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Tax panel approves federal conformity changes

If a spirit of bipartisan productivity is to be the tenor of this year’s session, then the House Taxes Committee got those efforts off to a successful start Wednesday.

By a unanimous voice vote, the committee approved HF31 — replaced by a delete-all amendment, then further amended — which would conform the Minnesota tax code to several federal changes signed into law since 2019. Sponsored by the committee’s chair, Rep. Aisha Gomez (DFL-Mpls), the bill moves to the House Ways and Means Committee, which plans to consider it Thursday.

Basically, tax conformity is making it so credits, deductions and exemptions available when you file your federal taxes aren’t nullified when you file your state taxes. The bill would bring the state into conformity with 29 recently enacted federal individual income tax provisions, as well as 17 corporate franchise tax provisions.

Rep. Aisha Gomez (DFL-Mpls), the bill's sponsor

Time is of the essence, Gomez said. “A lot of us use software like TurboTax to do our taxes, but we need the Department of Revenue to tell TurboTax what to put on the forms. If we’re going to make changes for this tax year (2022), then we need to move quickly.”

Revenue Commissioner Paul Marquart, who was Gomez’s predecessor as tax committee chair, supports the bill.

“If we can get this into state law by Jan. 13 – of this year, 2023 – it will not disrupt or delay Minnesota state filing deadlines,” Marquart said.

Because the bill would conform with several previous years’ federal changes, amended filings would be an option for many individuals and businesses in the state.

It’s estimated that the changes would reduce state revenue by $99.8 million in the 2024-25 biennium and $3.2 million in the 2026-27 biennium.

The federal tax code has undergone a lot of alterations over the past few years, as complex legislation was signed into law bearing such monikers as the CARES Act, the American Rescue Plan, the Infrastructure Investment and Jobs Act, and the Inflation Reduction Act of 2022.

But the biggest changes in state revenue come from a bill not widely trumpeted when enacted in late-2020: The Consolidated Appropriations Act.

The Department of Revenue estimates that conforming to that law’s provisions would cost the state’s General Fund $57.9 million in fiscal year 2024. Conforming to American Rescue Plan provisions could also prove costly in the short term, reducing state revenues by $31.7 million in fiscal year 2024.

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