PASSED
*See Jobs section for UI tax cut/frontline worker bill
DID NOT PASS
The final Tax Conference Committee Report was never finalized nor passed out of conference committee. The group adopted all available articles and the spreadsheet on May 22, but the conference committee was left open, and no report was signed. (HF 3669)
Major items included in that bill which did not pass:
Social Security income full subtraction
The final agreement spent $506 million per year, ongoing, to provide a full Minnesota tax subtraction for Social Security income. As a result, 406,000 Minnesota seniors would have seen an average $1,253 tax cut, and Minnesota no longer would be one of 12 states that tax a portion of those benefits. However,
2.5 million Minnesota taxpayers would see no relief from this change – including nearly 60% of seniors, mostly earning less than about $60,000/year, that already do not pay taxes on those benefits.
This idea also was included in the first two Senate tax bills. Links to the April 7 vote on that bill may be found here (SF 3692, Journal page 6869) and the May 11 vote here (HF 3669, Journal page 8399). In 2021, DFLers offered an amendment to provide a full Social Security income tax subtraction, which also paid for the expensive budget gap created by the policy through a surcharge on net investment earnings over $250,000 per year. All DFLers voted for that amendment. A link to that vote may be found here (HF991, Journal page 3988).
Income tax rate cut
The final tax bill would have reduced the tax rate on the first income tax bracket from 5.35% to 5.1%. For TY 2022, the first-tier rate is applied to income up to $41,050 married-joint / $28,080 single. Anyone with taxable income in the first bracket would see this rate cut – even the highest-earning taxpayers; 542,000 filers would see no benefit at all. The provision cost $276.7 million in FY 2023 and $390.5 million in ’24-25, delivering an average annual tax reduction of $75 – about $2.88 per paycheck.
The original Senate bill spent $2 billion per year to drop the rate to 2.8%. That would have provided an average tax reduction of $759.
Statewide business property tax cut
The state General Levy applied to commercial/industrial, and cabin property would have been reduced by $75.9 million through 2025 in the final tax agreement. The original Senate bill proposed to reduce this levy by $23 million through 2025 but then phase out the levy completely through the year 2035. That would have cost the state $1.5 billion per biennium once fully implemented.
Senate DFLers recognized better uses for this amount of money and offered a series of amendments to the second tax bill on May 11 that would have retained this business property tax and used the savings to: fund the special education cross subsidy and increase Local Government Aid and County Program Aid by $30 million each. Both amendments failed to pass.
Renter’s Credit converted to Refundable Income Tax Credit
The final tax agreement included a major expansion and reform of the Renter’s Credit that came from the House bill. It spent $372 million this fiscal year to do two things to the Renter’s Credit:
- Convert the credit to a refundable income tax credit that would be filed and received when taxpayers file income taxes (rather than filing a separate application and receiving a refund late in the year). This provision was expected to impact 120,000 renters who are currently eligible but do not collect the refund, a value of $86 million.
- Convert the measurement of income used from household income to Federally Adjusted Gross Income (FAGI). This would have allowed about 36,000 renters to newly qualify for the credit, a value of $15 million.
This measure was intended to provide some tax relief to lower-income seniors who would not benefit from the Social Security tax cuts in the bill. A majority of current Renters’ Refund recipients in rural counties are seniors or disabled (map). It also would have simplified the process for all renters and expanded those who qualify by no longer requiring various forms of nontaxable income to be added back before determining eligibility.
Other property tax relief
The final agreement included several other property tax relief items. Those that also were included in the first two Senate tax bills in 2022 are marked with an asterisk.
- *Senior citizen property tax deferral: this program allows seniors below a certain income level to defer property taxes that exceed 3% of total household income if they have trouble paying. The final tax bill would have reduced the amount of time seniors must have owned their home from 15 years to five and increased the income threshold from $60,000 to $96,000, allowing more seniors to use this tool if needed.
- Homeowner Property Tax Refund increase: The final bill invested $72 million next biennium in homeowner property tax relief. It would have increased the maximum refund by $200, expanded the maximum eligible income from $113,149 to $126,289, and reduced co-pay percentages by 5% for taxpayers earning less than $77,870.
- *Targeted Homeowner Refund: The Targeted Refund is available to all property taxpayers, regardless of income, whose property taxes increase more than 12% and $100 in one year. The final tax bill would have reduced the percentage to 10% and increased the maximum refund from $1,000 to $2,000.
- *Homestead Market Value Exclusion: Homeowners are eligible to exclude a portion of market value from property taxes if their homestead is valued under $413,700. The final tax bill increased that maximum threshold to $517,200 and increased the minimum and maximum thresholds for the exclusion by about 25% to better reflect rising property values.
- *Ag homestead: Agricultural homestead property beyond the house, garage, and one acre is taxed at a rate of 0.5% on the first tier and 1% on the remaining value. The final tax bill would have increased the first-tier valuation limit from $1.89 million to $2.5 million to better reflect rising land values.
- *Ma & Pa resorts: These are properties where the owner(s) reside and are also used for commercial seasonal recreation purposes under 250 days per year. The final tax bill adjusted the tiers for these resorts to reflect rising values: The first tier would include the first $850,000 of value (changed from $600,000), and the second tier would include value between $850,000 and $3.1 million (changed from $2.3 million), and the third tier would include value over $3.1 million (changed from $2.3 million).
Child & Dependent Care Tax Credit (“Great Start Childcare Credit”)
Another House provision included in the final tax agreement was a $55.5 million expansion of the state’s dependent and childcare tax credit. That credit helps families who have expenses related to childcare or personal care needed for a dependent. The bill would have:
- Increased the income phase-out from $53,100 to $80,000; maximum eligible income would be $105,000/year
- Increased the maximum credits to $3,000 for one qualifying child, $6,000 for two or more
- Provided an additional benefit for taxpayers with children ages 0-4: $1,000 extra for one child; $2,000 extra for two; and $3,000 extra for three or more children
- Increased the maximum percentage of eligible dependent care expenses from 35% to 50%
Senate DFLers offered an amendment to the first Senate tax bill on April 7 that would have provided an even larger benefit to parents of young children up to age five: $7,000 for one child, $14,000 for two, and $19,000 for three. The credit would have been available to taxpayers earning up to $440,000, providing an average tax cut of $1,300 to 156,700 filers with childcare expenses. All DFLers voted for that amendment, but it failed to pass.
Local Government Aid & County Program Aid; SWCD aid
The first two Senate tax bills did not include any adjustments to LGA or CPA, although DFLers did offer and vote for an amendment to the second tax bill on May 11 to increase both programs by $30 million, including the LGA formula reform developed by stakeholder groups and lawmakers. The final tax bill included the $30 million increase to both programs, but not the formula change.
Additionally, the final bill establishes a new state aid program that would distribute $22 million annually to soil and water conservation districts. Of this amount, 70 percent would be distributed equally among all districts, and 30 percent would be distributed according to each district’s proportional share of nonpublic land.
- LGA runs reflecting the final agreement may be found here CPA runs reflecting the final agreement may be found here
- SWCD aid runs reflecting the final agreement may be found here
Federal tax conformity
The final tax agreement would have conformed Minnesota tax law to a number of federal that have not yet been matched, making tax-filing less confusing for taxpayers. Some of the update items would have included:
- Exclusion of discharge of indebtedness
- Exclusion for certain employer payments of student loans
- Partial above-the-line deduction for charitable contributions
- Exclusion of Shuttered Venue grants income
- Exclusion of Restaurant Revitalization Grants
Charitable gaming tax changes
The second Senate tax bill and the final agreement spent $14.5 million to expand the brackets and reduce the first-tier rate from 9% to 5% on paper or electronic pull-tabs, tipboards, and electronic linked bingo. This effectively would have reduced state taxes that charitable gaming organizations must pay the state.
Polar Vortex (energy costs) tax credit
The second Senate tax bill and the final agreement contained language to help utility customers recoup a “Severe Weather Cost Recovery Charge” approved by the Public Utilities Commission last year to cover 2021 polar vortex-related natural gas cost increases. The Senate’s version applied an upfront sales tax exemption to natural gas sales through 2026. The final tax agreement would have spent $14.7 million on energy rebate grants to utility companies, which then would distribute proportional rebates to their customers based on total natural gas energy usage.
Affordable housing
- Class 4d affordable housing rate and transition aid: The Senate bill and the final agreement would have set the Class 4d low-income housing rate at 0.25%; require property owners to
receive approval from the governing body of the city or town where the property is located, and require an application to the MHFA. The bill also established 4d transition aid for 2024 and 2025 for cities in which the net tax capacity of 4d property exceeds 2% of the total net tax capacity in 2022.
- Affordable Housing Market Value Exclusion: The Senate bill and the final agreement would have created a new, 50% market value exclusion for new rental properties. Eligible property must reserve at least 20% of units for residents whose household income does not exceed 60% of area median income, and at least 80% of those 20% must be occupied by residents meeting that requirement. Governing bodies must adopt a resolution to participate in the exclusion program for each property approved to be eligible.
- Local Affordable Housing Aid Program: Senate DFLers offered an amendment to the second Senate tax bill that would have established this aid program to distribute money to cities and counties to develop and rehabilitate affordable housing. It would have provided annual distributions of $32 million to counties and $8 million to cities, based on each government’s share of cost-burdened households paying more than 30 percent of their income toward housing.
Other tax items that did not pass
Walz Checks
Neither the House nor Senate tax bills included the Governor’s idea for a one-time direct payment to all Minnesota tax filers – except those in the 4th tier – this year, but the Senate DFL did offer an amendment to the first Senate tax bill that would have replaced the 1st tier rate cut with this plan. The one-time payment would equal $1,000 for married joint and head of household filers and $500 for single and married separate filers. To be eligible for the payment, a taxpayer must have filed either a 2020 income tax return by October 15, 2021, or a 2020 property tax refund by December 31, 2021. Returns with some income in the top income tax bracket would not be eligible. The rebate plan would have cost $2 billion this year.
Paid Family Leave tax credit
The second Senate tax bill provided an employer tax credit to businesses with fewer than 50 Minnesota employees that provide a paid family and medical leave benefit to their employees.
Employer credit: Employers that provide a paid family leave benefit to an employee or make a payment to an insurance company to provide an employee a paid leave benefit may earn a tax credit equal to the lesser of $3,000, total leave paid to an employee, or for 50% of the amount paid to an insurance company to provide paid leave. The employee must have worked for the employer for at least one year. There is no minimum requirement for the amount or value of paid leave that must be offered for an employer to earn the credit.
Definition of family leave that would qualify an employer for a tax credit: Providing care for a family member for a serious health condition; bonding with a child during the first 12 months after birth or adoptive or foster care placement; exigency due to active-duty service. Family members mean child, spouse, parent, or grandparent. Care of oneself is not included in eligible leave.
*Note: The DFL moved to pull SF 1205, full Paid Family and Medical Leave, from committee and place on General Orders on May 12. On May 10, DFLers offered the contents of that bill as an amendment to SF 3885, a bill to allow insurance companies to sell Paid Family Leave policies. Information on that is included in the Commerce section.
Public Safety Aid (Governor’s proposal)
The Governor’s request for $100 million per year in public safety aid to local governments that employ a police or sheriff’s department was carried in his tax bill, but neither the Senate’s nor House’s. The Senate DFL offered an amendment to include this in the second Senate Tax bill on May 11. The average Minnesota city would have received about $240,000 to invest in public safety. The link to that vote to provide $300 million in public safety resources to communities across the state is here (HF 3669, Journal page 8398).
*Note: the DFL also offered a $500 million public safety package that included this aid – see ‘Judiciary and Public Safety’ section for more information.
Levy limits, market value limits
The Property Tax Subcommittee heard a bill this session that would have imposed levy limits on communities that have adopted rent stabilization measures. Those cities’ annual levy increases would not be able to exceed the annual rent increases imposed in the same jurisdiction. That bill was not included in any version of the Senate tax bill.
An amendment to limit annual market value increases was offered on the Senate floor but withdrawn before a vote could occur. Cabin owners, in particular, were vocal in their efforts to convince the legislature to adopt some version of value limits this year to help with rising property taxes. Minnesota has implemented this tool in the past, and it has proven to be an ineffective way to provide property tax relief. The policy delays but does not avoid higher values and corresponding tax increases, and it ends up shifting costs onto other properties.
