MN ranked the Least Tax Friendly State – we need tax conformity and lower taxes


Kiplinger’s recently ranked our State as the “Least Tax-Friendly State in the US.”  This means our tax code puts our hardworking families and small business owners at a disadvantage compared to their competitors in other States, like our neighbor, South Dakota.  Our tax, regulatory and business environment in MN is causing companies looking to expand to go elsewhere.  While our economy in this country is booming, Minnesota’s job creation rate has trailed behind the national average 12 out of the past 12 months.  We are also losing our wealthy seniors to Florida and Texas where they claim residency in a low tax State. Even Gov. Dayton  moved his trust fund to South Dakota years ago to avoid taxes.

Minnesota’s high tax rates are now coupled with the fact that the state tax conformity bill was not signed into law.  The Minnesota Department of Revenue estimates that if Minnesota does not change its tax laws to reflect the new federal tax code, we will see our taxes increase by nearly $1.5 billion dollars over the next couple of years.   This is unacceptable.  The Minnesota tax code must be addressed in the next session. The new federal tax code decreases people’s taxes, but we will not realize the benefits of those changes if Minnesota’s tax rates remain unchanged.

I am a small business owner. The majority of businesses in Minnesota are small businesses and we should do more to support our small businesses to encourage job growth. Our tax bill in the MN House this year offered income tax relief for ALL tiers of earners, including the lowest tier.  A majority of Democratic Legislators voted against tax conformity and Governor Dayton vetoed the bill, causing an estimated 969,490 filers to pay more next year.

I will always support lowering taxes and regulations so that our State becomes competitive with other States and can ATTRACT jobs to this state, instead of pushing them out.

If you are curious what Minnesota’s non-conformity to the new Federal tax code means to you, here are some issues MN CPA’s are highlighting:

FOR INDIVIDUALS:

STANDARD DEDUCTION OR ITEMIZING DEDUCTIONS ON STATE RETURNS

The MN Dept of Revenue recently announced that individuals may itemize deductions on their State return, even if they take the new higher standard deduction on their federal taxes.  Yes, this means the paperwork and calculations to do your taxes will take much more time and the preparation cost will be costly for filers.  For filers who will still itemize on their State taxes, it will also mean you need to keep your receipts and calculations for all your deductions.

An estimated 969,490 tax filers will pay more for 2018 taxes due to the Democratic opposition to the tax conformity bill.

TOP ISSUES FOR SMALL BUSINESSES:

NEW FEDERAL DEPRECIATION SCHEDULES are helpful to small businesses, but the lack of MN State conformity means businesses will have to keep two separate schedules for each item.  If the asset is sold, this creates a complicated reporting of a gain.

The Federal tax changes include SECTION 199A to its code, which provides a deduction of up to 20% of qualifying business income through a pass-through entity (an S Corp, LLC or partnership).  Most businesses operate as a pass through entity and therefore most businesses will benefit from this improved tax code.  The lack of tax conformity means Minnesota pass-through business owners will not receive this benefit on their Minnesota returns.

For small business owners that receive pass thru income from an LLC, SCorp or Partnership, you may be excited about federal rules being relaxed around cash vs. accrual accounting.  The MN Dept of Revenue reported that business owners can use the same method they use for federal purpose.  But without statutory conformity, many are concerned about the legal authority to do so.  I believe we need to pass conformity to provide legislative certainty to our small businesses.  They cannot plan on hiring people or making serious investments in their business if they do not have assurance that the Dept of Revenue won’t pull the rug out from under them.

 

Failure to pass tax conformity could hurt Minnesota taxpayers

Governor Dayton Vetoes Minnesota’s Conformity Bill

Mark Dayton vetoes GOP-backed MN tax bill – Pioneer Press

Oct 11, 2018 WCCO News:  Minnesota Ranked As Least Tax-Friendly State In US

Kiplingers: South Dakota vs Minnesota Tax Comparison