House and Senate DFL to battle over progressive tax provisions

The Minnesota House passed a tax bill on Friday that includes a slew of tax changes: large corporations that make $250 million or more in gross domestic sales would have to publicly disclose their tax returns; the child tax credit would include 18-year-olds; and the Department of Revenue would be tasked with creating a state-run tax filing system — mirroring an IRS program — so Minnesotans could e-file their state tax returns for free.

The bill has major differences with the Senate tax bill, however, and the two chambers have just two weeks to hash out differences.

House Taxes Chair Aisha Gomez, DFL-Minneapolis, and Senate Taxes Chair Ann Rest, DFL-New Hope, last year agreed upon a historic $3 billion tax bill that included rebate checks, a significant and highly progressive child tax credit and a number of other influential provisions after some fierce negotiations that saw Rest siding with the business lobby in some key areas. 

The Senate is scheduled to take up its tax bill on Tuesday, after which the House and Senate will meet in conference committee — comprising members of both chambers who gather to find a compromise — that could include some DFL division and drama, though most of the negotiations will occur behind the scenes.

Here are some major differences between the House and Senate tax bills:

House aiming for more corporate accountability

House DFL lawmakers are aiming to force corporations to disclose more about their finances in the face of increasingly opaque tax avoidance strategies by the nation’s biggest companies.

The House tax bill would require large corporations that make $250 million or more in gross domestic sales to publicly disclose their corporate franchise tax returns, meaning it would apply to the biggest corporations that do business in Minnesota, like Amazon and Target.

The bill is unsurprisingly facing fierce opposition from the state’s business lobby and trade organizations. It’s unclear whether Gov. Tim Walz would support corporate tax disclosure; he meets frequently with major executives. The corporate tax disclosure provision is not in the Senate tax bill.

The House tax bill also includes allocating $655,000 to study the impact of what’s called worldwide combined reporting, which would require multinational corporations to pay income taxes based on their entire global profits rather than what they make in the U.S.

DFL lawmakers last year dropped this proposal during the eleventh hour after corporations successfully lobbied lawmakers and Walz to kill it.

Changes to the child tax credit

Last year, the Legislature passed a child tax credit aimed at assisting low-income Minnesota families. The full child tax credit is $1,750 per child, which begins to phase out for married filers who make $35,000 annually and $29,500 for single taxpayers.

This year, the House is proposing expanding the credit to 18-year-olds, and adopting the governor’s “Child Tax Credit Payment Protection Pilot,” a $32 million program that gives families the option to receive the child tax credit in installments throughout the year, rather than in one lump sum.

The program creates a guaranteed minimum credit, meaning those who qualify for the child tax credit one year would be guaranteed to receive up to 50% of the amount for each child in the next tax year, without a tax penalty even if their income goes up. The point is to ensure families aren’t punished even if they find better paying work. 

The Senate tax bill includes nearly $10 million for this child tax credit program, but it’s cheaper since it doesn’t include the eligibility for 18-year-olds and the guaranteed minimum credit has an income ceiling.

Local sales tax changes 

The House tax bill would also create a more equitable distribution of sales tax revenue across all Minnesota cities.

Gomez, who has long argued that local sales tax hikes hurt low-income families and cut against the logic of the “Minnesota Miracle,” is proposing an equalization account that would require cities and counties to contribute 15% of the annual proceeds of their local sales tax into the account. 

The Department of Revenue would allocate the account funds to cities or counties on a needs-basis.

On Friday, Gomez said that the equalization account is needed because cities have different retail economies. A Bloomington local sales tax generates piles of cash because of Mall of America compared to a rural town with few retail options.

“It’s that inequality in sales tax base and resultant inequality in a local government’s ability to meet the needs of their citizens that this equalization fund is designed to address,” Gomez said on the House floor.

This equalization account isn’t in the Senate tax bill.

Other differences

The Senate tax bill, however, does include expanding the definition of snuff tobacco, which would result in a $3 million in revenue for the state’s general fund in the current biennium. The House bill doesn’t have this income generator. 

The Senate bill’s largest expense is a one-time $34 million allocation for sales tax relief on the purchase of supplies used in many public construction projects, which is not in the House’s bill.

The House bill would create a state-run direct tax filing system — similar to H&R Block, Turbotax or IRS Direct File — for Minnesotans to file their state tax returns for free. The program would not work for federal tax returns, however. The House also provides $5 million in one-time funding for local homelessness prevention aid. 

The Senate and House could meet to hash out differences in the bill as early as this week, and the compromise bill will need to be approved by both chambers before it goes to Walz’s desk.