April was a busy month at the capitol. The new liberal House finally put the cards on the table and passed several negative bills strongly opposed by NFIB. The Senate also passed their tax bill and major spending bills, which sets the stage for the critical conference committees that will attempt to broker the 2019 legislative session and the passage of a new two years state budget. Below is an update on critical issues for small business.
The House Acts on Huge Tax Increase! (HF2125- Rep Paul Marquart, Dilworth)
Despite the state running a $1 billion surplus, the liberal House recently passed a $3 billion tax increase over the next four years which falls mostly on business. The bill strongly opposed by NFIB made the following negative changes for small business:
- Makes a negative change to the state general property tax increasing the tax by $176 in fiscal year 2022-23
- Conforms to several provisions of the new federal tax law that eliminate and trim several deductions for pass-through small businesses while offering very little positive. In total, through this conformity, the bill raises $506 million in new taxes in fiscal year 2022–23.
- Imposes a 3% increase in the capital gains tax rate and creates a new top capital gains tax rate in Minnesota of 12.85% for those earning more than $500,000
- Freezes the estate tax threshold at $2.7 million per person which was scheduled to go to $3 million in 2020
The bill did have one positive: it fully conformed to the new section 179 expensing threshold of $1 million per year. Minnesota is far out of conformity on this important deduction. This vote sets the stage for the critical tax conference committee where the House and the Senate are far, far apart.
Senate Tax Bill (SF5/HF2125- Sen. Roger Chamberlin, Lino Lakes)
The Senate also acted on their tax bill which contains many positive provisions for small business but unfortunately also includes the same federal conformity provisions that were in the House bill. Keep in mind, these federal conformity provisions are reducing and eliminating deductions not enacting new tax increases, but some businesses will be negatively affected. Major provisions in the bill include:
- Enacts a significant income tax reduction, reducing taxes by $463 million by fiscal year 2022–23. Specifically, the bill reduces Minnesota’s second income tax bracket by .38% and will be beneficial to many of our members. Our second bracket, which tops out at $154,000 joint filers/87,000 single filers, is the top bracket for many of our members.
- Makes some positive incremental progress on the state general tax, reducing the aggregate amount of the levy by $97 million in fiscal year 2022–23
- Similar to the House bill, finally fully conforms to the new section 179 federal conformity limit. Although, as mentioned, conforms to the various changes in deductions for pass-through companies that were in enacted in the new federal tax law.
NFIB pushed hard to retain one of these past deductions, which is still current Minnesota law— the deduction for interest paid. Based on advice from several CPAs, this was the most important deduction to try to retain. The new federal law limits interest deductions to 30% of taxable income. The previous federal law and current Minnesota law allowed entrepreneurs to deduct up to the amount of their adjusted taxable income. Unfortunately, this provision was not changed.
As mentioned, the House and Senate are far, far apart on their tax bills and NFIB is advising senators that no tax bill is better than a bad tax bill. We will be closely monitoring the tax conference committee.
House Passes 70% Gas Tax Increase! (HF1555- Rep. Frank Hornstein, Mpls)
The House of Representatives recently acted on Governor Walz’s massive gas tax increase. The bill, strongly opposed by NFIB, raises the following new taxes:
- Raises the gas tax a whopping 20-cents per gallon, a 70 percent increase over the next four years, raising it all the way to 48.5-cents per gallon and worse yet, enacts an automatic inflation adjustment on it guaranteeing that the rate will rise additionally every year
- The 20-cent increase alone will move Minnesota from its 28th ranking to the fourth highest in the nation
- Raises the motor vehicle sales tax of 6.5 to 6.87 percent
- Enacts 0.5-cent increase in the metro area sales tax to be dedicated for transit
All totaled, the bill raises transportation related taxes by close to an estimated $11 billion over the next 10 years!
Fortunately, the Senate is standing strong in opposition to this dramatic increase. Their transportation bill continues the current policy of dedicating 230 million dollars per year from the general fund to the important need of transportation. This annual transfer of general funds is equal to a 6.8 cent gas tax increase and provides $2.3 billion dollars in new transportation funding per decade.
House Packs Jobs Bill with Several Negative Provisions (HF2208- Rep. Tim Mahoney, St. Paul)
The House majority did not stop with their large business and gas tax hikes. They also loaded several bad provisions into the annual jobs bill which recently passed. They put the excessive and unworkable paid family leave mandate, paid sick leave mandate, and punitive wage theft bill into this large omnibus bill. NFIB is strongly opposing this legislation.
The family leave legislation, aside from creating a new tax ranging from .486-.6% on $132,900 payroll, is notable due to its close to $1 billion annual cost and the need to create 352 new positions in state government just to manage it! Opponents including NFIB are highly skeptical of the state’s ability to manage this new bureaucracy and point to recent colossal failings with the MNsure and MNLARS programs. The new tax could be split between employers and employees and participants could take up to 12 weeks of both paid family and medical leave equaling 24 weeks in some cases. The maximum benefit would equal $1076, which is the state’s average weekly wage.
The bill also contains a new paid sick leave mandate requiring six days a year for full-time employees with no small business exemption. Finally, the bill also enacts an overly punitive wage theft proposal that does not include reasonable good faith and employer protections for simple mistakes when workers are unknowingly underpaid.
Senate Revives Preemption Bill! (SF 2611- Sen. Eric Pratt, Prior Lake)
Some good news occurred in the Senate recently when Sen. Eric Pratt placed the critical preemption measure in the Senate jobs bill. The bill preempts local units of government from passing minimum wages that are higher than the state wage and from enacting other new employment mandates on employers. It passed the previous legislature but was vetoed by Governor Dayton. The odds are long that a very liberal House and Governor Walz will accept this but it is good to see the Senate pushing a positive agenda item for business. The bill even retroactively repeals the Minneapolis and St Paul $15 per hour minimum wage ordinances and their paid sick leave ordinances.
Reinsurance v. New Premium Subsidy Plan (HF 2414)
Unfortunately, the House wants to scrap our successful reinsurance plan which has saved Minnesota’s individual health insurance market and reduced premiums by 20% on average this year, and instead enact a 20% premium subsidy plan. Their baffling plan rejects the three-year federal waiver already approved by the Trump administration to provide significant subsidies to our current reinsurance plan and could also cause dramatic increases in premiums similar to what we experienced in 2016-17. The federal waiver subsidies could be as much as $100 million per year although it is not a set amount and is based on enrollment numbers and insurer losses.
The Senate has already passed the three-year continuation of the successful reinsurance law and the two plans will clash in conference committee. NFIB is giving strong support to the current reinsurance law which saved our individual market in 2017.
Drastic Changes to Sexual-Harassment Law (HF 2705)
The House has voted twice now to make drastic and unworkable changes to our sexual-harassment law and placed this bad provision in a judiciary finance bill. Thankfully, the Senate does not support this approach and with the help of employment defense counsels, NFIB and others, has developed a very balanced revision bill that will provide more remedies to employees who experience sexual harassment in the workplace but is also fair to employers. This is another one of many issues that will be considered in conference committee and hopefully the Senate will stand strong in opposition to the unworkable House bill.
