House panel approves corporate tax fix

Did we say 2023? We meant 2024.

That’s the gist of a mistake that’s been a bugaboo for House Republicans since the session began. The first bill signed into law this year corrects an error in the 2023 tax law that inadvertently omitted five years of inflation adjustments in the standard deduction for individual filers.

But debates about that bill had many questioning why another error was not being fixed at the same time, despite being acknowledged last June by the House and Senate tax chairs in a letter to the commissioners of revenue and Minnesota Management and Budget.

Due to an incorrect date in the law, a corporate tax change for tax year 2024 was inadvertently implemented for tax year 2023. House Republicans emphasized the urgency of a correction, for businesses are currently filing their tax returns for that year.

The fix is under way, as HF3769, sponsored by Rep. Dave Lislegard (DFL-Aurora), was approved by the House Taxes Committee Thursday and sent to the House Ways and Means Committee, where it is scheduled to be addressed March 11. The bill would correct a drafting error and retroactively modify the effective date for the change from tax year 2023 to tax year 2024.

The net operating loss deduction allows a corporation to use net operating losses from the previous 15 tax years to reduce its taxable income in the current tax year. That deduction has been limited to 80% of a company’s current-year taxable net income but was reduced to 70% of its taxable net income in last year’s tax law. The change was supposed to be effective in tax year 2024, but the change is on the state tax forms currently being filed.

The Revenue Department estimates that the change would affect about 4,850 taxpayers in tax year 2023, with an average decrease in tax of $3,050.

In a letter, Beth Kadoun, vice president of tax and fiscal policy for the Minnesota Chamber of Commerce, said the change would “prevent a $14.8 million tax hit this tax filing season for many small businesses.” She urged swift passage to keep many taxpayers from having to file amended returns.

“This needs to be done,” said Rep. Greg Davids (R-Preston). “I’ll give it everything I have, and if any of my colleagues on this side have issues with it on the House Floor, we will probably have words. … I can’t speak for the entire caucus, but I don’t know of anybody who would oppose this.”