The DFL-controlled Minnesota House passed an omnibus bill aiming to hike income tax rates for higher-earners; tax companies’ international income; and exempt from state taxes some federal loans and unemployment benefits during the COVID-19 pandemic.
With a vote of 68-66, HF 991 barely passed on Thursday.
It’s expected to be dead upon arrival to the GOP-dominated Senate, which has repeatedly said it will pass no bill that raises taxes, citing Minnesota’s $1.6 billion surplus and nearly $5 billion in stimulus money on the way from the federal government.
“This is a bill that stands up for those who have been hit hardest by COVID-19,” bill sponsor Rep. Paul Marquart, DFL-Dilworth, said. “It provides over $1 billion in tax cuts and aids directly to our families, workers and small businesses. And we pay for it by creating a better tax code that levels the playing field.”
The bill aims to create a new fifth-tier income tax rate of 11.15% on income above $1 million, or $500,000 for single filers. Proponents estimate the change would bring in $303.6 million in fiscal year 2022, $564 million in the 2022-23 biennium.
A corporate franchise taxes change would tax income of a controlled foreign corporation subject to the state’s apportionment formula, or require it to report its worldwide income. Experts say this would reap $229.6 million in revenue in fiscal year 2022.
The bill is projected to raise $49 billion in revenue for the 2022-23 biennium and dish out $4.2 billion in tax refunds, aid, and credits. That would leave $1.7 billion in the state’s budget reserve account and $100 million in the stadium reserve account, House Session reported.
The bill also seeks to allow exemption of unemployment benefits up to $10,200 for those with gross incomes under $150,000 only for tax year 2020. However, that would apply to millions of Minnesotans, and is estimated to reduce state revenues by $259.7 million.
The plan would exempt the first $350,000 for each Paycheck Protection Program (PPP) loan received. The current corporate tax rate is 9.8%. These PPP provisions would reduce revenues by $241 million in the next biennium.
The Senate has already passed legislation to entirely exempt PPP loans from state taxes, costing roughly $400 million.
Other provisions within the DFL bill include:
- Expanding the state’s tobacco product tax to include electronic vapor devices and subjecting them to a 95% tax on the wholesale sales price;
- Establish a new homelessness prevention fund would provide $25 million in annual aid to counties beginning in fiscal year 2023;
- Set aside $10 million for the small-business investment credit for tax year 2022 and extend its sunset by one year;
- Increase the market value exclusion on the statewide property tax from $100,000 to $150,000;
- Establish a nonrefundable tax credit equal to 25% of eligible film production costs in Minnesota. The credits would be be able to be carried forward for five years.
“This bill sends us in the wrong direction,” Rep. Kristin Robbins, R-Maple Grove, said, House Session reported. “The fifth tier hurts small businesses who pay their taxes as pass-through businesses. And the corporate provisions would make us the only state in the country to move from a water’s-edge state to worldwide combined reporting. This was tried in the ‘80s, and every state that adopted this rejected it. … Companies will move elsewhere if we incentivize them to do so, as this bill does.”
The bill would also establish a taxpayer receipt program. After a Minnesotan enters an income, the website estimates the amount of income, sales, alcohol, tobacco, and motor vehicle fuel taxes paid by the user.
This article was originally posted on Minnesota House passes plan to raise high-earner taxes, exempt some PPP loans and unemployment benefits