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Minnesota House passes plan to raise high-earner taxes, exempt some PPP loans and unemployment benefits

(The Center Square) – 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.


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