SAINT PAUL, Minn—On Sunday, May 20, 2018, the Minnesota House approved legislation that will benefit more than 2.2 million Minnesota rate filers, as well as make available up to $225 million for Minnesota schools. The bill passed on a bipartisan vote of 85-42.
First, with historic tax reform passed by Congress in 2017, it is critical that Minnesota conform to federal tax code, ensuring taxpayers can take full advantage of state and federal tax relief, and preventing undue headaches and hassles for tax filers next year. This legislation delivers the first income tax rate cut for Minnesotans in nearly two decades, and 99.8 percent of Minnesotans would see tax reductions or be held harmless by the tax changes.
“The legislature has done our job and now Minnesotans are counting on Governor Dayton to sign this bill into law,” said State Representative Greg Davids, R-Preston, Chair of the Minnesota House Taxes Committee. “This legislation targets tax relief squarely at middle-class families and preserves important deductions that Minnesotans rely upon. We’ve been receptive to the governor’s input throughout this process, incorporating many of his suggestions and provisions. Together we can prevent headaches for Minnesotans filing their taxes.”
Highlights of the Tax Articles include:
- Helping middle-class Minnesotans keep more of what they earn by cutting the first tier income tax rate from 5.35 percent to 5.25 percent by tax year 2020 and the second tier income tax rate from 7.05 percent to 6.85 percent by tax year 2020. This would mark the first income tax rate reduction in Minnesota since 2000.
- Protecting families by preserving a state personal and dependent exemption of $4,150.
- Preserve the standard deduction, itemized deductions, as well as the personal and dependent exemptions.
- Supporting hometown businesses and farmers by reinvesting extra revenue from corporate tax changes into Section 179 conformity and overall rate reductions.
The education portion of the bill makes available as much as $225 million for Minnesota schools—nearly $100 million more than Governor Dayton’s request to address school budget shortfalls. It places more money in every classroom, provides school districts with needed flexibility, and incorporates bipartisan solutions to help Minnesota students and schools.
“We've gone above and beyond to find a solution for school districts facing funding shortfalls, advancing bipartisan initiatives that will put more money in every classroom statewide and give our school districts needed resources and flexibility,” said Representative Jenifer Loon, R-Eden Prairie, Chair of the House Education Finance Committee. “On top of historic investments in education over the past several years and our work to advance critical school safety measures this session, this bill continues to demonstrate our unwavering commitment to our students and schools. We have worked hard to exceed the governor's request and join Minnesota students and taxpayers urging him to sign this compromise into law.”
State law requires that by July 1, 2018, the state compensate Minnesota schools for all designated school trust lands that prohibit long-term economic returns. To make good on that promise, $50 million would be provided from the budget reserves for a one-time payment, providing an increase to every Minnesota school district on a per pupil basis in Fiscal Year 2019.
Additionally, the bill would temporarily suspend requirements that schools set aside two percent of the basic aid formula for staff development for one year—freeing up as much as $125 million for staff retention. In 2011, Governor Dayton and a Republican-led Legislature temporarily suspended this set-aside for staff development to give districts more funding flexibility. Finally, for schools with positive reserves in their Community Education Fund Balances, the plan would authorize a one-time transfer to school General Funds to help cover budget shortfalls, providing up to $52 million in additional dollars. House Democrats have authored similar transfer authorizations.
Republicans have also passed approximately $28 million in school safety funding in the Supplemental Budget, as well as $25 million toward school safety in the Capital Investment Bill.
This bill now heads to the Senate, and if approved, would head to Governor Dayton's desk for signature.