Fall’s property tax refunds could become part of spring income tax refunds

Perhaps it’s so ingrained in our national consciousness that April 15 is the day taxes are due that many people don’t apply for a refund on their property taxes come Aug. 15. This may be especially true for renters who don’t realize they’re eligible for a property tax refund despite not being homeowners.

So what would happen if the state just did away with its property tax refund programs and made them part of the income tax filing process?

We may find out.

Sponsored by Rep. Paul Marquart (DFL-Dilworth), HF3558 would convert the state’s property tax refund programs — the homestead credit refund, the renter’s credit, and what’s called the “targeting refund” — into a refundable income tax credit.

On Thursday, the House Taxes Committee laid the bill over for possible inclusion in an omnibus taxes bill. It has no Senate companion.

“What this would do is move it up so a person would fill out that information that’s needed and could receive a refund much earlier,” Marquart said. “So those who get a refund would get it sooner, and it would make a lot more people eligible.”

Marquart said there’s history behind his proposal.

“This bill does not reinvent the wheel,” he said. “Prior to 1981, the renter’s credit was on the income tax. It was a refundable credit. And also senior citizens and homeowners were able to apply for the credit on their income tax. But during the budget crisis of 1981 when they had five or six special sessions to deal with it, they did away with that. It was basically a shift. Instead of having a payment from January through April, they then shifted the payment into August and September.”

Another section of the bill would affect a lot more than just property tax refunds and renter’s credits.

“The second part of the bill is that it moves from household income to federal adjusted gross income,” Marquart said. “So it would match the income you’re doing on your federal income tax form. You wouldn’t have to add the other things that go into household income. So it would lower your income about 14% and you’d get a larger property tax refund. And some people who don’t now qualify would.”

The Department of Revenue estimates that the change would affect 1,263,000 taxpayers, and would bring homeowner refunds up to an average of $1,114, an average increase of $210, and that the number of eligible homeowners would increase by 305,000. It would impact 120,000 renters, with their renter’s credits increasing to an average of $716.

The change would also result in $1.54 billion less in revenue for the state’s General Fund in fiscal year 2023, that figure dropping to $718.4 million in fiscal year 2024. Marquart said the larger 2023 total would be due to the state sending out two sets of refunds over the course of the change.

“The move to adjusted gross income really makes things a lot less complicated for folks,” said Rep. Cheryl Youakim (DFL-Hopkins). “It currently is difficult because they have to figure out all the things they have to put back in.”

Rep. Chris Swedzinski (R-Ghent) asked how it would work for those who received federal aid to help pay their rent during the pandemic. A member of the nonpartisan House Research Department said that a renter’s refund would be based solely upon money that they had paid.

“This is a big idea,” Marquart said. “This would be some big reform.”