Net loss change gets a big win on the House Floor

No amendments were proposed to HF3769 when it reached the House Floor on Monday. But it will likely lead to some amending. Amended tax returns, that is.

A drafting error in the 2023 tax law made many Minnesota companies pay more in taxes this spring than the Legislature intended. A change intended to take place in tax year 2024 was inadvertently expedited when “tax year 2023” appeared in the law.

But the flaw would be corrected by HF3769, a bill sponsored by Rep. Dave Lislegard (DFL-Aurora) that was passed 130-0 by the House Monday and is on its way to the Senate.

“This fixes the remaining issue from the 2023 tax (law),” Lislegard said. “It’s important for this body to keep its word. We voted on this last year, and this will seal the deal.”

The bill is all about the net operating loss deduction. That line on a corporate tax return allows a business to use net operating losses from the previous 15 tax years to reduce its taxable income in the current tax year.

What had annually been limited to 80% of a company’s current-year taxable net income was reduced to 70% in last year’s tax law. The change was supposed to take effect in tax year 2024, but the change is on the state tax forms currently being filed, so 70% it is until the repair becomes law. And then companies will start amending this year’s tax returns.

It's been described as a $14.8 million fix, and, indeed, that’s how much it will reduce net revenue for fiscal year 2025, according to the Revenue Department. That figure also appears in the supplemental budget put forth by Gov. Tim Walz Monday, so it’s presumed the governor would sign it into law if passed by the Senate.

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.

“This is very much needed,” said Rep. Greg Davids (R-Preston).