the state’s General Fund of $341.4 million in fiscal year 2022. The PPP loan forgiveness changes would decrease state revenues by $220.4 million in fiscal 2022;
• there would be county relief grants for local businesses and nonprofits of $69.7 million in fiscal year 2022;
• a new homelessness prevention fund would provide $25 million in annual aid to counties beginning in fiscal year 2023;
• the Housing Development Fund and Workforce and Affordable Homeownership account would receive $15 million between them in fiscal year 2022;
• it would allow $10 million to be allocated for the small-business investment credit, or “angel credit,” for tax year 2022 and extend its sunset by one year;
• the market value exclusion on the statewide property tax would increase from $100,000 to $150,000;
• the state’s tobacco products tax would be expanded to include electronic vapor devices; and
• the bill contains all of the local taxes and tax increment financing provisions included in the Property Tax Division report.

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What’s in the bill?

The following are selected bills that have been incorporated in part or in whole into the omnibus tax bill:

• HF6 (Noor)
• HF46 (Marquart)
• HF118 (Hertaus)
• HF181 (Fischer)
• HF187 (Lillie)
• HF195 (Dettmer)
• HF280 (Urdahl)
• HF298 (Noor)
• HF355 (Sundin)
• HF376 (Youakim)
• HF438 (Swedzinski)
• HF474 (Huot)
• HF494 (Akland)
• HF495 (Akland)
• HF496 (Marquart)
• HF500 (Marquart)
• HF501 (Marquart)
• HF514 (Igo)
• HF525 (Lislegard)
• HF551 (Klevorn)
• HF572 (Morrison)
• HF574 (Howard)
• HF584 (Sandstede)
• HF618 (Berg)
• HF650 (O’Neill)
• HF654 (Acomb)
• HF693 (Igo)
• HF724 (Youakim)
• HF736 (O’Driscoll)
• HF759 (Petersburg)
• HF921 (Baker)
• HF978 (Becker-Finn)
• HF998 (Schultz)
• HF1019 (Marquart)
• HF1066 (Davnie)
• HF1090 (Youakim)
• HF1095 (Hertaus)
• HF1157 (Howard)
• HF1179 (Edelson)
• HF1201 (Lippert)
• HF1234 (Becker-Finn)
• HF1239 (Kresha)
• HF1285 (Marquart)
• HF1300 (Theis)
• HF1301 (Murphy)
• HF1304 (Rasmusson)
• HF1311 (Youakim)
• HF1321 (Erickson)
• HF1322 (Acomb)
• HF1329 (Anderson)
• HF1335 (Her)
• HF1345 (Bahner)
• HF1456 (Marquart)
• HF1458 (Burkel)
• HF1485 (Sundin)
• HF1503 (Davids)
• HF1507 (Hamilton)
• HF1508 (Hamilton)
• HF1561 (Lislegard)
• HF1587 (Torkelson)
• HF1610 (Poston)
• HF1614 (Keeler)
• HF1658 (Stephenson)
• HF1666 (Howard)
• HF1679 (Marquart)
• HF1709 (Wolgamott)
• HF1732 (Agbaje)
• HF1735 (Youakim)
• HF1736 (Fischer)
• HF1751 (Poston)
• HF1787 (Bernardy)
• HF1795 (Reyer)
• HF1801 (Murphy)
• HF1812 (Becker-Finn)
• HF1813 (Youakim)
• HF1816 (Kotyza-Witthuhn)
• HF1893 (Sandstede)
• HF1903 (Hertaus)
• HF1909 (Davids)
• HF1914 (Youakim)
• HF1937 (Marquart)
• HF1970 (Howard)
• HF1975 (Lislegard)
• HF2114 (Marquart)
• HF2120 (Lislegard)
• HF2293 (Franson)