The Senate Tax Committee dedicated its first hearing of the session to learning more about the federal tax changes passed late in 2017. It’s the first step in what will be a tedious process of analyzing the law’s potential effects on Minnesota taxpayers and considering how the state should react.
The nonpartisan Department of Revenue has estimated that simply matching Minnesota’s tax code to the new federal changes would result in a $463 million state tax increase on Minnesota taxpayers this fiscal year, and up to $1.2 billion in the next budget cycle. That is because the federal government eliminated many deductions and credits that previously flowed through to state taxes to reduce Minnesota tax liabilities.
If Minnesota doesn’t conform to federal changes, state tax obligations would not change but tax filing could become quite complicated. Lawmakers from both parties are interested in finding a middle ground that better aligns state tax policies with the new federal changes but does not penalize taxpayers. That would likely require a batch of new state tax benefits to neutralize the increases caused by federal changes.
Because Congress passed this bill in about six weeks’ time and without public input, states are still trying to understand all of the implications for their own residents. This conversation will be a top priority this session as more information is available and lawmakers can better understand what changes will be best for Minnesota taxpayers.